As filed with the Securities and Exchange Commission on _________, 1998
                                                     Registration No. 33-
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM S-1
             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

                            ELECTROPHARMACOLOGY, INC.
             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                            <C>                                       <C>       
        Delaware                                                             95-4315412
------------------------       ----------------------------              ------------------
(State of Incorporation)       (Primary standard industrial               (I.R.S. Employer
                               classification code number)               Identification No.)
</TABLE>

                               1109 NW 13th Street
                           Gainesville, Florida 32601
                                 (352) 367-9088
          -------------------------------------------------------------
          (Address, Including Zip Code, and Telephone Number, Including
             Area Code, at Registrant's Principal Executive Office)
                             ----------------------
                                    Arup Sen
                      Chairman and Chief Executive Officer
                            Electropharmacology, Inc.
                               1109 NW 13th Street
                           Gainesville, Florida 32601
                                 (352) 367-9088
            ---------------------------------------------------------
            (Name, address, including Zip Code, and Telephone Number,
                   Including Area Code, of Agent for Service)
                             ----------------------
                                   Copies to:
                              Steven H. Levin, Esq.
                          Goodman, Phillips & Vineberg
                           430 Park Avenue, 10th Floor
                               New York, NY 10022
                                 (212) 588-5500
                             ----------------------
Approximate date of commencement of the proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.

If any of the securities being registered on this Form are to be offered as a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|

If this Firm is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |X|

                         CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
                                                       Proposed Maximum        Proposed Maximum
    Title of Securities            Amount to            Offering Price            Aggregate              Amount of
      to be Registered         be Registered (1)         per Share(2)          Offering Price(2)      Registration Fee
------------------------------------------------------------------------------------------------------------------------
<S>                            <C>                          <C>                 <C>                      <C>      
Common Stock, par value
$.01 per share..............   37,094,452 shares            $0.625              $23,184,031.88           $6,445,16
========================================================================================================================
</TABLE>
(1)      Includes (a) 4,516,623 shares being offered directly by the Company;
         (b) 9,462,828 shares to be offered by certain stockholders of the
         Company from time to time; (c) 6,000,000 shares issuable upon exercise
         of certain rights to receive Common Stock upon exchange of certain
         partnership units; (d) 6,250,000 shares issuable upon conversion of
         Preferred Stock of the Company; (e) 1,165,000 shares issuable upon the
         exercise of warrants; and (f) 9,700,000 shares that may be offered by
         the Company from time to time in the future on a delayed or continuous
         basis or pursuant to certain contingent share earn out rights or
         pursuant to paid in kind dividend obligations.

(2)      Estimated solely for the purpose of calculating the registration fee
         pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
         on the basis of the average of the high and low reported sales prices
         on November 3, 1998.


<PAGE>

         The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

                                       2


<PAGE>



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

                            ELECTROPHARMACOLOGY, INC.

                              CROSS REFERENCE SHEET
                    Pursuant to Item 501(b) of Regulation S-K

<TABLE>
<CAPTION>
                           Form S-1                                             Caption or Locations
                     Item Number and Heading                                        in Prospectus
                     -----------------------                                        -------------
<S>  <C>                                                                   <S>
1.   Forepart of the Registration Statement and Outside Front
       Cover Page of Prospectus............................................Facing Page; Cross Reference Sheet;
                                                                             Outside Front Cover Page of
                                                                             Prospectus; Alternate Front Cover
                                                                             Page of Prospectus

2.   Inside Front and Outside Back Cover Pages of Prospectus...............Inside Front Cover Page of Prospectus;
                                                                             Outside Back Cover Page of
                                                                             Prospectus

3.   Summary Information, Risk Factors and Ratio of
       Earnings to Fixed Charges..........................................."Summary"; "Investment
                                                                             Considerations"

4.   Use of Proceeds.......................................................  "Use of Proceeds"

5.   Determination of Offering Price.......................................  "Plan of Distribution"

6.   Dilution..............................................................  "Dilution"

7.   Selling Security Holders..............................................  "Plan of Distribution"

8.   Plan of Distribution..................................................Front Cover Page of Prospectus;
                                                                             Alternate Front Cover Page of
                                                                             Prospectus; "Underwriting"

9.   Description of Securities to be Registered............................Front Cover Page of Prospectus;
                                                                             Alternate Front Cover Page of
                                                                             Prospectus; "Summary"; "Capital
                                                                             Stock"

10.  Interests of Named Experts and Counsel................................  Legal Matters

11.  Information with Respect to the Registrant............................"Summary"; "Risk Factors"; "Dividend
                                                                             Policy"; "Capitalization"; "Selected
                                                                             Financial Data"; "Management's
                                                                             Discussion and Analysis of Financial
                                                                             Condition and Results of Operations";
                                                                             "Business"; "Management and
                                                                             Advisors"; "Certain Transactions";
                                                                             "Principal Stockholders"; "Description
                                                                             of Capital Stock"; "Shares Eligible for
                                                                             Future Sale"

12.  Disclosure of Commission Position on Indemnification for
       Securities Act Liabilities..........................................   *
</TABLE>

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

* Item is omitted because answer is negative or item is inapplicable


                                                         3

<PAGE>



                     Subject to Completion November 9, 1998

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

                                5,000,000 Shares

                            ELECTROPHARMACOLOGY, INC.
                               1109 NW 13th Street
                           Gainesville, Florida 32609
                                 (352) 367-9088
                             ----------------------

         This is a public offering of shares of Common Stock by the Company.

         The Common Stock is quoted on the OTC Bulletin Board under the symbol
"EPHI". The last sale price of the Common Stock on November 6, 1998 was $.70
per share.

         Investing in the Common Stock involves a high degree of risk. See "Risk
Factors" beginning on page 12.

         Neither the Securities and Exchange Commission or any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

                                                            Per Share      Total
                                                            ---------      -----

Public Offering Price...................................  $             $

Underwriting Discounts and Commissions..................

Proceeds to Company.....................................

         The information is this Prospectus is not complete and may be changed.
We may not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

             The date of this Prospectus is __________________, 1998

                                        4

<PAGE>



                     Subject to Completion November 9, 1998

================================================================================
                                                            ALTERNATE COVER PAGE

                                9,462,828 Shares

                            ELECTROPHARMACOLOGY, INC.
                               1109 NW 13th Street
                           Gainesville, Florida 32609
                                 (352) 367-9088
                             ----------------------

         This is a public offering of shares of Common Stock by the selling
stockholders named in this Prospectus. The Company will not receive any
proceeds from this offering, but will pay all expenses of this offering other
than selling stockholder brokerage commissions.

         The Common Stock is quoted on the OTC Bulletin Board under the symbol
"EPHI". The last sale price of the Common Stock on October November 6, 1998 was
$.70 per share.

         Investing in the Common Stock involves a high degree of risk. See "Risk
Factors" beginning on page 12.

         Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

                                                           Per Share      Total
                                                           ---------      -----

Public Offering Price..................................  $             $

Underwriting Discounts and Commissions.................

Proceeds to Company....................................

         This Prospectus, with a different cover page, also is being used in
connection with the public offering by the Company of ________ shares of Common
Stock. Therefore, certain sections of this Prospectus are not directly related
to the offering of shares by the selling stockholders.

         The information is this Prospectus is not complete and may be changed.
We may not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

             The date of this Prospectus is __________________, 1998

                                        5

<PAGE>



         You should rely only on the information contained in this Prospectus.
We have not authorized anyone to provide you with information different from
that contained in this Prospectus. We are offering to sell, and seeking offers
to buy, shares of Common Stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this Prospectus, regardless of the time of the delivery of this
Prospectus or of any sale of our Common Stock. In this Prospectus, the
"Company", "We", "Our" and "Us" refer to Electropharmacology, Inc., together
with its consolidated subsidiaries (unless the context otherwise requires).

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                    Page
                                                                                    ----
<S>                                                                                 <C>
Prospectus Summary...............................................................     8
Risk Factors.....................................................................    12
Use of Proceeds..................................................................    23
Price Range of Common Stock......................................................    23
Dividend Policy..................................................................    24
Capitalization...................................................................    24
Dilution.........................................................................    25
Selected Financial Data..........................................................    27
Management's Discussion and Analysis of
   Financial Condition and Results of Operations.................................    29
Business.........................................................................    39
Management and Advisors..........................................................    70
Executive Compensation...........................................................    75
Compensation of Directors and Advisors...........................................    76
Employment Agreements............................................................    76
Stock Options....................................................................    78
Limitation of Directors' and Officers' Liability and Indemnification.............    79
Certain Transactions.............................................................    80
Principal Stockholders...........................................................    82
Description of Capital Stock.....................................................    84
Delaware Anti-Takeover Law and Certain Charter Provisions........................    89 
Transfer Agent and Registrar.....................................................    90
Shares Eligible for Future Sale..................................................    90
Plan of Distribution.............................................................    91
Legal Matters....................................................................    92
Changes in and Disagreements with Accountants and Financial Disclosure...........    92
Experts..........................................................................    93
Additional Information...........................................................    93
Index to Financial Statements....................................................   F-1
</TABLE>


         The Company was incorporated in Delaware in 1994. The Company's
         executive offices are located at 1109 NW 13th Street, Gainesville,
         Florida 32601 and its telephone number is (352) 367-9088.



                                        6

<PAGE>



                                EXPLANATORY NOTE

The form of Prospectus filed as a part of this Registration Statement has two
cover pages, the first of which is with respect to an offering of up to
5,000,000 shares of Common Stock to be sold by the Company and the second of
which, the "Alternate Cover Page", is with respect to an offering of up to
9,462,828 shares of Common Stock that may be sold from time to time by certain
selling stockholders of the Company named in the Prospectus. After the effective
date of this Registration Statement, only this Prospectus bearing the first form
of cover page, appropriately completed, will be distributed by the Company and
only the selling stockholders use the Prospectus with the Alternate Cover Page.
Copies of the form of Prospectus bearing the first form of Cover Page will be
filed with the Securities and Exchange Commission, pursuant to Rule 424(b),
within five days after the effective date of the Registration Statement. Copies
of the form of Prospectus bearing the Alternate form of Cover Page, in the exact
form in which it is to be used after the commencement of the public offering of
the shares to which it relates, will be filed with the Securities and Exchange
Commission, pursuant to Rule 424(b), within five days after the commencement of
the public offering of such shares.



                                        7

<PAGE>

                                     SUMMARY

This section is only a summary and does not contain all the information about
our business that may be important to you. You should read the entire
Prospectus, especially the Risk Factors and the Consolidated Financial
Statements, Pro Forma Financial Information and Notes sections, before deciding
to invest in shares of our Common Stock. This summary describes our new business
that emerged as a result of acquiring two other companies, acquiring technology
rights from another company and selling a portion of our old business line. As a
result, the business described in this Prospectus is very different from the
business in which we had previously been engaged.

                               ELECTROPHARMACOLOGY

Our Business: Our business is to develop: (i) drug delivery technologies to
              better deliver pharmaceutical drugs to diseased tissues and (ii)
              drug design technologies to create new drugs aimed at the genes
              and proteins being discovered by scientists as the underlying
              causes of complex diseases. We are focusing on the use of our
              technologies to create products for complex diseases such as
              cancer, chronic tissue damage and inflammation.

Our Concept:  Drug Delivery - Improving the delivery of a drug to diseased
              tissues can reduce side effects and/or allow patients to take
              lower doses of toxic drugs, such as chemotherapeutic drugs for
              cancer or anti-inflammatory drug for arthritis. We are using mild
              electric fields and electromagnetic signals to improve drug
              delivery since these can be applied from outside the body without
              any need for an invasive process like additional surgery or
              injection.

              Drug Design - Our scientists have special expertise in designing
              and chemically synthesizing new drugs that are small molecules
              (like antibotics or chemotherapeutic drugs) as compared to large
              molecules (like the protein drugs made by the biotechnology
              industry). Our design strategy uses new information from
              biomedical research that is revealing the roles of specific genes
              and proteins in complex diseases. Each of our small molecule drugs
              is designed to selectively target a specific gene or a protein in
              order to either treat or detect a disease (or the stage of a
              complex disease).

Our Market:   Complex diseases like cancer, chronic tissue damage (such as
              ulcers, Alzheimer's disease or osteoporosis) or inflammation go
              through multiple stages and involve a complex interplay of
              multiple genes and proteins. As a result, we believe that the
              future of the biopharmaceutical product market will be based on
              delivering the right amount of drug at the right time to diseased
              tissues and using the drug that attacks the right gene or protein
              target for the appropriate stage of a complex disease.

Our Business
Strategy:     We believe that our strength is in rapidly converting new
              technical ideas into product prototypes or new methods of
              treatment or diagnosis. Once we prove the clinical use and define
              the patients for whom our products or methods will have real
              benefit, we intend to form partnerships with larger companies for
              the future development, large scale manufacturing and worldwide
              marketing and sales of the final products. Our drug delivery
              technology can be used with many different drugs and our small
              molecule drug design technology can create drugs to target many
              different proteins and genes. Therefore, our strategy is to form
              partnerships with many companies and achieve broad penetration in
              both the diagnostic and the therapeutic product markets.


                                        8

<PAGE>



Recent Business
Changes:      We recently restructured the Company through a series of
              acquisitions, divestitures and recapitalizations and also entered
              into an agreement with affiliates of Elan Corporation, plc.
              ("Elan"), a large international company that is a world leader in
              drug delivery products and technologies:

              First, we acquired two private biotechnology companies, HealthTech
              Development Inc. ("HTD") and Gemini Biotech LP ("Gemini"). To
              effect the acquisitions, we formed a new partnership, Gemini
              Health Technologies LP (the "Partnership"), that will conduct the
              Company's business. The Partnership is owned by a wholly owned
              subsidiary of the Company and by the partners of Gemini. Pursuant
              to the acquisitions, HTD shareholders received 6,172,095 shares of
              our Common Stock and the partners of Gemini received 6,000,000
              units in the Partnership that they will exchange for 6,000,000
              shares of our Common Stock approximately one year from the date of
              the acquisition. After the exchange, we intend to dissolve the
              Partnership and will have changed our name to Gemini Health
              Technologies Inc.

              We sold our medical device product line called SofPulse to a
              subsidiary of ADM Tronics Unlimited, Inc. ("ADMT"). In
              consideration of the sale of the SofPulse device line, we received
              $150,000 in cash and 1,400,000 shares of ADMT common stock, which
              is traded on the Nasdaq Small Cap Market (stock symbol: ADMT).
              ADMT also issued an additional 1,525,000 shares of its common
              stock to pay about $650,000 of our unpaid bills. ADMT also issued
              us a warrant to purchase more shares of ADMT Common Stock if ADMT
              achieves certain sales goals on the SofPulse device line.

              We issued 1,872,000 shares of our Common Stock in exchange for all
              of our outstanding Preferred Shares and a large number of the
              warrants that we had issued over the past several years. As a
              result of all these transactions, our Company will have
              approximately 18,600,000 shares of Common Stock outstanding after
              the Gemini partners exchange their units in the Partnership for
              shares of Common Stock.

              We acquired from Elan a drug delivery technology, called
              iontophoresis, that uses mild electric current to push drugs
              across the skin. The special feature of Elan's iontophoresis
              technology is a flexible patch that can be shaped to fit any size
              or shape of skin surface anywhere on the body. We made an up-front
              payment of $7,500,000 to Elan and received worldwide rights to the
              technology for skin diseases and wound care. We also will pay
              royalties and additional license fees to Elan from the future
              revenues that we generate when we sell products based on the
              technology. Separately, Elan invested $7,500,000 to buy 7,500
              shares of our Company's Preferred Stock and warrants to purchase
              our Common Stock. Elan also purchased $600,000 of our Common Stock
              (777,202 shares) and agreed to purchase an additional $1,400,000
              of our Common Stock before year-end, which we will use to fund the
              development of our drug delivery and drug design products. Elan
              has the right to nominate a director for election to the Board of 
              Directors of our Company.


                                        9

<PAGE>



              Our Company is incorporated in Delaware and our executive offices
              are located at 1109 NW 13th Street, Gainesville, Florida 32601.
              Phone (352) 367-9088; Facsimile (352) 367-0720.

Common Stock
Offered by Us...................................................5,000,000 shares

The Offering: This Prospectus, with a different cover page, also is being used
              in connection with the offering from time to time by certain of
              our stockholders of up to 9,462,828 outstanding shares of our
              Common Stock.

              The total number of shares of our Common Stock outstanding after
              our offering is expected to be approximately 23,506,000 shares
              (assuming the exchange by the Gemini partners of their partnership
              units for shares.

              Our stock is traded on OTC Bulletin Board ("OTCBB") under the
              symbol "EPHI".

Use of Funds: We plan to use the monies raised by us in this offering to:

              o  advance our drug delivery technologies into human clinical
                 testing;
              o  to grow our library of small molecule drug candidates for our
                 drug design program which is now funded primarily by federal
                 grants and the limited revenues that we generate by providing
                 custom gene and protein synthesis services to researchers and
                 biopharmaceutical companies; and
              o  general working capital.

                 If we do not sell all 5,000,000 shares of Common Stock being 
                 offered by the Company, then we will limit the number of number
                 of product development programs we undertake until we enter 
                 into agreements with corporate partners for these programs.





                                       10

<PAGE>



                             SUMMARY FINANCIAL DATA



<TABLE>
<CAPTION>
                                                                                                              Six Months           
                                           Year Ended December 31,                                          Ended June 30,    
                    -----------------------------------------------------------------------        ---------------------------------
                                                                                  Pro Forma                               Pro Forma
                      1993         1994        1995         1996        1997          1997         1997        1998         1998
                      ----         ----        ----         ----        ----          ----         ----        ----         ----
<S>               <C>          <C>          <C>          <C>          <C>          <C>           <C>         <C>         <C>       
Statement of
Operations Data:

  Total revenue   $   410,373  $ 1,114,228  $ 1,996,663  $ 2,105,762  $ 2,401,249  $    118,018  $1,514,751  $ 435,003   $  416,962

Loss from
  operations       (1,334,185)  (1,946,687)  (2,731,044)  (3,027,392)  (1,602,170)  (13,257,473)   (721,072)  (525,107)  (7,919,017)

Net loss           (1,350,159)  (2,073,883)  (3,069,586)  (2,927,990)  (1,647,917)  (13,338,748)   (719,502)  (560,026)  (7,909,863)

Net loss per
  share, basic and
  diluted (1)           (1.03)       (1.31)       (1.26)       (0.89)       (0.45)        (0.92)      (0.20)     (0.14)       (0.53)

Shares used in the  
  Computation       1,316,528    1,586,303    2,429,880     3,298,849   3,697,611    14,564,287   3,606,388  4,113,328   14,997,403
</TABLE>            

<TABLE>
<CAPTION>
                                                                                                          June 30, 1998
                                                                                                ------------------------------------
                                                                                                  Actual             As Adjusted (1)
                                                                                                  ------             ---------------
<S>                                                                                             <C>                    <C>      
Balance Sheet Data:
Cash and cash equivalents                                                                            64,465            4,064,465
Working capital (deficit)                                                                       (1,811,411)            2,188,589
Total assets                                                                                      1,172,034            5,172,034
Accumulated deficit                                                                             (15,865,337)         (15,865,332)
Total shareholders' equity (deficit)                                                              (612,011)            3,387,989
</TABLE>


(1) As adjusted to give effect to the recent corporate reorganization (see
    "Business - Recent Corporate Reorganization") and Elan Transactions (see
    "Business - Elan Transactions") sale of 5,000,000 Common Shares by the
    Company hereby (after deducting estimated underwriting discounts and
    commissions and the estimated expenses of the Offering) and the receipt and
    application of the estimated net proceeds therefrom at the proposed public 
    offering price of $0.80 per share. See "Use of Proceeds" and 
    "Capitalization".


                                       11


<PAGE>


                                  RISK FACTORS

         Investing in shares of our Common Stock involves numerous risks. You
should not invest in our Common Stock unless you are able to bear a complete
loss of your investment. You should carefully consider the factors described in
this section and other information in this Prospectus before deciding to invest
in shares of our Common Stock. We are uncertain about the future of our business
and, in preparing this Prospectus, have made a number of assumptions and
projections. Many of the factors that will influence our future are beyond our
control. We generally use words like "expect", "believe" and "intend" to
indicate our assumptions and projections that may not prove to be accurate. Any
or a combination of these factors may have a significant adverse effect on our
ability to carry on our business as planned and presented in this Prospectus.
Our assumptions and projections could be wrong for many reasons, including the
primary reasons that are discussed below. As a result, the price of our Common
Stock could be materially and adversely affected from time to time.

Needs for Significant Additional Funds and Uncertainties in Raising Funds

         Discovering, developing, producing, testing and obtaining commercial
         marketing approval from the regulatory agencies for biotechnology and
         pharmaceutical products takes a long time and requires large amounts of
         funds. Although our Company has spent several million dollars in
         developing and acquiring our present technologies, we will still need
         large amounts of money and several years before any of our products are
         marketed. We believe that the funds we hope to raise in this offering,
         federal grant funds, if we receive them, and revenues from selling
         services using our drug design expertise will be enough to fund our
         activities for the next twelve to fifteen months. However we may need
         more funds than we now believe are necessary and we may decide to raise
         more money sooner than necessary in an attempt to accelerate our
         development programs. Some of the major factors that will affect our
         need to raise more money are:

         o        How fast our product development programs proceed in
                  laboratory experiments and in animal and human testings;

         o        Whether we get additional federal grants to fund either the
                  drug delivery projects or the small molecule drug design
                  projects;

         o        Opportunities that we see to expand our service business where
                  we may need to hire additional staff and buy more equipment to
                  satisfy the customer needs and to generate new orders and
                  contracts;

         o        Whether we are able to enter into corporate partnership and
                  licensing agreements with others to progress our product
                  development programs and the terms of these agreements; and

         o        The amount of funds we need to maintain and build our patents
                  and patent applications to protect our intellectual property.

         We intend to raise future funds by borrowing, selling more Common
         Stock, granting licenses or other rights to our products or
         technologies or by entering into other agreements with corporate
         partners or investors. We are not sure that we will be able to raise
         funds on terms that are acceptable

                                       12
<PAGE>

         or favorable to us. If we are unable to raise funds when needed, we may
         have to give up rights to our products or technologies. Alternatively,
         we may have to slow down or stop developing some of our product
         development projects.

Uncertainty About Technologies and Successful Development of Products

         All of our technologies are at an early stage. Neither we nor any other
         company has successfully developed and sold the types of products we
         plan to develop using our technologies. Therefore, there is no
         certainty that we will be able successfully to develop, manufacture and
         market our products. The major product uncertainties include:

         o        We do not know if our drug delivery technology can be used to
                  create or produce a product that will increase the delivery of
                  any drug that will help patients sufficiently enough to
                  justify product approval and manufacturing;

         o        The field of drug design and creating such drugs to target a
                  protein or gene that controls a complex disease is just
                  emerging; and thus we cannot predict if, how or when a small
                  molecule drug will be commercially successful;

         o        The views of the regulatory agencies, like the U.S. Food and
                  Drug Administration ("FDA") and its counterparts in other
                  major countries, about these new drugs are unclear and
                  changing as new information becomes available. We will need
                  extensive laboratory experiments, preclinical animal model
                  studies and human clinical testing to determine the safety and
                  effectiveness of any new product that we try to develop and
                  market. If a product candidate fails at any of these testing
                  stages, then we will not be able to continue developing the
                  product. We cannot predict if we will be able to satisfy all
                  such requirements;

         o        The testing of a product candidate in humans is carefully
                  regulated by FDA guidelines. The human clinical trials are
                  usually conducted in multiple phases, called Phase I, Phase II
                  and Phase III for pharmaceutical drugs and biotechnology
                  products. For medical devices, the trials are staged such that
                  results from an initial small number of patients is first
                  reviewed before testing of the device is allowed on the large
                  number of patients needed to collect all the necessary data.
                  After finishing all treatments, we will need to follow the
                  patients for several months to several years and collect more
                  data. At the end of all data collection, extensive analysis
                  will be needed to determine the benefit to the patient. Based
                  on the analysis, we will need to submit a formal application
                  to the FDA. Each type of product needs a different form of
                  application that needs to be submitted to the FDA. For a drug,
                  it is called a New Drug Application ("NDA"), for biologicals,
                  it is called a Biologic License Application ("BLA") and for a
                  device, it is called a Pre Market Approval ("PMA")
                  application. Unless our application has sufficient data that
                  documents a clear benefit for the patient, and convinces the
                  FDA staff and an advisory panel of specialists of such
                  benefit, we will need to conduct additional testing before the
                  FDA will consider our product for approval. If the follow-on
                  testing does not give us data to demonstrate safety and
                  effectiveness, we will either have to discontinue the product
                  or start over again for a different medical condition;

         o        Even if we can show that a product is safe and effective and
                  are successful in getting approval to sell the product, there
                  are additional governmental regulations about

                                       13
<PAGE>

                  manufacturing processes that we must meet. We cannot be sure
                  whether we will be able to meet all these regulations and,
                  even if we do, the cost of manufacturing may make a product
                  economically unsuccessful;

         o        In most cases, a physician treats a complex disease with a
                  collection of medications and sometimes two medications that
                  are safe when used independently can cause adverse side
                  effects when used in a patient at the same time. If we develop
                  a product that receives approval but causes such side effects
                  in combination with another product, then the use of our
                  product may be restricted or approval may be withdrawn; and

         o        Marketing a pharmaceutical or biotechnology product is
                  difficult and the ability to promote a product for a disease
                  is also regulated by the FDA and other governmental agencies.
                  Therefore we cannot be sure if we will be able to market
                  successfully a product and generate a profit.

Dependence on Corporate Partners

         Our resources and expertise are limited, especially since our
         technologies we are developing have many possible applications in
         different products for different diseases. Our business strategy is to
         form multiple corporate partnerships with larger companies with the
         resources necessary to complete the development of a product and then
         to manufacture and market it. We expect to be dependent on funding from
         these partners and other license fees or, royalties or profit sharing
         from our partners' sales to continue developing our technologies. The
         major risks of these strategies include:

         o        Many, if not most, small companies look for corporate partners
                  and we will face serious competition from these companies.
                  Also, the potential partners' own in-house research and
                  development group will be competing with us for the same
                  resources.

         o        The decision making process in larger companies to take on and
                  continue the development of a product is often different from
                  those of a small company like ours. We cannot predict if our
                  strategy of initial product testing will satisfy a corporate
                  partner to fund ongoing development of our products. After
                  selecting one or more of our products, the partner's
                  development and marketing strategy is likely to be different
                  from ours and will be influenced by factors that we cannot
                  predict and over which we do not have any control. Since we
                  depend upon the steady progress of our products through the
                  development path, a slower path taken by our partner will have
                  a negative effect on our revenues and potential profits. Even
                  after we engage a partner, if the internal strategy of the
                  partner changes they may abandon our products. Regaining the
                  rights to our product and finding another partner may be
                  difficult and cause significant delays in our ability to
                  generate revenues and profits.

         o        Larger companies will explore multiple technologies and
                  products for the same medical condition. Therefore, they are
                  likely to enter into agreements with our competitors for
                  similar products and medical conditions as our products.
                  Depending on how the other products advance, the partner may
                  slow down or abandon our product and terminate the agreement
                  with us.

                                       14
<PAGE>

         o        We intend to leverage each of our technologies with different
                  corporate partners for different medical conditions. Managing
                  a good relationship with multiple partners is a difficult
                  task. At this time we do not have a track record in making and
                  managing corporate partnership agreements.

Uncertainty About Patents, Confidential Information, Trade Secrets and Others'
Rights

         Patent protection for our technologies and products will be a critical
factor in our ability to raise funds by selling our Common Stock in the future
or engaging corporate partners to fund product development. Without the
possibility of reasonable patent protection, it will be difficult for a
corporate partner to justify the time and money investment that is necessary to
complete the development of a product. The major risk factors regarding the
types of technologies and products we are developing include:

o        The rules and criteria for receiving an issued patent to claim
         biotechnology products or processes are still developing and unclear.
         We cannot predict our ability to obtain patent issuance from either the
         United States Patent and Trademark Office or its foreign counterparts.
         We are also not sure as to the scope of the claims that would be
         allowed by the different patent offices. Even after a patent issues,
         another party may challenge it and the patent office may either then
         declare it invalid or reduce the scope of the claim that was originally
         granted. One recent change in the United States Patents and Trademark
         Office has changed the life of validity of a patent. Patents issued or
         filed before June, 1995 are valid for 17 years from the issue date.
         However, patent applications filed after June, 1995 will be valid for
         20 years from the date of filing the patent application and thus may
         have a shorter life if it takes longer than three years from the date
         of filing to receive an issuance. In the biotechnology industry,
         sometimes it takes several years of processing before a patent is
         issued based on a patent application.

o        The cost of prosecuting patents can be high, especially in foreign
         countries where each country has its own office and many offices
         require expensive translation from the original patent application that
         we usually file in the English language. We may not have the financial
         resources to pursue patent protection in all major countries where our
         products may be marketed.

o        Even after we receive a patent, we may still need to obtain licenses
         from others whose patents may be of a broader scope. In addition,
         others may challenge the validity of our patents or assert that we are
         infringing on their patent claims. Even if these activities or
         assertions by others may be incorrect, the process for resolving these
         arguments in the court system is long, expensive and unpredictable.
         Similarly, others may violate our patent rights and start producing a
         competing product. To enforce our patent rights against them in a court
         of law will be expensive. Since the rules and criteria regarding patent
         claims in biotechnology are still evolving, we cannot predict the
         outcome of any litigation with respect to our and others' patent
         rights.

o        If we decide or we are forced to obtain a license for another party's
         patent in order to use our technology, we cannot be sure that such
         other party will agree to give us a license on reasonable terms, if at
         all. In this event, we or our corporate partner may have to abandon the
         development or marketing of the product. Since we expect to be
         dependent upon corporate partners for the development and marketing of
         many of our products, the partner's view about another party's patent
         may be different than ours. If the partner decides that another party's
         patent blocks our products then the partner may stop developing or
         marketing the product even though we may not agree with

                                       15
<PAGE>

         that decision. We will then need to pursue the expensive and time
         consuming process of regaining the rights to our products back from the
         partner and trying to either fund it ourselves or find another
         corporate partner.

         We also rely upon trade secret protection for some of our confidential
         and proprietary information. All of our employees are required to sign
         a confidentiality and non-disclosure agreement prohibiting them from
         disclosing or using our trade secrets or proprietary information.
         However, we cannot guarantee that all employees will abide by the
         agreements, especially after they leave our employment, and such
         agreements are often difficult to enforce.

         As of June 30, 1998, we owned and/or licensed four issued U.S. patents
         and several pending patent applications in the U.S. and some foreign
         countries, including those that we licensed from Elan. Although we have
         pursued and will continue to file and process patent applications and
         have been granted some patents, we cannot be sure that others will not
         develop technologies or products around the scope of our patent claims
         and compete with us. We are aware of a number of pharmaceutical and
         biotechnology companies and many academic researchers working on drug
         delivery and drug design technologies. Many of the companies have
         significantly more cash and other resources than we have. Therefore,
         the risk of competition from many of these companies is substantial.

Intense Competition; Rapid Technological Change; Technological Obsolescence

         The biotechnology and pharmaceutical industry is going through very
         rapid changes as new research and new technical abilities continue to
         create an exploding amount of information, almost on a daily basis.
         Some of this new information may be used by our competitors to create
         products that will compete with our proposed products. In some other
         cases, new information may indicate that one or more of the technical
         approaches on which we are working be unlikely to succeed. Even though
         much of the new information may not definitively prove or disprove the
         potential utility or a likelihood of success, we or our prospective
         corporate partners may have to make decisions based on such
         information. Many of our competitors are in research institutions or
         companies with much greater intellectual and collaboration resources
         than ours. The inventions and product development activities of such
         competitors may make our technology lose its competitive edge or
         obsolete.


Dependence Upon Access to Licensed Technologies and Materials and Information
From Others

         We have licensed the rights to some patents and know-how from third
         parties such as universities and other companies. Some of our product
         development programs and product or technology research programs depend
         on our ability to maintain rights under these licenses. Any license may
         be canceled by the licensor under certain conditions and we cannot
         guarantee that we will continue to be able to maintain all licenses and
         obtain new licenses to other technologies we may need in the future.

         As we try to develop and evaluate our technologies, we will need
         research materials and scientific information that are developed by
         researchers in universities or other companies. We cannot be sure
         whether we will be able to obtain such materials and information in a
         timely manner, if at all.

                                       16
<PAGE>

Financial and Operational Uncertainties

         There are many aspects of our business that lead to unusual
uncertainties in our operating results and financial reports and conditions.
Some of the major ones include:

         Limited Operating History Our Company is at an early stage of
         development, especially as the new entity that we formed by combining
         our Company with HTD and Gemini, selling our SofPulse device business
         and entering into the corporate partnership with Elan. All of our
         technologies are at an early stage of development and our management
         team does not have an operating history of working together, especially
         as we engage in developing our technologies into products and potential
         corporate partnerships.

         History of Operating Losses and Accumulated Deficit Our Company,
         including the Gemini and HTD businesses prior to our acquisition,
         incurred operating losses in each year since inception. As of December
         31, 1997, our total loss since inception was approximately $15.3
         million. When we add the losses incurred by HTD and Gemini, the total
         loss as of June 30, 1998 was approximately $16.4 million. We expect
         that we will have additional losses for at least the next several years
         and that the losses will increase as we expand our research and
         development activities. We also expect that our losses will fluctuate
         from quarter to quarter. We cannot predict the amount of losses or the
         fluctuations, but we believe that these may be substantial. Also, since
         we divested of the SofPulse business, we no longer will generate
         revenues from selling and renting SofPulse.

         The revenue from Gemini's service business using our drug design
         expertise is our only current revenue generating business and is
         considerably less at the present time than our 1997 revenue from
         SofPulse business. The growth in revenue from our service business is
         unpredictable. We expect that most of our revenues for the foreseeable
         future will be from payments from corporate partners if we are
         successful in entering into licensing agreements. However, we cannot
         assure that we will be able to form any corporate partnerships that
         create such revenues.

         Profitability and Value of Business Components Uncertain It is unlikely
         that we will generate any profit in the foreseeable future. Even if we
         report profits in some of our quarterly or annual financial reporting
         periods, in many cases these will be one time payments from corporate
         partners. Therefore, you will not be able to judge or predict the
         financial condition of our Company based on these reports. Similarly,
         traditional methods used in producing financial statements and
         determining profits and losses of businesses are not applicable to our
         business.

         The value of the intangible or tangible assets obtained in our
         acquisitions of HTD and Gemini and pursuant to our agreement with Elan
         cannot be determined by traditional accounting methods. In each case,
         we have made an effort to estimate the relative future potential of
         each technology and the current stage of development of the technology.
         In each agreement, we negotiated the number of Common Stock or
         Preferred Stock or warrants that we issued to acquire the technology
         and the related patents, know-how and trade secrets based upon our
         assessment of the values of such technologies.

         In preparing our pro forma financial statements for this Prospectus, we
         have attempted to estimate the length of time and cost to advance each
         of our technologies to the point at which they are ready for a
         licensing agreement that could then lead to a potential commercial
         product. Although we have

                                       17
<PAGE>

         used our experience and observation in the industry, the results are
         only estimates. We are not sure if the valuation or the allocation of
         the purchase price in the pro forma financial statements is correct
         since we cannot predict the outcome of any technology at this early
         stage of development. Therefore, our presentation of the pro forma
         financial statements may not accurately predict the outcome of our
         business. See "Pro Form Financial Information".

         Our decision to divest the SofPulse device business was based on
         historical revenues and cost of manufacturing, repairing, renting and
         sales and marketing of the SofPulse device. We, however, cannot be sure
         that these historical results predict what the financial impact would
         have been had we continued the business. As a result, we cannot be sure
         if the value we received for the SofPulse business is fair, especially
         since we received the majority of the consideration in the form of ADMT
         Common Stock and warrants. The price of ADMT stock has been volatile.

         Changes in our Company's ownership that have occurred as a result of
         the recent transactions and the Internal Revenue Code of 1986 and its
         amendments will impose limits on our ability to utilize our net
         operating loss carry forwards and research and development credits for
         future federal income tax purposes. See "Management's Discussion and
         Analysis of Financial Condition and Results of Operations."

         Our future operating results may fluctuate significantly from quarter
         to quarter as a result of several factors. The significant ones are:

         o        Demand or changes in the demand for our technologies and
                  products based on such technologies;
         o        The uncertainties of medical technology and product
                  development efforts;
         o        Changes in the priorities and research and development budgets
                  of our future corporate partners;
         o        Variations in payments from future corporate partners, if any,
                  grants and contract revenues and the service business;
         o        The cost, quality and availability of materials and reagents
                  for our research and development programs; and
         o        General factors such as regulatory actions and the need to
                  adopt new technologies in our research and development
                  activities.

         If our revenue in a particular period does not meet expectations, we
         may not be able to adjust significantly our expenses in that period.
         This would have an adverse effect on our operating results. We believe
         that quarterly comparisons of our Company's financial results will not
         necessarily be a meaningful indication of our future performance. Due
         to one or more of these factors, in some future quarter or quarters our
         operating results may be below the expectations of public market
         analysts and investors.

Valuation of Acquired Businesses, Technologies and Licenses, Divested
Product(s), License Grants

         The success of our business and the achievement of our financial
         objectives are unpredictable. Any determination of potential return on
         investment in our Common Stock will be affected by a variety of factors
         including:

                                       18
<PAGE>

         o        The value we have paid for any of the businesses or licenses
                  that we have acquired;
         o        The consideration we have received for any product or
                  technology licenses that we have granted to a third party
                  relative to the actual realizable value of the product or
                  technology;
         o        The consideration we pay for any future technology or product
                  or business that we acquire; and
         o        The consideration that we receive from a future corporate
                  partner or a third party for different market applications of
                  our technologies or products.

         The determination and financial reporting of these elements is
         difficult because of the early stage of development of our current
         technologies and the technologies we expect to acquire for the
         foreseeable future. Therefore, many of the standard criteria used in
         estimating return on investment are not applicable to our business for
         the foreseeable future.

Dependence on Key Personnel

         We are highly dependent on the principal members of our management and
         scientific staff and our scientific advisory board. The loss of the
         services of any of these persons could significantly impede our ability
         and timing to accomplish our scientific and business objectives. Our
         success is also dependent upon our ability, on an ongoing basis, to
         attract and retain additional qualified scientific, clinical, marketing
         and managerial personnel. We face substantial competition from
         biotechnology, pharmaceutical and health care companies, universities,
         government entities and non-profit organizations for such personnel. We
         cannot be sure that we will retain or attract and assimilate highly
         qualified scientific, technical and managerial personnel from such
         other entities many of which have significantly greater financial
         resources that we may need in the future.

Social and Ethical Issues Related to Gene-Based Products

         We and our corporate partners may seek to develop diagnostic products
         based on small molecule drugs that are designed to detect small changes
         ("mutations" or "polymorphisms") in some disease-controlling genes. The
         prospect of broadly available gene-based diagnostic tests raises issues
         regarding their appropriate utilization and the confidentiality of the
         information provided by such testing. It is possible that
         discrimination by third party payors, based on the results of such
         testing, could lead to the increase of premiums by such payors to
         prohibitive levels, outright cancellation of insurance or unwillingness
         to provide coverage to individuals showing unfavorable gene expression
         profiles. Similarly, employers could discriminate against employees
         with gene expression profiles indicative of the potential for high
         disease-related costs and lost employment time. Finally, government
         authorities could, for social or other purposes, limit or prohibit the
         use of such tests under certain circumstances. These social, ethical
         and financial issues are unpredictable as is their impact on our
         ability to develop successfully the applications of some of our
         technologies.

Uncertainty Related to Product Pricing and Reimbursement; Managed Care

         Our or our corporate partners' ability to commercialize our products
         successfully will depend in part on the extent to which governmental
         authorities (such as the United States Health Care Financing
         Administration), private health insurers and other organizations such
         as health maintenance organizations ("HMOs") agree to reimburse for the
         ultimate products and related treatments. The levels of revenues and
         profitability of pharmaceutical companies may be affected by the
         continuing

                                       19
<PAGE>

         efforts of governments and third party payors to contain or reduce the
         costs of health care through various means including by limiting prices
         paid for pharmaceuticals. In both the United States and elsewhere, the
         sale of prescription pharmaceuticals and diagnostics are dependent in
         part on the availability of reimbursement to the consumer from third
         party payors, such as government insurance programs (Medicare and
         Medicaid) and private and corporate health insurance plans. Third party
         payors are increasingly challenging the prices charged for
         pharmaceuticals and diagnostics and, in some cases, refusing payment
         for off-label use and other uses of pharmaceuticals and diagnostics
         they deem inappropriate. The cost containment measures that health care
         providers and third party payors are instituting and any proposed
         future health care reform measures, including reductions in government
         reimbursement programs such as Medicare and Medicaid, could affect our
         or our partners' ability to sell our products.

Absence of Manufacturing, Marketing and Sales Experience; Reliance on Third
Parties

         We have made no investment in manufacturing, marketing or product sales
         resources. We do not generally expect to engage directly in the
         manufacturing, marketing or sale of therapeutic or diagnostic products
         developed from our technologies. Instead, we currently intend to
         contract with others to pursue manufacturing and marketing of most
         products based upon or discovered using our technologies. We cannot be
         sure that we will be able to enter into such arrangements on acceptable
         terms, if at all. To the extent we directly engage in development,
         manufacturing and marketing of any of our products, we will require
         substantial additional funds, personnel and production facilities. We
         have no experience in scale-up production, formulation, and
         manufacturing biotechnology, pharmaceutical or other products or in
         conducting testing programs required to obtain FDA and other regulatory
         approvals. We have no assurance that we will successfully develop such
         capabilities.

Product Liability and Availability of Insurance

         Our business will expose us to potential product liability risks that
         are inherent in the development, testing, manufacturing, sales and
         marketing of pharmaceutical and other therapeutic or diagnostic
         products and services developed. Preclinical testing, clinical trials,
         manufacturing, marketing and sale of any of the products based on our
         technologies may expose us to liability claims from the use of such
         products. We currently do not carry product liability insurance for any
         of our products. There can be no assurance we or our corporate partners
         will be able to obtain such insurance, if at all, at a reasonable cost.
         The inability to obtain sufficient insurance coverage at an acceptable
         cost or to otherwise protect against potential product liability claims
         could prevent or inhibit us and our partners from advancing our
         products and technologies towards commercial success.

Control by Management and Insiders

         Upon completion of this offering, our executive officers, directors and
         affiliated individuals and entities together will beneficially own
         approximately 51.3% of the outstanding shares of our Common Stock
         (assuming exchange of the partnership units owned by the Gemini
         partners for shares of our Common Stock). If Elan converts its
         Preferred Stock and exercises its warrants, such percentage will be
         reduced to 39.8% and Elan will own 31.0%. As a result, these
         stockholders, acting together, will be able to control most matters
         requiring approval by the stockholders of our Company, including
         approvals of amendments to our Certificate of Incorporation, mergers
         and acquisitions, a sale of all or substantially all of our assets of
         our Company, going private transactions

                                       20
<PAGE>

         and other fundamental transactions. In addition, our Certificate of
         Incorporation, or any contemplated amendment or restatement, does not
         provide for cumulative voting with respect to the election of
         directors. Consequently, the present executive officers, directors and
         affiliated individuals and entities, through their stock holdings, will
         be able to control the election of the members of our Board of
         Directors. Some of the principal stockholders of the Company have
         entered into an agreement pursuant to which they agree to vote their
         shares in favor of each other's candidates for the Board of Directors
         (see "Certain Transactions"). Such a concentration of ownership could
         (i) reduce the liquidity of our shares of Common Stock, (ii) have an
         adverse effect on the price of our Common Stock and (iii) delay or
         prevent a change in control of our Company, including transactions in
         which stockholders might otherwise receive a premium for their shares
         of Common Stock over then current market prices.

Limited Prior Public Market for Common Stock; Possible Volatility of Stock Price

         Prior to this offering, there has been only a limited public market for
         our shares of Common Stock. Our shares of Common Stock had been listed
         on the Nasdaq Small Cap from May, 1995 through October, 1997 when they
         were de-listed because we did not meet the listing requirements
         concerning minimum asset and working capital, the minimum value of
         public market float and the trading price for our Common Stock (see
         "Price Range of Common Stock"). Our shares now trade on a limited basis
         on the NASDAQ OTC Bulletin Board ("OTCBB"). We cannot be sure that an
         active public market for our shares of Common Stock will develop or
         that the share price will not decline below the price at which you buy
         our shares in this offering. Therefore, it may be difficult for you to
         sell our shares of Common Stock when you desire in the future.

         The price for the sale of our shares of Common Stock in this offering
         will be decided through negotiations between us and the buyers of our
         shares in this offering. The share price does not necessarily predict
         the share price after this offering. The market prices for
         biotechnology and pharmaceutical company shares have been highly
         volatile. There also are large changes in both the volume and the price
         of a company's shares regardless of the operating performance of the
         company itself when the industry segment as a whole goes through
         changes in market perception. Overall changes in market perception are
         influenced by a number of factors such as (i) announcements of
         technological innovations or new commercial products, (ii) disputes
         about patents and other rights or law suits, (iii) developments in
         corporate partnership agreements, (iv) publicity on actual or potential
         results of products or technologies under development, (v) regulatory
         guideline changes in both the United States and foreign countries and
         (vi) public concern as to the competitive superiority of new
         technologies. In addition to these general changes, the price and
         liquidity of our shares of Common Stock will be affected by quarterly
         fluctuations in our operating results, future sales of large numbers of
         our shares of Common Stock by existing stockholders and comments about
         our Company by securities analysts, if any.


Shares Eligible for Future Sale; Potential Adverse Effect on Stock Price; Option
Grants

         Future sales of shares of our Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. Upon completion of this offering, our Company will have 17,505,480 shares
of Common Stock, assuming no exercise of currently outstanding options or
warrants and no exchange of partnership units or Preferred Shares into shares of
Common Stock. All of these shares will be freely

                                       21
<PAGE>

transferable without restriction under the Securities Act of 1933, as amended
(the "Securities Act"), unless they are held by "affiliates" of our Company as
that term is used in the Securities Act and the regulations promulgated
thereunder. See "Description of Capital Stock--Registration Rights," "Shares
Eligible for Future Sale".


Dilution

         If you purchase shares of our Common Stock in the offering contemplated
in this Prospectus, your investment in the shares you purchase will experience
immediate and substantial dilution in the net tangible book compared to the
price you pay to purchase the shares. Even more dilution will occur when holders
of outstanding options and warrants for our Company's Common Stock exercise
their rights. See "Dilution" and "Shares Eligible for Future Sale."


Absence of Cash Dividends

         Our Company has never paid any dividends and does not anticipate paying
dividends in the foreseeable future. See "Dividend Policy."




                                       22
<PAGE>

                                 USE OF PROCEEDS


         We estimate that the net proceeds from this offering we receive will be
approximately $4,000,000 at an offering price of approximately $.80 per share
and after deducting estimated offering expenses.

         We intend to use the net proceeds of this offering to fund initial
preclinical and clinical evaluation of our drug delivery technologies for
selected cancer and dermatology products, to produce additional small molecule
drugs, to further grow the service business using our drug design expertise,
and for working capital and general corporate purposes, including payment for
professional services (primarily legal and accounting) received by our Company.

         Our management team will retain broad discretion in the allocation and
reallocation of these net proceeds. In addition, we may decide to use a portion
of the net proceeds to acquire or invest in certain technology and product
opportunities, although we have no current agreements or commitments for any
such activity. The actual amounts and timing of such expenditures for each
purpose will depend on factors such as the progress of our research and
development program in each area, technological advances, determination as to
the commercial feasibility of products or services, the terms of any corporate
partnership agreements that we enter into and other factors, many of which are
beyond our Company's control.

         Pending such uses, we intend to invest the net proceeds of this
offering in short-term, interest bearing, investment grade securities.


                           PRICE RANGE OF COMMON STOCK

         From May 12, 1997 to September 23, 1997, the Company's Common Stock was
traded on the Nasdaq Small Cap Market under the symbol "EPHI." On September 23,
1997, Nasdaq notified our Company that our stock would be delisted from the
NASDAQ SmallCap Market as of the close of business on September 23, 1997 due to
noncompliance with the minimum capital and surplus requirement and minimum value
of the public market float and trading price of our shares. The shares of our
stock is now trading on the NASDAQ OTC Bulletin Board under the symbol "EPHI".
The following table sets forth, for the periods indicated, the range of high and
low bid quotations for our Common Stock as reported by Nasdaq. However, our
Common Stock generally is not actively traded or is traded in low volumes.
Therefore, we can not be sure that market quotations for our Common Stock are
indicative of prices at which actual sales of these shares will occur. These
quotations represent inter-dealer prices, without retail markup, markdown or
commissions, and do not necessarily represent actual transactions. Further, we
cannot be sure that a public trading market for the Company's Common Stock will
continue to exist.

                                       23
<PAGE>

                                                       High          Low
                                                       ----          ---

         Fiscal year ended December 31, 1996:
         ------------------------------------
              First Quarter                           $7.875        $6.25
              Second Quarter                          $6.75         $5.50
              Third Quarter                           $6.00         $5.50
              Fourth Quarter                          $6.00         $2.00

         Fiscal year ended December 31, 1997:
         ------------------------------------
              First Quarter                           $6.50         $2.00
              Second Quarter                          $3.50         $1.72
              Third Quarter                           $2.00         $0.38
              Fourth Quarter                          $1.19         $0.23

         Fiscal year ended December 31, 1998:
         ------------------------------------
              First Quarter (through March 31)        $0.47         $0.27
              Second Quarter                          $0.80         $0.29


         On November 5, 1998, the closing price of our Common Stock on the OTC
Bulletin Board was $.70 per share. As of such date, there were approximately 81
registered stockholders of record of our Common Stock. To date, we have not
declared or paid any cash dividends on our Common Stock.


                                 DIVIDEND POLICY

         We have never declared or paid any cash dividends on our Common Stock
and we do not anticipate doing so in the foreseeable future. Our plan is to
retain any future earnings to fund the development of our products and
technologies.


                                 CAPITALIZATION

         The following table sets forth the capitalization of our Company as of
June 30, 1998 and as adjusted to reflect the sale of 5,000,000 shares of Common
Stock that we are offering to sell under this Prospectus at the proposed 
offering price of $.80 per share and the application of the estimated net 
proceeds that we expect to receive. See "Use of Proceeds".



                                       24
<PAGE>
<TABLE>
<CAPTION>

                                                                                           June 30, 1998
                                                                                ----------------------------------
                                                                                   Actual          As Adjusted (3)
                                                                                   ------          ---------------
<S>                                                                             <C>                  <C>
Short-term debt, including current portion of long-term liabilities (1)             719,276              143,711
                                                                                -----------          -----------
Long-term debt, net of current portion (1)                                           90,260            1,023,051
                                                                                -----------          -----------
Shareholders' Deficiency

   Convertible Preferred Stock, $.01 par value - 10,000,000 authorized (2)            2,430               75,000

   Common Stock, $.01 par value - 30,000,000 authorized shares;                      41,325              149,992
      4,132,493 shares issued and outstanding

   Additional paid-in capital                                                    15,277,249           26,671,770

   Deferred compensation                                                            (67,678)             (67,678)

   Deficit                                                                      (15,865,337)         (27,158,579)
                                                                                -----------          ----------- 
Total shareholders' deficiency                                                     (612,011)            (329,495)
                                                                                -----------          ----------- 
Total capitalization                                                                197,525              837,267
                                                                                -----------          -----------

</TABLE>

(1)  See Note 6 of notes to Financial Statements
(2)  See Note 8 of Notes to Financial Statements
(3)  Assumes merger of HTD,  acquisition of Gemini, divestiture of SofPulse 
     business and investment by Elan. See Notes 1 through 5 to Pro-Forma. In 
     addition, assumes financing of additional $2,000,000 at $.80 per share


                                    DILUTION

         The pro forma net tangible book value of the Company as of June 30,
1998 was $(39,482) or $(0.0019) per share of our Common Stock. Pro forma net
tangible book value per share represents the amount of (A) our Company's total
tangible assets less total liabilities, divided by (B) the total number of our
shares of our Common Stock outstanding after closing the recent corporate
reorganization as of August 24, 1998 assuming Gemini partners exchange their
partnerships units for shares of Common Stock and also assuming the recent
divestiture of the SofPulse business and assuming the recent licensing and
financing by Elan. (See "Business - Recent Corporate Reorganization" and
"Business - Elan Transactions").

         Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in this offering and the net tangible book value per share of Common Stock
immediately after completion of this offering. After giving effect to the sale
by the Company of 2,500,000 shares of Common Stock offered hereby at the public
offering price of $0.80 per share and assuming no other changes in the net
tangible book value after August 24, 1998, the Company's pro forma net tangible
book value as of August 24, 1998 would have been $1,896,864 or $0.1084 per
share. This represents an immediate increase in pro forma net tangible book
value of $2,000,000 or $0.1153 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $103,136

                                       25
<PAGE>

or $0.6916 per share to new purchasers of Common Stock in this offering, as
illustrated by the following table:


   Offering price per share                                             $0.8000

       Pro forma net tangible book value per share          $(0.0069)

       Increase per share attributable to new investors       0.1153
                                                            --------
   Pro forma net tangible book value per share after the
       Offering                                                         $0.1084
                                                                        -------
   Dilution per share to new investors                                  $0.6916


         The foregoing computations excludes options and warrants to purchase
2,361,359 Common Shares at various exercise prices ranging from $0.26 to $5.50
per share. To the extent that such options and warrants are exercised, there
will be further dilution to new investors. See "Management - Directors
Compensation", "Stock Option Plan", and Note 9 to Notes to Consolidated
Financial Statements.

                                       26


<PAGE>


                             SELECTED FINANCIAL DATA

         The selected financial data presented below for the years ended
December 31, 1996 and 1997 and the six month periods ended June 30, 1998, and
1997 are derived from the Company's financial statements audited by independent
auditors, which are included elsewhere in this Prospectus. The statement of
operations data for the six months ended June 30, 1998 and the balance sheet
data at June 30, 1998 have been derived from unaudited financial statements;
however, the Company's management believes that such financial statements
include all adjustments, consisting only of normal recurring adjustment, that
the Company considers necessary for a fair presentation of the financial
position and results of operations for these periods. Operating results for the
six months ended June 30, 1998 are not necessarily indicative of the results
that may be expected for the entire year ended December 31, 1998. The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements related thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>

                                                     INCOME STATEMENT DATA
                                                     ---------------------

                                    Six Months
                                  Ended June 30,                                Year Ended December 31,
                             -----------------------    ---------------------------------------------------------------------
                               1998          1997         1997           1996           1995          1994           1993
                               ----          ----         ----           ----           ----          ----           ----
<S>                          <C>          <C>           <C>            <C>            <C>           <C>             <C>
Historical:
-----------
Total revenue                $ 435,003    $1,514,751    $2,401,249     $2,105,762     $1,996,663    $1,114,228    $   410,373

Loss from operations          (525,107)     (721,072)   (1,602,170)    (3,027,392)    (2,731,044)   (1,946,687)    (1,334,185)

Net loss                      (560,026)     (719,502)   (1,647,917)    (2,927,990)    (3,069,586)   (2,073,883)    (1,350,159)

Net loss per share,
  basic and diluted (1)          (0.14)        (0.20)        (0.45)         (0.89)         (1.26)        (1.31)         (1.03)

Weighted average number of
  common shares outstanding,
  basic and diluted          4,113,328     3,606,388     3,697,611      3,298,849      2,429,880     1,586,303      1,316,528

Ratio of earnings to
  fixed charges                   *            *             *              *             *              *              *

</TABLE>

* Earnings are inadequate to cover fixed charges.



                Pro forma (assuming the consummation of the Corporate
                Reorganization Transactions occurred on January 1, 1997)

<TABLE>
<CAPTION>

                                                              Six Months Ended         Year Ended
                                                                  June 30,            December 31,
                                                              ----------------        ------------
                                                                    1998                  1997
                                                                    ----                  ----
                <S>                                          <C>                     <C>
                Total Revenue                                $    416,962            $   118,018

                Net Loss                                     $  7,893,573            $13,322,458

                Net loss per share
                       Basic and fully diluted               $  0.54                 $  0.91


</TABLE>

                                       27

<PAGE>
<TABLE>
<CAPTION>

                                                      BALANCE SHEET DATA
                                                      ------------------

                              Six Months
                             Ended June 30,                       Year Ended December 31,
                             --------------       -------------------------------------------------------------
                                  1998            1997           1996          1995          1994          1993
                                 -----            ----           ----          ----          ----          ----
<S>                          <C>            <C>            <C>            <C>            <C>            <C>
Cash and cash
  equivalents                $     64,465   $    111,496   $    223,523   $ 3,069,748    $   478,903   $   655,111

Working capital (deficit)      (1,181,411)      (895,532)       192,832     2,824,190     (1,189,841)       69,171

Total assets                    1,172,034      1,443,542      2,213,080     4,877,180      1,866,340     1,423,325

Long-term liabilities              90,260             --          3,336        28,033      1,076,159            --

Accumulated deficit           (15,865,337)   (15,305,311)   (10,118,169)   (7,190,179)    (4,120,593)   (2,046,710)

Total shareholders
  "Equity" (deficit)             (612,011)       (74,936)     1,214,375     4,012,387     (1,076,484)      693,580

<CAPTION>

                                                                                  June 30, 1998
                                                        --------------------------------------------------------------
                                                                              Pro forma (assuming the consummation of
                                                                             the Corporate Reorganization Transactions
                                                           Actual                      on June 30, 1998)
                                                          --------           -----------------------------------------
<S>                                                     <C>                                 <C>
Working capital                                         $(1,181,411)                        $2,365,713

Total assets                                            $ 1,172,034                         $4,582,864

Long-term debt, redeemable Preferred Stock, and
  capitalized lease obligations (including current
  maturities)                                           $    92,690                         $4,761,000

Stockholders' equity                                    $  (612,011)                        $ (103,136)

</TABLE>


                                                        28

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

         The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains certain forward-looking statements
which involve risk and uncertainties. Actual events and results may differ
materially from those anticipated in these forward looking statements as a
result of various factors, including the matters set forth under the caption
"Risk Factors" and elsewhere in this Prospectus.

         Gemini Health Technologies Inc. was created through a series of
transactions with the goal to create a unique biotechnology company focused on
the development of proprietary products with significant commercial potential
worldwide. We also intend to grow through acquisitions of businesses in the
field of biotechnology that would provide near-term revenues.

         We have invested more than fifteen million dollars in conducting
pre-clinical and initial clinical evaluations. Unlike early development stage
biotechnology companies, the Company has running operations as well as academic
collaborations that we believe we have to be a cost-effective means to create
value through the translation of emerging technologies into product prototypes
for defined unmet clinical needs. Our goal is to aggressively pursue corporate
partnerships for the downstream development, large scale manufacturing and
worldwide marketing of our potential products.

         We are exploiting our drug design expertise to offer services to
academic and industrial research laboratories. In addition to providing certain
near-term revenues, these customers are prospective sources for new technologies
and partners for product development. We intend to generate research and
development funding, license fees, royalty payments, manufacturing profits and
equity investments from corporate partners as our primary sources of revenues.

                                       29
<PAGE>

         We intend to sell approximately 5,000,000 shares to raise approximately
$4,000,000 including the sale of $2,000,000 of the Company's Common Stock to
Elan. The funds will supplement our current grant funds and sales revenues from
services using the Company's drug design expertise. The funds will be used to
advance our core technologies through validation in the initial target areas of
application. We intend to seek additional SBIR grants, including Phase II grants
(common average funding at about $500,000 for each grant), and ATP grants. We
believe that upon a successful implementation of our strategic plan we will be
able to obtain additional capital through a combination of larger government
grants, corporate strategic alliances and a follow on public financing.


I.       ELECTROPHARMACOLOGY, INC.
         -------------------------

Recent Change of Business - Discontinued Business and Recent Acquisition

         From 1990 to August 1998, our Company had been engaged in the business
of developing medical device applications for its proprietary pulsed
electromagnetic signals ("PEMS") technology, including primarily the
manufacturing and marketing of a PEMS device called SofPulse. On August 24,
1996, the Company sold its SofPulse business and completed two acquisitions that
transformed it into a biotechnology development Company (See "Business - Recent
Corporate Reorganization"). On September 30, 1998, EPi entered into an agreement
("Agreement") with subsidiaries of Elan Corporation, plc ("Elan") (NYSE: ELN),
according to which EPi has acquired a license from Elan for certain applications
of Elan's flexible iontophoretic patch technology (See -- "Business - Elan
Transactions"). We intend to pursue the application of iontophoresis and PEMS in
enhancing the delivery of drugs and biologics to diseased tissues and promoting
the regeneration of cells in tissues damaged by trauma or chronic diseases. We
intend to use our drug design expertise acquired through our recent transactions
to create novel small molecule drugs that target proteins and genes which
control complex diseases.

         The first embodiment of the Company's PEMS technology was the SofPulse
device ("SofPulse") that was cleared for commercial marketing in January 1991 by
the United States Food and Drug Administration pursuant to a Section 510(k)
premarket notification. SofPulse broadcasts PEMS in the radio frequency range at
27.1 MHZ and was marketed as an adjunct in the palliative treatment of pain and
edema associated with various medical conditions that involve superficial soft
tissue injury.

         The Company commenced commercially marketing the SofPulse device in
early 1992. The Company's principal sources of revenue from SofPulse devices had
been rental fees charged to nursing homes and hospitals and sales to certain
distributors and cosmetic surgeons. Until the sale in August 1998, the Company
had generated only modest revenue from sales and rentals of the SofPulse, which
had achieved only limited market acceptance. As of May 27, 1998, when the
Company entered into a definitive agreement to sell its SofPulse device business
and most of its inventory, the Company had 98 SofPulse devices under rental
agreements at nursing homes. Since inception, the Company's expenses exceeded
its revenues, resulting in net losses of $3,069,586 and $2,927,990 respectively,
for the years ended December 31, 1996 and 1997. As of June 30, 1998, the Company
had an accumulated deficit of $15,865,337. Losses incurred since inception have
been primarily attributable to costs incurred in connection with the design and
development of the Company's products, research and clinical studies on the
SofPulse, manufacturing, marketing literature and advertisement for the
SofPulse, and the hiring of personnel necessary to support the Company's
operations. The Company continues to have high levels of operating expenses
(including salaries of management and marketing personnel) and will be required
to incur significant expenses in connection with research and clinical studies.

                                       30
<PAGE>

         During 1997, the Company's management concluded that it could not
create shareholder value by pursuing on its own both the growth of the SofPulse
device business and the PEMS technology business focused upon drug delivery
devices. Accordingly, the Company has implemented a strategy to create value
from each of the two lines of businesses under separate business structures. On
May 27, 1998 the Company entered into asset purchase agreement with ADM Tronics
Unlimited Inc. ("ADMT") pursuant to which ADMT, a publicly traded Company
engaged in the development and manufacturing of medical electronic devices
acquired on August 24, 1998 most of the Company's SofPulse device units and
certain other assets specifically related to the business of SofPulse device
manufacturing and marketing (see --Business - Recent Corporate Reorganization).
On June 11, 1998 and June 18, 1998, the Company entered into definitive
agreements to acquire HealthTech Development Inc. ("HTD") and Gemini Biotech,
Ltd. ("Gemini"), respectively, two privately held companies engaged in the
design and development of small molecule drugs. As a result of the consummation
of these acquisitions on August 24, 1998, the Company has combined its PEMS
technology development business with a broad portfolio of biotechnologies,
collaborative affiliations with major medical institutions and relationships
with internationally recognized scientists (See "Business - Recent Corporate
Reorganization", "Business - Drug Design" and "Business - Core Technologies").
See also "HTD Financial Statements" and "Gemini Financial Statements" beginning
at pages F-37 and F-55, respectively, for additional information about the HTD
and Gemini acquisitions.

         Under the terms of an Agreement with Elan executed after the corporate
reorganization, the Company received from a subsidiary of Elan a world-wide
license to Elan's non-systemic, flexible iontophoretic patch technology for
non-cosmetic dermatology and wound care applications. The agreement also
envisions the development of a flexible patch version of PEMS technology as well
as a combination patch incorporating iontophoresis and PEMS. The Company has the
world-wide rights to therapeutic applications of the improved PEMS product as
well as combinations of PEMS and iontophoresis in non-cosmetic dermatology and
wound care applications. The Company has made an up-front payment to Elan of
$7,500,000 for the acquisition and transfer of the technology and will pay
prescribed royalties and license fees to Elan based on the Company's future
revenues from the commercialization of the technology by the Company or its
licensees, if any.

         Under the Agreement, another subsidiary of Elan has invested $7,500,000
to acquire shares of the Company's 10% Convertible Preferred Stock and warrants
to purchase up to one million shares of the Company's Common Stock at $2.50 per
share. The 10% Convertible Preferred Stock has a conversion price of $1.20 per
share, subject to certain adjustments for dilution, 10% per year dividends paid
semi-annually in cash or in kind, at the Company's option, and mandatory
redemption after a seven year period, unless the Company has insufficient funds.
In such case, Elan must elect to extend the redemption date to a date acceptable
to the Company or accept Common Stock in lieu of redemption. See "Description of
Capital Stock - Series A Convertible Preferred Stock. The Elan subsidiary also
agreed to invest, upon request by the Company during a 60-day period after
closing of the $7,500,000 investment, $2,000,000 to acquire shares of the
Company's Common Stock at a price equal to the per share price at which the
Company sells up to an additional $2,000,000 of the Company's Common Stock to
other investors or if

                                       31
<PAGE>

no sale is consummated, at the average closing price of the Company's Common
Stock for the 20 consecutive trading days prior to the acquisition, and, in any
event, at a maximum price of $1.375 per share. The Company has agreed to provide
Elan with registration rights for the Common Stock beneficially owned by Elan.
Elan is also entitled to nominate one director to serve on the Company's Board
of Directors.

         The proceeds from the sale of Common Stock offered by this Prospectus
will be used by the Company to pursue the development of the technologies
acquired from HTD and Gemini in large therapeutic markets such as cancer and
inflammation, and for development of the drug delivery technologies in tissue
repair/regeneration (see "Use of Proceeds"). However, there can be no assurance
that the Company will be able to obtain sufficient funds to pursue all of its
intended product development programs (see "Risk Factors").

Corporate Reorganization - Six months ended June 30, 1997 and 1998

         On a pro forma basis, after giving effect to the HTD merger, the Gemini
acquisition, the divestiture of the SofPulse Business, as if all the events had
occurred as of January 1, 1997, the Company's net loss for the six months ended
June 30, 1997 and 1998 would have been $8,219,502 million and ($7,909,863),
respectively. The increase over the Company's actual net loss of ($719,502) and
($560,026) for such periods is primarily attributable to one-time write-offs of
purchased research and development for HTD, Gemini and Elan totaling $11.5
million, which was partially offset by $416,962 of Gemini's revenues from
research grants and sale of oligonucleotides. The Company expects that the
historical expense additions are generally indicative of the increase in the
Company's operating expenses that, going forward, will result from (i) the
expected additional research and development expenses related to the small
molecule drugs for cancer and inflammation, (ii) increased cost of growing the
small molecule and related special service business, and (iii) research and
development programs planned for the drug delivery technologies. In addition,
the Company has no assurance that any additional grant funds will be received or
that there will be any significant increase in revenue from the small molecule
service business and the Company does not expect significant savings from the
elimination of duplicative expenses. There also can be no assurance that future
expenses will be consistent with the 1997 expenses for either the technology
development business of the Company or the businesses of HTD and Gemini.


Results of Operations -Corporate Reorganization

Year ended December 31, 1996 and 1997

         On a pro forma basis, after giving effect to the HTD merger the Gemini
acquisition, and the divestiture of the SofPulse Business as if all the events
had occurred as of January 1, 1996, the Company's net loss for the year ended
December 31, 1997 would have been $13,338,748 million. The increase over the
Company's actual net loss of $1,647,917 million for such periods is primarily
attributable to one-time write-offs of purchased research and development for
HTD, Gemini and Elan totaling $11.5 million offset by $416,962 of grant revenues
and sale of oligonucleotides in 1997. The Company expects that the historical
expense additions are generally indicative of the increase in the Company's
operating expenses that, going

                                       32
<PAGE>

forward, will result from (i) the expected additional research and development
expenses related to the small molecule drugs for cancer and inflammation, (ii)
increased cost of growing the small molecule and related special service
business, and (iii) research and development programs planned for the drug
delivery technologies. In addition, the Company has no assurance that any
additional grant funds will be received or that there will be any significant
increase in revenue from the small molecule service business and the Company
does not expect significant savings from the elimination of duplicative
expenses. There also can be no assurance that future expenses will be consistent
with the 1997 expenses for either the technology development business of the
Company or the businesses of HTD and Gemini.



Results of Operations

Six months 1998 vs. 1997
------------------------

         The Company's revenue for the six months ended June 30, 1998 was
$435,003, compared to $1,514,751 for the six months ended June 30, 1997, or a
decrease of $1,079,748. This 71.3% decrease was primarily attributable to a
$868,608, or 70.7%, decrease in rental revenues in the six months ended June 30,
1998, as compared to the same period in 1997. The Company's rental revenues were
materially adversely affected as a consequence of the issuance on July 18, 1997
by the Health Care Financing Administration ("HCFA") of a national policy of
non-reimbursement by Medicare for all forms of electrotherapy for wound healing.
HCFA was enjoined from implementing this national policy under a ruling by a
U.S. District Court in Massachusetts on November 18, 1997; however, monthly
rental revenues declined substantially. Rental revenues in May 1998 were
$68,418, as compared to $259,437 in May 1997. At May 27, 1998, the effective
date of the transfer of the SofPulse rental and sales revenue to a wholly owned
subsidiary of ADMT, there were 98 units under rental contracts or monthly fixed
fee arrangements, as compared to 391 units at May 1, 1997. (See "Business Recent
Corporate Reorganization"). In addition, the Company had no rental or sale
revenues in June 1998. Revenue from the sales of units also decreased from
$143,000 in the six months ended June 30, 1997 to $42,000 in the comparable
period in 1998. During the six months ended June 30, 1998, the Company sold 12
used SofPulse devices as compared to 29 new and used devices in the first six
months of 1997 of which 10 were sold to National Patient Care Systems ("NPCS")
to fulfill NPCS' obligation to purchase specific minimum monthly quotas pursuant
to a strategic alliance agreement.

         Cost of revenue for the six months ended June 30, 1998 was $138,599,
compared to $202,649 for the six months ended June 30, 1997, a decrease of
$64,050. This 31.6% decrease reflects the decreased number of SofPulse devices
manufactured and sold during the six months ended June 30, 1998, as compared to
the same period in the prior year.

         Selling, general and administrative expenses were $783,537 for the six
months ended June 30, 1998, compared to $1,850,001 for the six months ended June
30, 1997, a decrease of $1,066,464, or 57.7%. This cost decrease reflects a
reduction in consulting expenses in connection with termination agreements as
well as a reduction in the salaries and related benefits associated with
personnel reductions in the sales and marketing, clinical support services and
manufacturing departments. As a consequence of the Company's deteriorating cash
position and its unsuccessful efforts to consummate a financing in late 1996 and
early 1997, the Company underwent a reduction in personnel from 27 to 10
employees by October 1997.

                                       33
<PAGE>

         Research and development expenses decreased to $37,974 for the six
months ended June 30, 1998, compared to $183,173 for the six months ended June
30, 1997, a decrease of $145,199, or 79.3%. This decrease in expense is
primarily attributable to the reduction in basic scientific research involving
PEMS technologies due to the lack of funds available for such research.

         Interest and other income (expense) for the six months ended June 30,
1998, decreased to $(34,919), compared to $1,570 for the six months ended June
30, 1997, primarily due to a $31,067 increase in interest expense. With the
exception of obligations under capital equipment leases, the Company had
outstanding at June 30, 1997, one note payable in the amount of $182,327 to
finance the Company's directors and officers' liability policy. On June 30,
1998, due to its cash flow deficit, the Company had debt outstanding to
directors of the Company in the aggregate amount of $73,926 representing
advances and foregone salary, a note payable to the Company's outside law firm
secured by 55 SofPulse devices in the principal amount of $672,751 for legal
services rendered during 1997 and a note payable in the amount of $136,786 to
finance the Company's directors and officers' insurance policy.

         Interest income for the six months ended June 30, 1998 decreased to
$2,595 compared to $7,152 for the six months ended June 30, 1997 due to the
decrease in funds of the Company available for short term investment in the six
months ended June 30, 1998.

         The above resulted in a net loss of $(560,026) for the six months ended
June 30, 1998, compared to a net loss of $(719,502) for the six months ended
June 30, 1997.


1997 vs. 1996
-------------

         The Company's revenue for 1997 was $2,401,249 compared to $2,105,762
for 1996, or an increase of $295,487. This 14.0% increase was primarily
attributable to a $290,945, or 71.0% increase in SofPulse sales during 1997 as
compared to 1996. Rental revenues in 1997 as compared to 1996 remained
relatively comparable, in part, due to a significant increase in rental revenues
during the first four months of 1997, although 1997 rental revenues were
impacted by three events. In the first four months of the year, monthly rental
revenues increased by 33% to approximately $268,000 in April 1997 as a result of
the reorganization of the Company's sales force in 1996, the expansion of the
Company's domestic geographic coverage and its contract with four additional
representative organizations. Monthly rental revenues during the months of May,
June and July decreased to $130,000 due to the strategic alliance agreement with
NPCS which provided for monthly payments in the amount pf $130,000. On July 18,
1997, after the HCFA announcement denying Medicare reimbursement for the use of
all electrical stimulation, including pulsed electromagnetic fields, in treating
wounds., the NPCA strategic alliance agreement was terminated. As a result of
the HCFA announcement, during the last five months of 1997 monthly rental
revenues declined from approximately $112,000 in August 1997 to approximately
$56,000 in December 1997. At December 31, 1997, there were 101 SofPulse units
under rental contracts or monthly fixed fee arrangements, as compared to 278
units at the end of 1996.

         Revenue from the sales of SofPulse units increased from $409,818 in
1996 to $700,763 in 1997. The increase in sales revenue in the first half of
1997 was primarily attributable to purchases by NPCS, in part to fulfill NPCS'
obligations to purchase specific minimum monthly quotas pursuant to its
strategic alliance agreement. Subsequent to the HCFA announcement and the
termination of the NPCS agreement in July 1997, the Company shifted its
marketing strategy from renting the SofPulse to selling used SofPulse devices

                                       34
<PAGE>

to nursing homes and distributors at significantly reduced prices. Accordingly,
for the year ended December 31, 1997, the Company sold 79 SofPulse devices as
compared to 30 devices in 1996.

         Cost of revenue in 1997 increased $235,505 to $611,702, compared to
$376,197 in 1996. This 62.6% increase reflects the increased number of SofPulse
devices manufactured and sold over the prior year, as well as a $99,518 write
down of the book value of the SofPulse devices for obsolescence and impairment.

         Selling, general and administrative expenses were $3,177,031 in 1997,
as compared to $3,941,235 in 1996, a decrease of $764,204, or 19.4%. This cost
decrease reflects an approximate $688,000 reduction in consulting expenses
related to PEMS research and clinical studies, as well as a decrease of
approximately $285,000 in salaries and related benefits associated with
personnel reductions in the sales and marketing, clinical support services and
manufacturing departments during 1997. In a further attempt to contain costs
after revenues declined subsequent to the HCFA ruling, the Company underwent a
second reduction in personnel to 10 full-time employees in October 1997. In
September 1997, as part of its efforts to enter into a strategic alliance with
another biotechnology Company, the Company signed a merger agreement with
Eurobiotech Group, Inc., a European development stage biotechnology Company,
which agreement was terminated on December 31, 1997 due to the inability of
Eurobiotech Group, Inc. to meet certain conditions precedent to closing,
including the production of audited financial statements.

         Research and development expense in 1997 decreased to $214,686 from
$815,722 in 1996, a decrease of $601,036, or 73.7%. This decrease in expense is
primarily attributable to the reduction in basic scientific research involving
PRF and PEMS technologies due to the lack of funds available for such research.

         Interest expense increased to $25,135 from $8,933 in 1996. With the
exception of obligations under capital equipment leases, the Company had no debt
outstanding at December 31, 1996; whereas on December 31, 1997, due to its cash
flow problems, the Company had debt outstanding to officers and a former officer
of the Company in the aggregate amount of $73,926 representing advances and
foregone salary, a note payable to the Company's outside law firm secured by 55
SofPulse devices in the amount of $672,751 for legal services rendered during
1997, and notes payable in the amount of $131,428 to finance the Company's
directors and officers' and liability insurance policies.

         Interest income in 1997 decreased to $9,894 as compared to $108,335 in
1996 due to the lack of funds of the Company available for short-term investment
due to its cash flow problems in 1997.


1996 vs. 1995
-------------

         The Company's revenue for 1996 was $2,149,011 compared to $1,996,663
for 1995, or an increase of $152,348. This 7.6% increase was primarily
attributable to increased SofPulse rental revenue during the last half of 1996.
Revenue growth during the first half of 1996 was adversely affected by the
reorganization of the Company's sales organization. That reorganization has been
completed and the Company began to experience improvement from those changes
beginning in October 1996. The Company then expanded its domestic geographic
coverage and contracted with four additional independent representative
organizations. As a result, during the second half of 1996, monthly rental
revenue increased from $112,000 in June 1996 to $202,000 in December 1996, an
increase of $90,000, or 80.4%. By the end of 1996, there were 278 units under
rental contracts, compared to 168 units at the end of 1995.

                                       35
<PAGE>

         Revenue from the sale of units decreased 33.1% from $612,846 in 1995 to
$409,818 in 1996 as a result of the Company's increased emphasis on expanding
the rental base of its SofPulse device.

         Cost of revenue in 1996 increased $152,042 to $376,197, compared to
$224,155 in 1995. This 67.8% increase reflected additional depreciation
associated with the expanded SofPulse rental base.

         Selling general and administrative expenses were $3,941,235 in 1996,
compared to $2,813,389 in 1995, an increase of $1,127,846, or 40.1%. This cost
increase reflected the salaries and related benefits for additional personnel to
support the Company's operations. In the first half of 1996, the Company
redirected its focus from research and development to sales and marketing. Three
full-time physical therapists, a product manager, a national sales director and
two regional sales directors joined the Company, adding to the Company's payroll
expenses. Later in 1996, Joseph Mooibroek joined the Company as its new Chairman
of the Board, President and Chief Executive Officer. (Mr. Mooibroek subsequently
resigned on April 1, 1997. See "Executive Compensation - Employment Contracts,
Terminations of Employment and Change of Control Agreements"). Mr. Mooibroek
received as compensation during fiscal 1996 an aggregate of $224,404 in cash
compensation, 32,903 shares of Common Stock valued on the date of grant at
$94,596, and 592,086 options to purchase shares of Common Stock of the Company.

         Research and development expenses decreased to $815,722 in 1996,
compared to $1,690,163 in 1995, a decrease of $874,441, or 51.7%. This decrease
was primarily attributable to the completion in early 1996 of the Company's
initial clinical trials in connection with the Company's intended submission of
an application seeking approval of SofPulse for certain indications by the FDA,
as well as the reduction of basic scientific research involving PRF and PEMS
technologies.

         Interest expense in 1996 decreased to $8,933 from $463,172 in 1995.
This $454,239 or 98.1% decrease resulted from eliminating substantially all
outstanding debt after the Company completed its initial public stock offering
in May 1995 and changed its capital structure by issuing Preferred Stock and
converting $1,000,000 of debt to Common Stock in November 1995. With the
exception of obligations under capital equipment leases, the Company had no debt
outstanding at December 31, 1996.

         Interest income in 1996 decreased to $65,086, compared to $124,630 in
1995, a decrease of $59,544, or 47.8%. This decrease resulted from the lack of
funds of the Company available for short term investment.

         As a consequence of the Company's deteriorating cash position and its
unsuccessful efforts to consummate a financing in late 1996 and early 1997. The
Company underwent a reduction in personnel from 27 to 10 employees by October,
1997. In order to minimize the adverse effect such reduction in personnel may
have on the Company's ability to generate revenue from marketing and sales
activities, the Company reallocated research and development personnel to
provide marketing support. The Company also focused its sales efforts mostly in
geographic areas where the Company had achieved reasonable market presence.

                                       36
<PAGE>

Liquidity and Capital Resources

         The Company's cash requirements have been and will continue to be
significant. Since its inception, the Company has satisfied its operating
requirements primarily through the issuance of equity and debt securities and
loans from stockholders. At December 31, 1997, the Company had a working capital
deficit of $(899,573) and a deficiency in capital of $74,938. At June 30, 1998,
the Company had a working capital deficit of $1,181,411 and a deficiency in
capital of $612,011.

         Net cash provided by operating activities in 1997 was $99,339 as
compared to net cash used in operating activities of $2,630,218 in 1996. Net
cash was used primarily to fund the losses from operations. Net cash used in
1997 investing activities was $29,186, which was used primarily to pursue and
maintain the Company's patents. At December 31, 1997, the Company did not have
any material commitments for capital expenditures. Net cash used in financing
activities was $186,222 for 1997 as compared to $166,317 of cash provided by
these activities in 1996. Financing activities in 1997 included payments of
capital lease obligations and payments on a note payable to a former officer and
director of the Company. At December 31, 1997, the Company had cash of $111,496.

         Net cash used in operating activities for the six months ended June 30,
1998 was $60,712, as compared to net cash provided by operating activities of
$199,728 for the six months ended June 30, 1997. Net cash was used primarily to
fund the losses from operations. Net cash used in financing activities was
$2,641 for the six months ended June 30, 1998, as compared to $120,393 for the
six months ended June 30, 1997. At June 30, 1998, the Company had cash of
$62,465.

         At December 31, 1997, the Company had a net operating loss ("NOL")
carryforward of $10,719,000 available to offset future taxable income, if any,
through the year 2012. During 1993 and 1995, changes in ownership of greater
than 50% occurred as a result of the Company issuing equity securities.
Accordingly, a substantial limitation will be imposed upon the future
utilization of approximately $2,450,000 of its net operating loss carryforwards.

         The Company expects that its cash needs will continue to increase in
the future periods, primarily because it will incur additional expenses related
to the development of small molecule drugs and the iontophoresis flexible patch
technology licensed from Elan, in addition to its efforts to develop novel
medical applications for its core PEMS technology. Accordingly, the Company will
need to raise substantial additional funds to continue the development and
commercialization of its technologies and products. The future cash needs of the
Company will depend significantly on many factors that relate to the development
of drug delivery and small molecule drug products, including but not limited to,
continued scientific progress in the research and development programs, the
results of research and development; preclinical studies and clinical trials;
acquisition of products and technologies, if any; relationships with corporate
partners, if any; competing technological and market developments; the time and
costs involved in obtaining regulatory approvals; the costs involved in filing,
prosecuting and enforcing patent claims; the time and costs of manufacturing
scale-up and commercialization activities and other factors. (See "Risk
Factors").

                                       37
<PAGE>

         Under the present circumstances, the Company's ability to continue as a
going concern depends on its ability to restructure, improve its operations, and
ultimately, to obtain additional financing. 

         The Company is exploring alternative sources of additional financing.
Other than the proposed sale of $2,000,000 of the Company's Common Stock to Elan
(See -- "Business - Elan Transactions"), no definitive sources of additional
financing have been identified at this time, nor can there be any assurance that
additional financing will be obtained on favorable terms. The Company's ability
to obtain additional financing through issuance of its Common Stock was
negatively affected when Nasdaq notified the Company on September 23, 1997 that
the Company's stock would be delisted from the Nasdaq SmallCap Market as of the
close of business on September 23, 1997 due to noncompliance with the minimum
capital, surplus and public float requirements. The Company is now quoted on the
OTC Bulletin Board, but there can be no assurance, that a public trading market
for the Company's Common Stock will continue to exist.

         The Company cannot predict whether the operating and financing
strategies described above will be successful. If the Company is unable to
restructure and improve its operations and is unable to ultimately obtain
additional financing, it may not be able to continue as a going concern. (See
"Risk Factors").


Impact of the Year 2000

         The Securities and Exchange Commission, in Staff Legal Bulletin No. 5
(CF/IM), has stated that public operating companies should consider whether they
will be affected by any material expenditures, problems or uncertainties
associated with the Year 2000 issue, which affects many existing computer
systems that use only two digits to identify a year in the date field. The
Company believes that the matters raised by Staff Legal Bulletin No. 5 are not
applicable in any material way to its own computer systems and the Company
intends to confirm that any computer systems that the Company may purchase or
lease in the future will have addressed the Year 2000 issue.

         The Company is currently determining the extent to which it may be
impacted by third parties' failure to remedy their own Year 2000 issues. The
Company is having, and will continue to have, formal communications with all of
its significant customers, payers, suppliers, and other third parties to
determine the extent, if any, to which the Company's systems could be impacted
by any third party Year 2000 issues and related remedies. The Company presently
believes that the Year 2000 issue will not pose significant operational problems
for the Company. However, Year 2000 issues could adversely impact the Company if
systems operated by its customers or vendors are not Year 2000 compliant.


Inflation

         The amounts presented in the financial statements do not provide for
the effect of inflation on the Company's operations or its financial position.
Amounts shown for property, plant and equipment and for

                                       38
<PAGE>

costs and expenses reflect historical cost and do not necessarily represent
replacement cost or charges to operations based on replacement cost. The loss
would be higher than reported if the effects of inflation were reflected by
charging operations with amounts that represent replacement costs or by using
other inflation adjustments.



                                    Business

The following Business section contains forward-looking statements which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.

Summary

         Our company (Electropharmacology, Inc. or the "Company") is developing
new medical applications for two proprietary core technologies - drug delivery
and drug design - for complex diseases such as cancer and chronic degeneration
of tissues (for example, arthritis, ulcer and inflammation). Our drug delivery
technologies are designed to improve the effects of drugs by selectively
delivering them to diseased tissues without requiring any invasive approach to
achieve such delivery. We are using our special expertise in design and chemical
synthesis to create a new family of small molecule drugs that target selected
genes or proteins whose roles in different stages of complex diseases are being
unraveled through advances in biomedical research.

         Our two drug delivery technologies listed below take advantage of the
ability of mild electrical currents to travel across and through the skin and of
radio frequency electromagnetic signals to be broadcast through superficial soft
tissues:


         o        We acquired a worldwide license to a flexible iontophoresis
                  patch technology developed by Elan, a world leader in the
                  development of drug delivery products, to increase the local
                  delivery of drugs across the skin by the application of a mild
                  electrical current. This technology has promising applications
                  in improving the effects of drugs in a wide range of skin
                  disorders and wounds.

         o        During the past six years, we developed and demonstrated the
                  use of broadcasting pulses of electromagnetic signals ("PEMS")
                  to increase the local blood flow in superficial tissues. This
                  technology holds significant potential in increasing the
                  delivery of diagnostic agents or therapeutic drugs, taken by
                  injection or orally, carried by the bloodstream to superficial
                  organs (such as the breast, brain and prostate).

         Our drug delivery product development programs will focus on clinical
studies of iontophoresis for dermatology drugs (such as for psoriasis) and PEMS
for agents to treat or image breast or brain cancers. We expect that these
studies will also help us quantify the extent of improvement in the delivery of
topical drugs by iontophoresis and injectable drugs by PEMS. We intend to use
this information to form licensing and joint development agreements with
companies developing biopharmaceutical drugs. In our partnership with Elan,

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<PAGE>

we intend to combine iontophoresis with PEMS in a flexible patch system. This
novel product will be used to enhance the delivery and the activity of drugs in
wound care and the healing of tissues such as arthritis-damaged cartilage.

         For long-term applications of our drug delivery technologies, our
scientists are researching the molecular changes associated with the various
clinical effects reported with PEMS and electrical fields. The results are
expected to lead to applications of PEMS and iontophoresis in "drug
enhancement", which is increasing the sensitivity of treated tissues to drugs.
Drug enhancement should be synergistic with the initial applications of PEMS and
iontophoresis in improving the delivery of drugs.

         Our drug design technology focuses on creating a library of proprietary
small molecule drugs targeted at proteins encoded by genes implicated in complex
diseases such as cancer, inflammation and chronic degenerative diseases of
tissues. We have licensed a family of small molecule drugs and related design
technology from Aronex Pharmaceutical ("Aronex"), a biotechnology company in
Texas, that is developing novel formulations of drugs to treat cancer and
infection. Our drug design program has been funded in part by three Small
Business Innovations Research ("SBIR") grants. We also have used our drug design
expertise to generate revenues by providing contract services to produce
specialized molecular reagents for academic researchers and biopharmaceutical
companies. These revenues have provided additional resources to grow our small
molecule drug library.

         We have two primary objectives in our drug design program:

         o        Continue to grow our small molecule drug library and
                  collaborations with researchers that identify protein or gene
                  targets for these drugs through additional grants or other
                  funding; and upon identifying potential targets, form
                  licensing and co-development agreements with corporate
                  partners to screen our library for various clinical market
                  applications in different territories of the world.

         o        Grow our service business to leverage the growing needs in
                  gene sequencing and other genetic research, novel genetic
                  diagnostics and new drug discovery and evaluation programs.

         Our initial focus in drug design is on two small molecule drugs from
our library that target proteins implicated in malignant cancers and
inflammation. We intend to expand our small molecule drug library to target
clinically relevant proteins or genes for which we can establish high throughput
screening methods that can determine the potential clinical value of drugs. Our
corporate partnerships will focus on larger companies so that we can exploit the
market potential for our small molecule drugs in degenerative diseases (such as
arthritis, Alzheimer's disease and osteoporosis), inflammation, metabolic
diseases (such as obesity and diabetes) and chronic infection-associated
complications. We will focus on growing our service business by capitalizing on
the following trends: (i) the rapid growth in gene sequencing needs in the Human
Genome Project; (ii) product development programs for new chips and microarrays
in the growing gene diagnostics industry; and

                                       40
<PAGE>

(iii) the increasing need for molecular reagents in research on genetic
mechanisms of complex diseases. We may expand our service business to include
analyses of genetically engineered animals, especially mice, that are emerging
as models to study the genetics of human diseases as well as to predict the
safety and efficacy of pharmaceutical products ("pharmacogenomics"). We intend
to use the growing revenues from these services to fund the growth of our small
molecule drug library and acquire know-how to be used by our scientists to
identify new clinical market applications of our drugs.

Recent Corporate Reorganization

         We substantially restructured our business on August 18, 1998 by
closing the following transactions:

         o        We contributed all of the assets and liabilities (other than
                  those assets and liabilities related to our previous business
                  of manufacturing and distributing the SofPulse device for its
                  currently approved medical uses (the "SofPulse Business")) of
                  our company to a newly created wholly-owned subsidiary, EPi
                  HealthTech Inc., a Delaware corporation ("EPi Sub"), in
                  exchange for 100 shares of EPi Sub common stock.

         o        We merged HTD into EPi Sub. HTD was a privately held
                  biotechnology company engaged in the commercialization of
                  emerging medical technologies. We issued an aggregate of
                  6,172,095 shares of Common Stock of our Company to the
                  shareholders of HTD. The number of shares was calculated to be
                  approximately equal to the number of our shares of Common
                  Stock outstanding (6,333,385 shares) on the date of closing,
                  including the 1,872,000 shares that we issued to some of our
                  shareholders in exchange for their warrants, as described
                  below. We also gave the HTD shareholders the right to earn up
                  to an additional 1,650,000 shares of Common Stock in the
                  future if the business previously conducted by HTD achieves
                  certain milestones. The total number of our shares outstanding
                  after this acquisition was 12,505,480.

         o        We acquired Gemini through a complex transaction. Gemini is a
                  privately held biotechnology company with special expertise in
                  small molecule drug design. Gemini had been organized as a
                  Texas limited partnership with Gemini Biotech, Inc. ("GBI"), a
                  Delaware corporation, serving as the general partner. All
                  shares of GBI were owned by Dr. Krishna and Ms. Shashikala
                  Jayaraman. EPi Sub contributed all of its assets and
                  liabilities (both the ones it received from us as described
                  above and the assets and liabilities of HTD acquired as
                  described above) to Gemini Health Technologies L.P., a
                  newly-formed Delaware limited partnership (the "Partnership").
                  EPi Sub received 12,505,480 partnership units of the
                  Partnership. This number of partnership units equaled the
                  total number of our outstanding shares of our Common Stock
                  after issuing the 6,172,095 shares to the shareholders of HTD.
                  Simultaneously, the Jayaramans contributed all of their
                  partnership units of Gemini and all GBI stock to the
                  Partnership. The Jayaramans received 6,000,000 partnership
                  units in the Partnership. We also gave the Jayaramans the
                  right to earn up to 2,050,000 additional partnership units in
                  the

                                       41
<PAGE>

                  future if the business conducted by Gemini achieves certain
                  milestones. These partnership units are exchangeable, subject
                  to certain restrictions, for shares of our Common Stock on a
                  one-for-one basis (subject to adjustments in the case of some
                  material events concerning either our company and/or the
                  Partnership).

         o        We issued 1,872,000 new shares of Common Stock of our Company
                  to the holders of most of our outstanding warrants and all of
                  our outstanding preferred stock in exchange for these warrants
                  and preferred stock.

         o        We sold all of our assets and liabilities relating to the
                  SofPulse Business (which were not transferred to EPi Sub) to
                  AA Northvale Medical Associates, a wholly-owned subsidiary of
                  ADM Tronics Unlimited, Inc. ("ADMT"), a publicly traded Nasdaq
                  Small Cap company. ADMT develops and markets therapeutic
                  medical devices that utilize electrical and ultrasonic energy.
                  ADMT paid our company $150,000 in cash, issued 1,400,000
                  shares of ADMT common stock directly to us and issued an
                  additional 1,525,000 shares of ADMT common stock to pay
                  approximately $650,000 of our past due payables. ADMT also
                  granted us a warrant to purchase additional shares of ADMT
                  common stock if their revenue from the SofPulse business
                  during the next twelve months reaches specified levels. ADMT
                  has agreed to register their shares issued to us and we have
                  the right to sell these shares with some restrictions on the
                  volume we sell during any month.

         The effect of the corporate reorganization is that all of the
businesses previously conducted by our Company (other than the SofPulse
Business), HTD and Gemini are now being conducted by the Partnership and Gemini.
EPi Sub is the general partner of the Partnership and the Jayaramans are the
limited partners of the Partnership. Gemini will remain a Texas partnership
focused on Gemini's small molecule drug business. The Partnership will be the
general partner of Gemini and GBI will remain as the limited partner. The
Jayaramans are expected to exchange all of their partnership units in the
Partnership for shares of our Company Common Stock on or about year from the
close of these reorganization transactions. At that time the Partnership and
Gemini will be liquidated, EPi Sub will be dissolved and all the businesses will
be consolidated into our Company which by then will be named Gemini Health
Technologies Inc.

         Each of HTD and Gemini brought to our Company significant intellectual
property assets that we expect to use in the development of new small molecule
drugs. HTD is primarily developing two technologies - one for drugs designed to
treat the spread of cancer without toxic side effects and the other to create
proprietary genetic databases to identify novel protein and gene targets for our
future small molecule drugs for complex diseases such as cancer, arthritis and
heart disease. Gemini is a leader in the design and chemical synthesis of
therapeutic drugs and diagnostic agents created using "nucleobases", the
building blocks of genes. Gemini has a library of proprietary and exclusively
licensed small molecule drugs for the treatment of cancer and rheumatoid
arthritis. The assets being acquired from Gemini also include an inventory of
research reagents for product development and resale, laboratory equipment and
other fixed assets.

Recent Elan Transactions

         Soon after the closing of our corporate reorganization, on September
30, 1998 we entered into agreements with two different subsidiaries of Elan
Corporation, plc ("Elan"). Elan is an international leader

                                       42
<PAGE>

in the development of novel drug delivery technologies for pharmaceutical and
biotechnology drugs. Elan is publicly traded on the New York Stock Exchange
(NYSE: ELN). We acquired from Elan Pharma International Limited a worldwide
license to a novel flexible iontophoresis patch technology. Elan scientists have
been engaged in developing product prototypes to increase drug delivery by the
application of a mild electrical current - a method called iontophoresis that
has been recognized for three decades. One outcome of Elan's efforts over the
past decade has been the development of a flexible patch for iontophoresis. The
patch system is uniquely suitable for the topical application of dermatology
drugs locally at sites of skin disorders regardless of the location, shape or
size of the diseased skin. We acquired a license to use this flexible patch
technology for non-cosmetic skin diseases and wound care. Elan also agreed to
collaborate with us to develop a flexible patch system for our PEMS technology
and a patch system that combines our PEMS and their iontophoresis technologies.
We made a payment of $7,500,000 for the acquisition and transfer of the Elan
technology and will make future payments of prescribed license fees and
royalties payable from the revenues from product sales and/or sublicensing to
future corporate partners. Separately, Elan International Services ("EIS")
invested $7,500,000 to buy preferred stock and warrants in our Company. The
preferred stock consists of 7,500 shares of our 10% convertible preferred stock
that are convertible into our Common Stock at a conversion price of $1.20 per
share and the warrants can be exercised to purchase 1,000,000 shares of our
Common Stock at an exercise price of $2.50 per share for a term of seven years.
EIS also agreed to invest an additional $2,000,000 to buy our Common Stock at a
share price to Elan calculated as one of the following: (i) the average price
for twenty trading days prior to the date of sale of our shares to Elan or (ii)
the price paid by other investors in the offering contemplated in this
Prospectus, up to a maximum price to be paid by Elan of $1.375 per share. On
October 30, 1998 we issued 777,202 shares of our common stock to Elan at $.772
per share for a total of $600,000, which represented our first drawdown on
Elan's $2,000,000 commitment. Elan has the right to nominate one member to our
Company's Board of Directors.

         We are a development stage company and all of our technologies are
under development and not commercially marketed. Our company was originally
incorporated under the laws of the State of California in August 1990 under the
name Magnetic Resonance Therapeutics, Inc. We reorganized through a merger with
and into Electropharmacology, Inc., a Delaware corporation, in February 1995.
Our executive offices are located at 1109 NW 13th Street, Gainesville, Florida
32601 and our telephone number is (352) 367-9088.

Industry Overview

         As the population ages, the provision of care for patients who suffer
from complex diseases in a cost-effective manner is becoming a growing challenge
worldwide. With the evolution of managed care, health care providers are
searching for new drugs and more effective methods to deliver the drugs that do
not require hospital facilities or skilled staff. More effective drugs with
predictable therapeutic outcomes (as well as side effects) and without complex
shipment/storage requirements are expected to increase patient compliance and
reduce the cost of patient care related to monitoring for unknown clinical
outcomes. The availability of superior and controlled delivery technologies is
expected to allow ambulatory patients to receive long-term treatment without the
need to be hospitalized for chronic intravenous delivery of drugs. The ability
to deliver a drug to the disease site is expected to increase the efficacy and
reduce toxicity to unaffected organs and thus reduce the overall cost of patient
care by using less drug and avoiding patient monitoring/management for side
effects.

         Based on the needs of patients with complex diseases, the emerging
trend in the managed care system is "disease management" to achieve acceptable
clinical outcomes at reasonable costs since a total cure for most
chronic/complex diseases is unlikely. For example, the treatment of a young
diabetic patient

                                       43
<PAGE>

with an acute wound will be different from treating a chronic ulcer in a seventy
year old diabetic patient. Similarly, a young patient with malignant prostate
cancer will require a different treatment scheme than an eighty year old
individual with benign prostate hypertrophy. In the near-term, the ability to
improve the delivery of available drugs to disease sites is expected to improve
patient outcomes at lower costs. The design of new drugs based on the rapidly
emerging knowledge about the genetics and biochemistry of complex diseases are
expected to have significant long-term impact on cost-effective patient care.

         Drug Delivery. A number of biotechnology as well as traditional
pharmaceutical drugs can be made more effective and less toxic if they are
targeted to the tissues affected by the disease being treated. Standard
injection or oral administration usually leads to a sharp rise in blood level
followed by the clearance from the blood stream within a few hours for most
pharmaceutical drugs (that are small molecules) or a couple of days for most
biotechnology drugs (that are large protein molecules). The amount of the drug
delivered to the diseased tissue during any time period is a function of its
concentration in blood multiplied by the total amount of blood flowing through
the tissue while the substance is in the blood stream. As the substance is
cleared from the blood stream over time, the rate of deposition of the substance
into the tissue also drops. A drug that clears rapidly from the blood stream
(commonly, the traditional small molecule pharmaceutical drugs) must be taken in
large quantities in order for sufficient drug to be delivered to the diseased
tissues within the time period that the drug is in the blood stream. Such high
levels in the blood stream may be toxic to other tissues that are disease-free.
A drug that persists in for a long time (the large molecule biotechnology
protein drugs) may be injected in smaller amounts. However, these large molecule
drugs are usually inefficient in their ability to diffuse through the walls of
the blood vessels and be deposited in the tissues. Additionally, disease-free
tissues are exposed for longer periods of time to such drugs and may experience
toxic effects. Controlled slow release capsules, mist inhalers, slowly
biodegradable implants, skin patches and programmable pumps have been used to
extend their duration of small pharmaceutical drugs in the blood stream and
avoid the need for high dose.

         In recent years, drug delivery technologies have moved beyond the
traditional extended or controlled release pills and metered dose inhalers. Drug
delivery is being increasingly used to allow the right dose of an active
pharmaceutical ingredient to be delivered at the right time - and more
increasingly, at the right target tissue site. Some analysts estimate that there
are more than 200 products in the pipeline of the drug delivery industry. The
approaches to achieve better delivery include biodegradable implants, injectable
microparticles, pumps, aerosols and electric fields. Traditional drugs have also
been chemically linked to large biotechnology proteins and then injected into
patients in order to increase the duration of these small molecules in the blood
stream and the delivery to a target tissue recognized by the protein (for
example, antibody-chemotherapeutic drug conjugates). The principal routes of
administration for the delivery/administration of products are oral, the
bloodstream, the respiratory system (nasal and lungs) and the skin. Different
drug delivery technologies are being developed to address the specific needs
arising from the nature of the drugs and the preferred routes of delivery for
the drug to reach the diseased tissue.

         The value of drug delivery technologies arises from increasing the
effectiveness of drugs, reducing the toxicity to disease-free tissues and
reducing the cost of drugs by lowering the dosage administered to the patient.
As a result, there is likely to be increased patient compliance and improved
patient outcome. An efficient drug delivery technology is especially beneficial
to the highly potent (and frequently, more toxic) drugs and the high value
biotechnology products that are large molecules, are expensive to manufacture
and are inefficiently delivered into tissue sites.

                                       44
<PAGE>

         Many of the drug delivery technologies that are either in use or under
development are invasive. These involve an injection (in the bloodstream or a
tissue) or implantation (under the skin or in the affected tissue) of the drug
formulated in the delivery vehicle. Also, almost all drug delivery technologies
(injection, implantation, inhalation and ingestion) require that the drug is
mixed, chemically combined or incorporated into the delivery vehicle and that
the delivery vehicle is non-toxic to the site of application and/or all human
tissues and organs. These requirements may limit the applicability of many drug
delivery technologies, especially for approved formulations of drugs or new
drugs that are sensitive to many of the substances used to control drug
delivery.

         Iontophoresis is based on the application of a mild electrical current
to facilitate the transport of drugs across the charge gradient through the
layers of skin. It is a non-invasive means that takes advantage of the
electrical charge of a drug molecule and the largest available delivery surface
(the skin) of the body. PEMS broadcast increases local blood flow in tissues. It
is a non-invasive means that is potentially applicable to facilitate the
delivery of any systemic drug (a drug carried by the bloodstream) following an
injection or an oral administration, to a superficial organ (such as breast,
brain, prostate and joints) into which the PEMS can penetrate. Both of these
modalities have been used in various human applications and have not shown
demonstrable adverse effects. Recent advances in engineering have led to the
ability to design novel non-invasive products based on these modalities to
target specific organs in a human body.

         Drug Design. Traditionally, pharmaceutical products have been
discovered through the screening of thousands of compounds, either from existing
chemical libraries (such as aspirin) or compounds produced in a fermentation
broth (such as penicillin). The advent of genetic engineering founded the
biotechnology industry where naturally occurring biological molecules
(primarily, protein drugs and most recently, the gene therapy) are produced by
monoclonal antibody and recombinant DNA technologies. While the traditional
pharmaceutical approach is a random and inefficient process, the biotechnology
products are large molecules that are expensive to produce, store/ship and
administer. Emerging knowledge about genes, the proteins encoded by these genes
and the genetic elements that regulate the activities ("expression") of genes in
normal and disease states of cells has created the opportunity to "design" novel
small molecule drugs.

         Genes, Proteins and Diseases. Most normal functions carried out by a
         cell are dependent on a well controlled production and action of
         various proteins that either perform a structural function (for
         example, the cell membrane and the organelles such as the nucleus and
         mitochondria inside the cell) or a catalytic function (such as enzymes
         that synthesize vitamins or reproduce the genetic material of the
         cell). The blueprint for the production of proteins is encoded in the
         genetic material, DNA, that constitute the chromosomes of a cell. In
         addition to containing the information needed to encode the proteins
         (the "coding sequences"), the genetic material of all cells contains
         genetic sequences (the "regulatory sequences") that regulate the
         activity of the coding sequences. Each coding sequence is read
         ("transcribed") by various enzymes to create an instructional template
         ("messenger RNA") that represents a different form of nucleic acid and
         that is used by the protein synthesis machinery of the cell to assemble
         the correct amino acids into the functional polymer, a protein, the
         workhorse of a cell's activities. Regulatory sequences customarily
         interact with certain proteins and regulate the activity of coding
         sequences and thus affect the levels of the proteins encoded by such
         coding sequence in a cell. Information related to the proteins and
         genes and their involvement in maintaining the healthy state of a cell
         or organ or in causing or exacerbating a disease process provides new
         tools for effective and accurate diagnosis and safe and efficacious
         therapy.

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         Gene Mutation and Activity (expression). A defect (a genetic mutation)
         in a coding sequence can alter the encoded protein resulting in an
         alteration of the function of the protein. A defect in a regulatory
         sequence can alter the activity of the coding sequence it regulates. A
         defect in a coding sequence that encodes a protein which interacts with
         a regulatory sequence can also affect the activity of the coding
         sequence regulated by the regulatory sequence. These minor
         perturbations in genes or proteins that perform critical functions can
         lead to the malfunctioning of a cell, which is the basis of a disease.
         Even without a genetic mutation, various substances (such as chemicals,
         pollutants, diet) or conditions (such as infection, aging, degenerative
         diseases, hormonal changes) can alter the physiology of a cell and
         cause changes in the activities of genes (and thus the levels of
         proteins encoded by them) or proteins.

         Genetics and Biochemistry of Complex Diseases. Unlike acute diseases
         (such as an acute infection or bone fracture caused by an accident),
         complex diseases (such as cancer, chronic infection, autoimmune
         diseases, chronic wounds in diabetic patients) may result from and/or
         involve a multitude of genes or proteins. Often a mutation in a single
         gene or a change in the activity of a gene or a protein encoded by the
         gene can initiate a cascade of events that, in turn, affect other genes
         and proteins and lead to the progression or exacerbation of a disease
         condition. In many cases, the disease is not diagnosed until the
         cascade has already been in progress (such as in metastatic cancer,
         arthritis) well beyond the initial alteration. Also, a drug or a
         treatment method that can counteract the initial alteration may have
         significant unwanted or adverse side effects since the initial gene or
         protein may be required for certain normal "housekeeping" activities of
         the unaffected healthy cells (such as in the case of many autoimmune
         diseases, chronic wounds and aging-related diseases that cause tissue
         degeneration). Biomedical research and the knowledge developed through
         the use of biotechnology products (that are mostly naturally occurring
         proteins) are leading to a better understanding of the various stages
         of complex diseases and the roles of various proteins or genes encoding
         such proteins in the different stages.

         Small molecule drugs that are designed based on the knowledge of the
activities of the protein or gene targets implicated in complex diseases have
the advantages of traditional pharmaceuticals (easy to produce, store/ship and
administer/deliver) as well as of biotechnology products (specific, predictable
action that mimics natural cellular processes). In addition, these designed
drugs do not have the disadvantages of either the traditional pharmaceuticals as
relates to the unpredictable safety and efficacy profile or the biotechnology
products as relates to expensive manufacturing and difficult storage/shipment.
Small molecule drugs can be designed to specifically target the individual gene
or protein responsible for each of the different stages in the progression of
complex diseases and thus revolutionize patient care.

         The success of the small molecule drug design approach is dependent on
correctly identifying the protein/gene target(s), validating the role of the
target (the mechanism of action of the target) in the specific stage of a
complex disease and designing compounds that effectively and predictably affect
the action or the production of the target. Nucleobases (the building blocks of
the genetic material) and amino acids (the building blocks of proteins) are
naturally occurring small molecules. These can be chemically synthesized
inexpensively and also can be modified or used to build small polymers with
novel biological activities that affect the function of a protein or the
encoding gene or the regulation of a gene's activity caused by the binding of
proteins to genes within a cell.

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The Strategy

         We intend to exploit our non-invasive drug delivery technologies to
improve the clinical effectiveness of biopharmaceutical drugs being marketed or
developed by other companies. Our proprietary small molecule drugs are intended
to be developed, manufactured and marketed through partnerships with larger
pharmaceutical and biotechnology companies.

         Drug Delivery. Our drug delivery technologies will be used as a
"value-added" complement to drugs and biotechnology products by increasing their
delivery to targeted organs (such as breast, brain, prostate, skin and joints).
The commercial benefits arising from reduced drug dosage, increased efficacy
and/or reduced toxicity to disease-free organs are intended to be leveraged into
corporate partnerships to provide licensing and royalty revenues and research
and development payments. Our initial drug delivery focus will be on improving
the delivery of cancer drugs by PEMSRF and of selected dermatology drugs by
iontophoresis. In addition to advancing the drug delivery technologies towards
initial products, our clinical studies are expected to generate information to
support the application of the technologies to other drugs.

         We licensed from Elan a flexible iontophoretic technology to enhance
the delivery of topical drugs across the skin under a mild electric current. The
principle of iontophoresis has been available for more than two decades but a
product that can be conveniently applied to various locations on the body and
for the diversity of drugs for dermatologic applications had not been designed.
The flexible iontophoretic patch developed by Elan effectively solves these past
limitations. The initial prototype patch is called the "Topiderm system", which
consists of an electrode pad, made of a conductive ink printed on a flexible
substrate made of a soft paper tissue that is inexpensive, easy to apply and
comfortable to wear at various locations. The pad may be premedicated or the
user may spread a gel containing a drug substance onto the surface and
subsequently press the pad covering all or a portion of the skin surface to be
treated. The pad can be mass produced at a low cost in any desired shape and
size for increased comfort and patient compliance. Topiderm is powered by a
reusable, battery-powered control unit that weighs less than one ounce and can
be reused several times. Topiderm is designed to address the needs of
prescription dermatology drugs for topical applications in wound healing,
inflammation (such as psoriasis or dermatitis), acne and infection.

         Since 1991, our scientific team and their collaborators have been
engaged in developing a technology based on the principle of using pulsed
electromagnetic signals in the radio frequency range ("PEMSRF") that can be
non-invasively delivered by broadcast to superficial organs and tissues.
Superficial tissues include breast, brain, prostate and joints. Studies
conducted for our company at the Miami Heart Institute to examine the effect of
PEMSRF in patients with chronic wounds showed a rapid increase in local blood
flow in the tissue where the PEMSRF was being applied. This increase in blood
flow should deliver a larger amount of a drug in the blood stream to the treated
organ. As a result, this modality can complement essentially all other drug
delivery formulations (injected or ingested) since no change in the mode of
administration of the drug will be required. There are an estimated fifty
marketed drugs developed by the biotechnology industry that must be given by
injection, usually several times per day or week for a wide range of
applications, including contrast agents for diagnostic imaging (of cancerous and
other lesions) and therapeutic drugs. For some drugs, such as the high potency
yet toxic chemotherapeutic drugs, effective delivery to the target tissue by
increasing blood flow following an injection may transform a currently unusable
compound to a highly beneficial drug. In addition, a more effective delivery may
enable one to lower the dosage of an anti-inflammatory drug being used to treat
arthritic joints or expensive biotechnology drugs to regenerate damaged tissues.
However, we can not be sure that the expected benefits from our drug delivery
technologies will lead to commercially successful products (see "Risk Factors").

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         Our primary research strategy is to use the tools of molecular
biotechnology to identify the mechanisms of action of electrical fields
delivered by iontophoresis or induced by PEMSRF in the cells in the treated
tissues. The results are expected to provide new insights into the mechanisms
underlying the therapeutic effects (blood flow increase and tissue regeneration)
that have been reported in the scientific literature. In collaboration with
Elan, we intend to design and evaluate novel proprietary products that deliver
iontophoretic electric fields, PEMSRF energy and/or a combination that will
cause predictable tissue response. The products are intended to be used to
develop novel clinical applications of our non-invasive drug delivery
technologies by exploiting the two primary modes of action:

o         drug delivery enhancement in targeted organs; and

o         enhancement of sensitivity of cells to other drugs.


         Drug Design. Our initial drug design focus is on two small molecule
drugs that target proteins implicated in malignant cancers. Our drug design
technology will be used to grow our library of proprietary small molecule drugs
that are designed to target proteins and/or genes that are being implicated in
complex diseases as the genetic and biochemical knowledge of disease processes
advance. We intend to broadly apply our proprietary small molecule drug library
and design expertise to autoimmune diseases (such as inflammation, asthma and
rheumatoid arthritis) and degenerative diseases (such as ulcer, Alzheimer's
disease, osteoporosis and arthritis). We intend to seek corporate partnerships
for specific drugs or for specific gene/protein targets whereby manufacturing
and marketing rights will be granted to the partners in exchange for license
fees, milestone payments, royalties and research and development funding to our
company. We offer a service business based on contract synthesis of small
molecules for academic researchers and corporate clients. We intend to grow this
business as a source of revenue in the near-term.

         Our current strategy is to focus on designing and synthesizing small
molecules made from the building blocks of natural biological molecules. We are
a leader in the design and synthesis of nucleobases (the building blocks of the
genetic material) and their analogs and polymers. We have a growing proprietary
library of nucleobase-derived molecules that have been selected based on their
expected biological activity. Historically, these molecules have been primarily
used to create diagnostic products, called "gene probes", based on their
specific binding ("hybridization") to the genetic material of living organisms.
However, it is now widely recognized that nucleobase-derived molecules can bind
to proteins that regulate gene activity by interacting with specific regions of
the genetic material of cells since the nucleobase-derived molecules can be
designed to mimic the desired genetic materials. In addition, nucleobases also
serve as the "energy currency" that are utilized in a large number of
biochemical processes that are critical to a cell's growth and metabolism. We
are also expanding our expertise in the design and synthesis of small molecules
based on amino acids (building blocks of proteins) and their analogs that may be
designed to affect the activity of protein targets.

         We are integrating our expertise in the design of novel small molecule
drugs with the knowledge of proteins and/or the genes encoding them that are
implicated in the control of critical cell functions implicated in complex
diseases. Our goal is to design and develop drugs with predictable targeting
specificity at specific proteins or genes and thus achieve higher potency and
lower toxicity than the currently available drugs. Based on the knowledge of the
structure and the function of a protein or gene target, small molecules may be
designed that would directly compete with ("mimicry" effect), inactivate
("antagonistic" effect), or predictably change the structure ("allosteric"
effect) of a target. As a result, it may be possible to render a

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protein or gene target more sensitive to the effect of an existing drug. This
may allow one to use a lower dosage of a drug that would otherwise be
unacceptably toxic. Most importantly, there is new realization that the genetic
diversity among humans frequently results in minor alterations in the structure
of a protein or gene target - a phenomenon called "genetic polymorphism". We
believe that the ability of nucleobase-derived small molecules to alter the
structure of a protein or gene target can be exploited in solving the lack of
effectiveness of certain drugs in patient populations resulting from small
genetic differences (polymorphism) between subpopulations.

         Our strategy is to focus on the targets listed in the table below to
apply our drug design technology in order to create therapeutic drugs for the
diseases in which the targets are implicated:


                TARGET                                        DISEASE
                ------                                        -------

I.  Transport/Cell Membrane Proteins

    > p37 protein family                      Cancer (breast, prostate, melanoma
                                                 and ovary)

    > Amino acid transporters                 Cancer (liver and possibly others)

    > Pump (matrix degrading) protein(s)      Cancer (obstetric and gynecologic)


II.  Cell Controlling Factors

    > Tumor necrosis factor(s)                Cancer, Inflammation, Sepsis

    > Transcription factor(s)                 Cancer, Inflammation


III.  Enzymes

    > Amidotransferases                       Childhood leukemia, Infection

    > Lysine biosynthesis                     Neonatal sepsis, Allergy


         We have selected these targets based on the following:

o         the targets are documented by scientific evidence to be important in
          cancer and other complex diseases; and/or

o         small molecule drugs, especially those designed by our scientists, are
          expected to bind to and change the activity of these targets; and

o         our scientists have access to high throughput screening necessary to
          select a specific small molecule drug as a development candidate from
          our drug library.


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         Collaboration. Our senior scientific staff and scientific advisors
possess significant experience in the design and synthesis of nucleobases and
molecules derived from them. Our scientists collaborate with leading
investigators at major academic institutions, including Baylor College of
Medicine and the MD Anderson Cancer Center in Houston, Texas; the Biotechnology
Program at the University of Florida in Gainesville, Florida; and the
Biotechnology Laboratory at the Northwestern University in Chicago, Illinois.
The Company also designs and synthesizes peptides, which are small polymers made
from amino acids (the building blocks of proteins). We establish collaborative
relationships with leading biotechnology scientists in academic institutions in
order to obtain the emerging knowledge on the proteins or genes that are
involved in various stages of complex diseases. This knowledge of the mechanisms
of action of these proteins and genes is used by our scientists to design novel
small molecules (nucleobases-derived or peptides) that can affect the activities
of the target protein or gene. We have licensed as well as designed and
synthesized small molecules that target the proteins implicated in cancer
metastasis and arthritis. We intend to grow our small molecule drug library
through additional in-house design and synthesis as well as through licensing
agreements.

         We are establishing collaborations with companies engaged in the
emerging field of bioinformatics to create genetic databases on novel genes as
future targets for proprietary small molecule drug design. Nutrition is now
recognized as an important factor in the onset, progression and treatment
outcome in patients with chronic diseases, including cancer, heart diseases,
diabetes and chronic degenerative disorders (arthritis, osteoporosis and
Alzheimer's disease). Accordingly, our initial focus is on databases relating to
quantitative changes that are caused by specific nutrients in the expression of
disease-linked genes. These databases are also expected to facilitate the
identification and selection of "nutraceuticals" (nutrients and pharmaceuticals)
from natural products. We intend to form corporate partnerships on our small
molecule drugs or nutraceuticals for use in improving the effects of other drugs
or reducing disease incidence in people who are at higher genetic risk of
predisposition to diseases.

         Management and Corporate. We believe that we have assembled an
experienced business team that provides cost-effective business direction and
strategic planning, as well as the financial and legal resources of a public
company, in order to increase the focus and efficiency of operating units
focused on product development programs for specific markets. Our initial
strategic focus will be to use our corporate structure and transaction expertise
to create value through the acquisition of businesses with near-term revenues
from the services that leverage and extend our expertise in drug design. We
believe that there is an opportunity in the research community and the
biopharamceutical industry for custom synthesis of small molecules as reagents
for drugs and diagnostics development. Most researchers and many companies now
outsource such activities in order to have access to the latest technologies and
more rapid service that an established entity committed to such business can
provide. There are a large number of small boutique businesses engaged in this
business segment that are under growing pressure to lower their costs and yet
improve the quality of their services. We intend to pursue a strategic
consolidation of selected small operations with complementary geographic and
customer market focus under our public corporate umbrella and create a business
operation that can grow revenue and profitability while providing high quality
specialized services in the field of molecular and genetic research. We also
intend to seek strategic acquisition opportunities for new products and
technologies.

Core Technologies

         Our two proprietary technology platforms are:

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         o        Drug Delivery - non-invasive enhancement of topical and 
                  injectable drugs; and

         o        Drug Design - the rational design and synthesis of small
                  molecule drugs.

         Non-Invasive Drug Delivery. Our drug delivery technologies are based on
the application of mild electric current and pulses of electromagnetic energy
that can be non-invasively applied to superficial tissues and either cause
increased delivery of drugs to the target tissues or increase the sensitivity of
the target tissues to other drugs.

                  Iontophoresis-Topiderm. We licensed from Elan a flexible
iontophoresis patch technology that enables the application of a mild electric
current from a fabric-like material in a controlled manner to achieve a more
effective transfer of a wide variety of drugs across skin. It has been reported
in the scientific literature that iontophoresis of ionic drugs (drug molecules
that carry an electrical charge) provides between a 20 - 60 fold increase in
penetration over traditional topical application. We intend to focus on the use
of the licensed technology to treat surface tissues, including dermatology and
wound healing. The most significant advantages of iontophoresis in our area of
focus are

         o        the elimination of systemic toxicity by limiting the release
                  of only a small quantity of the drug into the bloodstream,

         o        the delivery of a relatively high concentration of the drug at
                  the tissue site where the drug will potentially achieve the
                  maximum benefit,

         o        the ability to apply the technology to any drug with an
                  electrical charge (or a drug that can be easily formulated or
                  modified to create an electrical charge),

         o        the ability to achieve a rapid start and stop the delivery of
                  the drug by turning the electrical current on and off,
                  respectively, and

         o        uniform delivery of a drug over a skin surface area regardless
                  of the size or the contour.

         Dermatologists are well aware of the shortcomings of current methods of
topical application and have begun to study and adopt advanced drug delivery
technologies. Studies have shown that iontophoresis may become an important new,
safe and effective technique for enhancing drug delivery in such diverse
applications as local neuralgia and anesthesia, antiviral and anti-inflammatory
therapies, and acne treatment. The Topiderm flexible iontophoretic patch system
which we licensed from Elan is applicable in an entire family of unique products
that we hope will be distinguished as the leading iontophoretic delivery system
for the dermatology market. The key advantages of this technology are:

         Efficacy:
         o        improved penetration of dermatological products into the skin,

         o        rapid delivery onset and cessation, and

         o        uniformity of penetration over the entire skin area being
                  treated;

         Availability:
         o        treatment pad can comfortably adapt and fit to any contour of
                  the skin regardless of the anatomical location on the body,
                  and

         o        special electrode technology protects sensitive areas;

         Disposability:
         o        safe, skin compatible materials, and


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         o        no cleaning or maintenance requirement.

The development of the basic iontophoretic technology into the Topiderm product
prototype is essentially complete and accordingly, we believe that clinical
studies for the intended clinical applications may be initiated rapidly.

         PEMS - SofPulse. We have developed a technology related to broadcasting
pulses of electromagnetic signals in the radio frequency (PEMSRF) range to
augment blood flow in superficial soft tissues. PEMSRF is a unique noninvasive
approach with no known adverse effect in humans as the pulsing of energy fields
are designed to avoid tissue heating and induce electric fields (Electric field
or E-field) through the treated tissue without damaging cell structure. The
increase in blood flow at the tissue treated by the application of PEMSRF should
enhance the delivery of therapeutic or imaging agents for cancers to superficial
organs such as breast, prostate and brain. Accordingly, PEMSRF is expected to
increase the effectiveness of large molecule biotechnology drugs
(antibody-based, gene-based and other protein products) that have limited tissue
penetration. PEMSRF also is expected to reduce the side effects of most drugs by
reducing the total dosage that needs to be injected in order to deliver
sufficient drug to the diseased tissue. Accordingly, PEMSRF may be used to
enhance the delivery of anti-inflammatory drugs to arthritic joint cartilage and
anti-infective or growth-promoting products to wounds and other skin lesions in
the dermatology market. PEMSRF may be used in combination with other drug
delivery approaches such as "transdermal patches" and "controlled release
implants". We own three issued U.S. patents and other pending applications in
various countries with respect to PEMSRF. Our PEMSRF is distinct from three
other similar technologies: low frequency pulsed electromagnetic fields
("PEMF"), direct Electrical Stimulation ("E-Stim") and pulsed radio frequency
("PRF") diathermy. PEMF (ca. 50 Hz frequency) has been used since 1977 to
facilitate healing of nonunion bone fractures (fractures which refuse to heal)
and is administered through coils attached to (or implanted in) the patient in
close proximity to the site of the fracture. Over the past 20 years, clinical
research in the field of PEMF has demonstrated that these fields promote the
healing of human and other mammalian bone tissue under selected conditions.
E-Stim (in the form of galvanic currents at about 1 milliamp per square
centimeter surface area) has been used since the 1960s to achieve therapeutic
effects (muscle, nerve and other soft tissue injuries) and is administered by
placing electrodes in direct contact with the tissue by the use of conductive
gels and garments. PRF (ca. 27.12 MHZ radio frequency range) has been used over
the past 30 years to achieve varying degrees of tissue heating ("diathermy")
depending on the frequency or the amplitude and the total dosage.

         Our PEMSRF is delivered as controlled pulses of high energy (27.12 MHZ
radio frequency) at a low average power and short duty cycles (the total
duration of signal delivery during a course of administration) relative to
traditional PRF-based diathermy. This frequency falls in the range of 13 MHZ to
27.12 MHZ that is approved by the Federal Communications Commission as the radio
frequency band for medical applications. During the past twenty years, several
research reports have been published claiming the ability of PEMSRF to modulate
cells in a nonthermal manner (without heating) presumably through the induction
of an E-field throughout the tissue being treated with broadcast electromagnetic
signals. We developed and marketed SofPulse, a medical device that broadcast
PEMSRF, and over the past six years obtained clinical information in a wide
range of patients that demonstrates the safety of this modality. Available
clinical information also has shown the alleviation of soft tissue edema,
especially around chronic wounds, that appear to be the consequence of the
ability of PEMSRF to increase local blood flow. We believe that the safety
information will enable us to expedite clinical studies on the ability of PEMSRF
to increase and measure the extent of such increase in the delivery of
biotechnology and pharmaceutical drugs to superficial organs such as breast,
brain, prostate and major joints. We also intend to leverage the fact that our
PEMSRF

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technology does not require any changes in the formulation or the mode of
administration of a drug. This feature is expected to simplify formation of
corporate partnerships to apply PEMSRF in enhancing the delivery of the
partners' drugs. PEMSRF may also complement some of the other drug delivery
approaches such as the "transdermal" and biodegradable implant-based local
release. An increase in local blood flow that can be achieved on an as needed
basis by broadcasting PEMSRF at a tissue may be used to control the amount of
drugs being delivered by these alternate technologies to the tissue.

         Rational Design of Small Molecule Drugs. Our small molecule drugs may
be designed to have predetermined features with exquisite specificity and
potency for protein or gene targets that are implicated in the onset or
progression of a wide variety of diseases. The specific binding of these small
molecule drugs may be used to cause a change in the activity of the protein or
gene target and thereby achieve a therapeutic activity. Alternatively, the
binding may be used in sensitive and rapid diagnosis of diseases in which these
targets are implicated.

         We specialize in the design and synthesis of novel modifications of
nucleobases (nucleosides and nucleotides). Our nucleoside design technology is
used to create novel small polymers, "oligonucleotides", made from a combination
of chemical variants of the four monomer units that naturally occur in the
genetic material. The structural diversity and functional attributes of
nucleobases and oligonucleotides far exceed those achievable with traditional
pharmaceuticals. Nucleobase-derived small molecules are uniquely suitable for
the following:

         o        proteins that replicate the genetic material during the
                  reproduction of organisms and thus serve as targets for the
                  design of anti-infective or anti-proliferative small molecule
                  drugs;

         o        proteins that regulate gene activity ("expression") and thus
                  serve as targets for the design of drugs to manipulate cell
                  function in tissue regeneration;

         o        proteins that function as catalysts (donors) or substrates
                  (recipients) in energy transfer reactions and thus serve as
                  targets for drugs that alter the growth, metabolism and/or
                  regeneration of cells; or

         o        genes that undergo changes in structure (mutation or
                  amplification) or activity (expression) and thus serve as
                  targets for molecular diagnostics or gene-regulating drugs.

         Our drug design technology capitalizes on the above properties to
create proprietary small molecule drugs made of nucleobases and
nucleobase-derived small polymers. We have a growing library of therapeutic
nucleobase molecules that have been designed to achieve therapeutic effects in
cancer and complex chronic diseases. We also are expanding our small molecule
drug design technology in the area of drugs derived from amino acids, the
building bocks of proteins, and chemical modifications of amino acids.

         The molecules currently comprising our proprietary small molecule drug
library fall in three categories:

         o        "Mimics" - bind to or resemble the active site of a target
                  protein or gene that is implicated in regulating the activity
                  of the target;

         o        "AlloEnhancers" - bind to a site other than the active site of
                  a target protein and alter the active site in a manner that
                  renders the target protein sensitive to other drugs; and


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<PAGE>


         o        "Phosphorygonists" - affect the transfer of phosphate groups
                  implicated in energy transfer reactions and thus alter the
                  biological activity of the target protein molecules.

         Our initial targets for our drug design technology are gene and protein
targets with known involvement in cancer and inflammation (such as rheumatoid
arthritis). We are implementing an integrated three-step approach for the design
of our proprietary small molecule drugs:

         o        The identification of a Target - a protein or a gene that
                  mediates or regulates a cellular process in the onset or
                  progression of a complex disease;

         o        Rational design of Small Molecule Drugs - Nucleobase - or
                  amino acid-derived small molecules designed to affect the
                  action/production of the target; and

         o        The identification of a Lead Drug - the most potent, specific
                  and non-toxic small molecule drug selected by screening in a
                  clinically predictive laboratory test and/or an animal model.

         Our initial targets for our drug design technology have been selected
based on the results of research by leading investigators in academic
institutions who are collaborating with our scientists. We integrate our small
molecule drug design programs with the research programs of our collaborators on
the mechanisms of action of the protein targets (or the genes that encode the
protein targets) in the onset or the progression of the respective complex
diseases. We have exclusively licensed a group of novel chemical modifications
of nucleobases for therapeutic drug design. The inventor of these compounds, Dr.
Ganapathi Revankar, is an international expert in nucleoside chemistry. Under
Dr. Revankar's supervision, we are developing additional proprietary compounds
that target two cell controlling protein factors - "Tumor Necrosis Factor-alpha"
and "Transcription Factor NFkB". We have retained, as one of its scientific
advisors, Dr. Bharat Aggarwal of the Baylor College of Medicine in Houston,
Texas, who is considered to be an international leader in cell-controlling
protein factors, called cytokines, that are implicated in cancer and
inflammation. Effective small molecule drugs that target cytokines have
potential applications in cancer and inflammatory diseases such as rheumatoid
arthritis. We have acquired licenses and has filed patent applications for
design and screening methods relating to small molecule drugs for specific
protein or gene targets with known clinical applications and novel molecular
compositions (See "Business - Intellectual Property, Patents and Proprietary
Information").

         We also are a leader in the field of designing chemical modifications
of nucleosides that can be used to create gene probes that combine ("hybridize")
with target genes in a manner that would cause predictable structural changes
such that even minor alterations in these genes may be effectively detected. One
class of proprietary modifications is designed for gene probes for "chip-based"
and "microarray-based" DNA diagnostics that monitor several genes simultaneously
and detect single changes ("point mutations") in genes. Our expertise combines
the experience of Dr. Krishna Jayaraman, president of our Gemini Biotechnology
division, and Dr. Michael Hogan of Baylor College of Medicine, a scientific
advisor to our company. We have been steadily growing our activity in special
chemistry required to design gene probes (oligonucleotides) that can be used to
produce microarrays and chips with high gene probe density that are being
developed by other companies. These micro arrays and chips are also expected to
be used to assess the safety and efficacy of pharmaceutical or biotechnology
drugs (pharmacogenomics) and select lead drugs based on detailed molecular
effects on cells that contain disease-linked protein or gene targets.


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Product Development Programs

         Our initial product development programs focus on the following:

         o        Clinical studies for drug delivery technologies:

                  Iontophoresis for Dermatology Drugs. The first product
                  prototype of our iontophoretic patch licensed from Elan is the
                  Topiderm system. At this time, the Topiderm is ready to be
                  produced cost-effectively for us by Elan in sample quantities
                  for the purposes of clinical trials. We intend to optimize
                  preferred conditions for the Topiderm to promote the
                  penetration of steroidal and non-steroidal substances used in
                  dermatology by using a clinically predictive in vitro system.
                  The test system allows quantitative comparison of the change
                  in iontophoretic delivery of drugs. Based on the results of
                  the optimization studies to be conducted, we will initiate a
                  clinical study for an approved prescription dermatology drug
                  that shows limited efficacy due to poor penetration. We will
                  use end points accepted by the clinical community in order to
                  assess the benefits of the iontophoretic delivery in improving
                  the efficacy of the test drug. The clinical study will also be
                  used to obtain quantitative drug penetration data in humans
                  that is expected to validate the in vitro test system. We
                  expect to use this system subsequently to establish the
                  conditions for Topiderm use in follow-on clinical applications
                  and additional drugs in wound care with our corporate
                  partners.

                  PEMSRF for Cancer Imaging and Treatment Drugs. We intend to
                  use the SofPulseTM device, our initial product using our
                  PEMSRF technology, that delivers PEMSRF operating at a carrier
                  frequency of 27.12 MHZ with a pulse width of 65 microseconds
                  and provides up to 36 different combinations of incident
                  magnetic fields and pulses per second. SofPulseTM was cleared
                  for commercial marketing by the United States Food and Drug
                  Administration ("FDA") in 1991. This initial product is used
                  as an adjunct for the palliation of post-operative edema and
                  pain in superficial soft tissues. The use of this device
                  following surgeries and in sub-acute care (chronic wounds and
                  tissue injuries) in over 300,000 administrations in thousands
                  of patients has demonstrated human safety of our PEMSRF. We
                  intend to conduct clinical development of PEMSRF under one or
                  more Investigational Device Exemptions ("IDE"s) filed with the
                  FDA. Using the SofPulseTM, we have identified initial signal
                  specifications and conditions to achieve rapid and sustainable
                  increase in local blood flow in tissues by PEMSRF. The change
                  in blood flow can be ceased within several minutes after the
                  administration is stopped. The results of two pilot clinical
                  studies conducted at Miami Heart Institute on patients with
                  chronic wounds have provided us with information about the
                  duration of treatment and the level of increase in blood flow.
                  This information will be used by us to optimize the settings
                  (energy levels) and the duration of PEMSRF treatment in
                  achieving increased delivery of cancer imaging and/or
                  treatment drugs to breast or brain. We are selecting drugs
                  that are either approved or in clinical development and that
                  are expected to benefit from what we believe will be a
                  significant increase in drug delivery to the targeted tissue
                  resulting from a one to six hour administration of PEMSRF.

         o        Laboratory and animal evaluation of proprietary small molecule
                  drug design:

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                  Transport Protein-Targeted Drugs to Treat Cancer Metastasis.
                  We are designing proprietary molecules that are targeted at
                  and thus expected to interfere with the function of a
                  metastatic cell-associated molecule ("MCAM") - the p37
                  transport protein. This protein was first identified as one of
                  a group of proteins targeted by the immune system in cancer
                  patients who went into remission following experimental cancer
                  cell vaccine treatment. Similar to the case with the now well
                  recognized "multiple drug resistance" protein (found in
                  cancers that do not respond to a number of chemotherapeutic
                  agents), the p37 protein belongs to a protein family encoded
                  by genes involved in nutrient transport in certain rare
                  strains of Mycoplasma. The MCAM p37 target is found on
                  metastatic cancer cells. Our laboratory research also
                  indicates that the addition of this protein to cancer cells
                  that do not metastasize causes the cells to behave similarly
                  to cells from metastatic cancers. Our small molecule drugs
                  designed for the p37 protein target are not required to kill
                  cancer cells but prevent the ability of cancer cells harboring
                  p37 to metastasize. Our objective is to create the first
                  family of drugs that will be able to treat cancer without the
                  toxic effects associated with all other forms of cancer
                  treatment that are designed to kill both cancerous cells and
                  healthy, normal cells. In addition, these drugs would not be
                  expected to induce resistance in the cancer cells. The design
                  and development of this family of therapeutic compounds are
                  based on a technology owned by us. Initial applications of the
                  p37-targeted small molecule drug candidates in breast cancer
                  and melanoma have been chosen based on (i) the results of
                  published clinical studies and basic research conducted at
                  University of California, Los Angeles and McGill University
                  and (ii) the results of our current research program in
                  collaboration with scientists at the University of Florida and
                  the Michigan State University. Our product development program
                  focuses on the creation and evaluation of small molecule drugs
                  that mimic various portions of the p37 protein target in a
                  laboratory test system that is designed to screen such drugs
                  for their ability to interfere with metastatic (or invasive)
                  behavior of tumor cells. The results will be used to select
                  the most potent drugs for evaluation in one or more clinically
                  predictive animal model systems, which will be followed by
                  initiating a clinical study under an IND or its foreign
                  equivalent. Our product development program also is screening
                  human tumors in order to select the type of tumor where the
                  presence of p37 target is common and, accordingly, will be
                  likely to respond to a p37-targeted small molecule drug. Based
                  on the results of these studies, we may market the detection
                  method as a prognostic test to diagnostic pathology
                  laboratories engaged in the business of sophisticated analysis
                  of cancer biopsies.

                  Protein Factor-Targeted Phosphazoles for Cancer and
                  Inflammation. We have evaluated a family of nucleobase
                  analogs, called Phosphazoles, that are targeted at Tumor
                  Necrosis Factor-alpha and the Transcription Factor-NFkB. The
                  inventor of these licensed compounds, Dr. Revankar (an
                  executive of our company), is an international leader in the
                  design and synthesis of novel nucleobases. Dr. Revankar is
                  collaborating with Dr. Aggarwal, Chief of Cytokine Research at
                  the MD Anderson Cancer Center ("MDACC") in Houston, Texas, who
                  is an international expert in Tumor Necrosis Factors and has
                  been involved in studying this protein target since the late
                  1970s. Preliminary laboratory studies conducted at the MDACC,
                  have led to the identification of certain members of the
                  Phosphazole group of small molecule drugs based on high
                  potency and low toxicity as compared to other small molecule
                  drugs evaluated against these protein targets. A number of
                  Phosphazole small molecule drugs have also been screened at
                  the National Cancer Institute ("NCI") for anti cancer activity
                  and three have been referred to its Biological Evaluation
                  Committee. Based on the 

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                  results of the studies at the MDACC and NCI, we intend to
                  perform additional laboratory studies and evaluate the lead
                  drug candidate in one or more clinically predictive animal
                  models prior to conducting a controlled Phase I/II clinical
                  study planned for 1999.

         o        Product engineering to design two proprietary new drug 
                  delivery systems:

                  Flexible PEMSrf and PEMS-Iontophoresis Combination Systems. We
                  and our corporate partner, Elan, have considerable know-how
                  relating to electromagnetic signal engineering and
                  iontophoresis product engineering. In a collaborative program,
                  prototypes of a flexible PEMSRF pad and a combination
                  iontophoresis-PEMSRF pad are being developed by the
                  engineering research and development group at Elan based on
                  design specifications that are currently available to our
                  company. These prototypes are expected to be modified based on
                  the results of the initial drug delivery product evaluation
                  activities discussed above.


Product and Technology Research Programs

         We are engaged in research programs designed to improve upon our
current product candidates and explore new applications of our core technologies
through collaboration with leading investigators in academic institutions. We
were the recipient of three Phase I Small Business Innovations Research ("SBIR")
grants from the National Institutes of Health in 1998. All three programs are
nearing completion and we expect to submit Phase II applications to continue
these collaborative discovery activities and engage new scientists.

         Drug Design.  The focus of our drug design product research includes:

         o        New Drugs and Drug Screening. Our scientists are collaborating
                  with our scientific advisors to design, synthesize and
                  evaluate a growing library of proprietary nucleobase analogs
                  to target cell controlling protein factors such as Tumor
                  Necrosis factors and Transcription Factors. We also are
                  designing novel small molecule drugs, designated as NHTB, that
                  are analogs of amino acids and are designed to block the
                  function of a transport protein target that is involved in the
                  uptake of certain amino acid nutrients by cells. We have
                  proprietary know-how to change differentially the level of
                  this transport protein target in cancer cells as compared to
                  their normal counterparts, especially in the liver. The
                  initial drugs are therefore being pursued for ultra-sensitive
                  imaging of liver cancer. We believe that the NHTB drugs may
                  also be used in imaging other tumors and that derivatives of
                  NHTB may be designed to kill cancer cells through nutritional
                  manipulation. We are expanding our capabilities for drug
                  design in the area of enzymes (biological catalysts that alter
                  the activities of various protein targets). Our initial focus
                  is on a group of enzymes called "amidotransferases" that are
                  implicated in certain cancer cell metabolism and bacterial
                  reproduction. Dr. Sheldon Schuster, a member of our scientific
                  and medical advisory board, is an internationally recognized
                  expert in the study of this enzyme family and is collaborating
                  with our scientists to establish effective screening
                  approaches in order to select a lead drug for each of two
                  conditions - childhood leukemia that is refractory to
                  chemotherapy and new antibiotic-resistant infections (such as
                  new forms of tuberculosis).


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                  We believe that our growing expertise in the area of
                  validating the mechanisms of action of protein or gene targets
                  in complex diseases and creating high throughput screening for
                  molecules that are active against such targets can be
                  leveraged to form partnerships with pharmaceutical and
                  biotechnology companies who possess larger libraries of
                  chemical compounds. Similarly, we believe our growing library
                  of small molecule drugs that are able to bind to various
                  families of biologically active proteins or genes can be used
                  to establish partnerships with companies engaged primarily in
                  the business of selecting targets for complex diseases.

         o        Protein Targets for Diagnostic Pathology. We exclusively
                  licensed from Vanderbilt University another MCAM, called the
                  "pump protein", that is an enzyme produced and secreted at
                  high levels by cancer cells with metastatic potential. We
                  recently obtained, in the name of Vanderbilt, a U.S. patent
                  related to the use of this MCAM. We have certain antibody
                  reagents and gene probes directed against the pump protein and
                  the transport proteins described above as a group of MCAMs
                  that are potential targets for diagnosing the more "malignant"
                  types of tumors from others. We intend to evaluate rapidly the
                  utility of these MCAMs in diagnostic and prognostic testing
                  (either by gene probes or by antibody testing) of cancer
                  through collaborations with diagnostic pathology laboratories
                  engaged in specialized cancer diagnostic testing. We believe
                  that one or more of these markers may complement the current
                  panels of specialized genetic and immunologic testing
                  conducted on tumor biopsies and used by the pathologists to
                  arrive at a definitive diagnosis.

         o        Disease-Specific Genetic Databases - New Target
                  Identification. We are developing proprietary genetic tests
                  and databases related to the effects of specific dietary
                  ingredients on chronic diseases such as cancer, heart diseases
                  and obesity. Since most chronic diseases involve simultaneous
                  changes in the levels of activity ("expression") of multiple
                  genes, we, unlike most of our competitors, are developing
                  "quantitative (QuEST) databases" for gene families for each
                  major chronic disease. The continued development of this
                  technology is being initially funded by a SBIR grant to our
                  company and other grants to Dr. James Kaput, Vice President of
                  Molecular Biology and Scientific Planning, and served as the
                  chief scientist of our GeneQuEST program. Dr. Kaput joined our
                  scientific management team on October 12, 1998. The QuEST
                  databases will have a novel focus, the influence of specific
                  dietary ingredients, since nutrition is now recognized as a
                  major factor in both the incidence and the progression of most
                  chronic diseases. Our first prototype database will use a
                  library of nearly 5,000 tissue specimens produced in a mouse
                  model to study the effects of specific sterols implicated in
                  enhancing the onset of certain forms of cancer. We also are
                  building an initial pilot database in humans relating to the
                  effects of cholesterol-related dietary ingredients on the risk
                  of breast cancer in collaboration with the Preventive
                  Nutrition Department of the Northwestern University School of
                  Medicine. Our contemplated specialized phenotyping service
                  business on genetically engineered mouse strains is also
                  expected to expand the databases relating to genes involved in
                  diseases (see - "Business - Small Molecule Service Business").

                  These databases are intended to provide us with novel targets
                  for our drug design and proprietary methodologies related to
                  gene expression analysis in cells involved in complex
                  diseases. We intend to enter into agreements with developers
                  of pharmaceuticals and specialty food products to predict or
                  monitor safety/efficacy of such products 


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                  ("pharmacogenomics") and to screen for novel nutrients
                  (nutraceuticals or functional foods) that may reduce the risk
                  or enable better treatment of complex diseases such as cancer,
                  chronic wounds and osteoporosis. The databases may also be
                  useful in monitoring population at high genetic risk for
                  specific diseases.

         Drug Delivery.  The focus on our drug delivery product research 
           includes:

         o        Drug Enhancement by PEMSRF and/or Iontophoretic Currents. It
                  has been indicated the scientific literature that the
                  application of an electrical field by placing electrodes or
                  the induction of an electric field by broadcasting
                  electromagnetic signals causes changes at the cellular level.
                  We intend to focus our in-house research program on
                  researching the molecular effects of PEMSRF-induced and
                  iontophoretic electric fields in order to develop new
                  information regarding the effects of these fields on cells and
                  tissues. We intend to use this information to extend clinical
                  applications of PEMSRF-induced and iontophoretic electric
                  fields, individually or in combination, by increasing the
                  effectiveness of drugs through altering cell physiology in
                  target tissues. Our current research program is aimed at
                  evaluating PEMSRF and iontophoretic E-fields with respect
                  their ability to alter biochemical processes and gene
                  activities of cells in order to either render diseased cells
                  more responsive to pharmaceutical agents or achieve
                  therapeutic effects by direct effects on disease-regulating
                  biochemical steps. One mechanism by which the increased
                  response (sensitivity) may be achieved is presumed to be
                  through changes in the membrane of cells caused by the E-field
                  that in turn changes the flow of ions or nutrients into and
                  out of the cell. The resulting products are expected to
                  augment the effects of biotechnology drugs, such as growth
                  factors, and pharmaceuticals for the treatment of degenerative
                  diseases of tissues such as skin, bone, nerve tissues and
                  joint cartilage. Our research program will specifically focus
                  on designing PEMSRF signals that enhance gene expressions and
                  cellular functions implicated in tissue regeneration.

Small Molecule Service Business

         We use our small molecule drug expertise to design, produce and sell
custom gene probes and synthetic peptides to biotechnology companies and
research centers, with a special focus on the developers of new chip-based and
microarray-based DNA diagnostics and disease genetics research, respectively.
The demand for these products has significantly increased during the past five
years to support PCR (polymerase chain reaction) tests, human genome sequencing
and biopharmaceutical research and development programs for screening and
evaluation of novel drugs and diagnostics. We currently design and supply
oligonucleotide gene probes with custom chemical modifications to both
commercial companies and academic medical centers for use in diagnostic products
and in Human Genome Project research programs, respectively. We intend to
develop and market our design and synthesis expertise to meet additional demand
for gene probes that is expected during the next five to ten years in the
chip-based and microarray-based DNA diagnostics industry.

         Dr. Krishna Jayaraman, Vice Chairman of our company and an
internationally recognized expert in the field of gene probe design, is
collaborating with Dr. Michael Hogan, Professor of Molecular Physiology and
Biophysics at the Baylor College of Medicine of Houston, Texas, who is one of
the leaders in the field of microarray based DNA diagnostics and a member of our
scientific and medical advisory board. This collaborative program is partially
funded by a SBIR grant from the NIH and is focused on developing 


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novel small nucleobase polymer molecules that will specifically address the
needs of the microarray-based diagnostics. We believe that the resulting
technology will enable us to rapidly grow our specialized service business by
expanding our customer base and by creating new probes that we hope will
establish us as a leading supplier of DNA probes for microarray-based
diagnostics.

         We intend to establish a new specialized "genetic phenotyping" service
that will address a new and growing biomedical research and development market
need involving the use of genetically engineered animals, especially mice. Three
of the nation's leading pathologists and veterinary pathologists have agreed to
work with us to establish a state of the art capability to perform sophisticated
morphologic analyses to define the phenotypic expression in genetically
engineered animal models, which will complement our current capability to
perform gene expression analysis in tissue specimens. The use of genetically
engineered animals, particularly mice, has grown rapidly during the past few
years as a result of the vast amounts of genetic information produced from the
Human Genome Project. Scientists can now create defects in selected target genes
or insert candidate genes associated with a disease in mice and produce
offsprings that carry a known gene defect ("knockout") or a new gene
("transgenic"). These mice serve as models for studying known human diseases as
well as predicting safety, efficacy and side effects of drugs for such diseases.
In order to obtain clinically valuable information, research scientists need
both pathology analysis that delineates tissue structure-function defects and
gene expression analysis in the tissue cells that provide detailed molecular
information with respect to the effects on the target gene or its protein
product. We intend to expand our services to include specialized phenotypic
analyses of transgenic and knock-out animal models ("specialized genetic
pathology") and gene activity analyses on tissues of such animals and specimens
from animal model studies on pharmacologic evaluation of drugs
("pharmacogenomics"). We believe that these services will produce revenues and
also create an opportunity for our scientists to create valuable genetic
phenotyping databases that will significantly enhance the value of our
phenotyping services and have potential application in drug design as well as
safety/efficacy evaluation.

Potential Markets for Company's Products

         Drug Delivery. The segment of the drug delivery market that is being
targeted as a field of application for our non-invasive drug delivery
technologies was estimated to be about $11.5 billion in 1996 and growing at an
annual rate of about 20%. An attractive aspect of the emerging drug delivery
technologies is that their commercial value can be demonstrated by improving the
utility of available approved products and regulatory approval for commercial
marketing for such value enhancement application is expected to be less time
consuming than the development of a new drug. A number of technologies are being
developed and evaluated by different companies for various clinical indications.
The potential for noninvasively achieving increased local blood flow by PEMSRF
to organs such as breast and brain may have significant advantage over other
methods in delivering cancer drugs, especially the highly toxic chemotherapeutic
agents or the biotechnology products that are large molecules with limited
tissue delivery. Additional applications of PEMSRF include the delivery of
anti-inflammatory drugs for the treatment of arthritis and tissue repair drugs
in wound care and osteoporosis. The market for iontophoresis for prescription
dermatology drugs includes severe acne, psoriasis, dermatitis, aging-associated
wrinkling, pigmentation disorders, baldness and localized infections (viral,
bacterial and fungal). The prescription dermatology drug market is estimated to
be more than $3 billion annually.

         Small Molecule Drugs. The small molecule drugs being initially designed
by our scientists target biochemical pathways inside of cancer cells or on
enzyme molecules released by cancer cells for growth and spread. Our drug
delivery technology based on PEMSRF is expected to improve the delivery of
cancer 


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imaging and treatment drugs. The global market for cancer drugs exceeds
$4 billion annually and over $5 billion is spent annually for cancer diagnosis.
Approximately 1.4 million new cases of cancer are diagnosed each year. In
addition, millions of cancer patients who underwent remission following
traditional treatments during the past three to five years will relapse with a
higher mortality rate. Cancer is the second leading cause of death in the U.S.,
and approximately one of every three Americans will get cancer. The National
Cancer Advisory Board reports that more than 8 million people in the U.S. have
cancer. The most difficult aspect of effectively treating cancer is the
treatment of cancer spread ("metastasis") since it requires high and toxic
dosages of chemotherapy or available biotechnology drugs and cannot be treated
by radiation or surgery.

         In addition to cancer, the proteins and genes that are expected to be
targeted by our small molecule drugs are implicated in inflammation (such as
arthritis), other chronic diseases (such as Alzheimer's and osteoporosis) and
certain infections (such as warts and acne) with potential combined markets of
several billion dollars. The flexible iontophoretic patch technology is expected
to improve the efficacy for our anti-infective small molecule drugs.

         The evolving molecular medicine market includes not only novel
diagnostic and treatment products but also the use of molecular information to
prevent the incidence and to improve treatment outcomes of chronic diseases.
Molecular diagnostic tests have claimed a progressively growing percentage of
the total diagnostic business (currently estimated at $36 billion annually) and
some analysts estimate that the total market for molecular testing in disease
diagnosis will exceed $5 billion by the year 2002. Our small molecule service
business targets the gene probe market that is estimated by analysts to be more
than $1 billion annually in the U.S. alone and growing at about 20% per year. In
addition, our new technology to create modified probes that enhance the
sensitivity and specificity of DNA diagnostics is expected to target the new
products based on microarray products that monitor hundreds of genes
simultaneously. This new market is expected to exceed $2 billion by the year
2003. Additional specialized services that use our small molecule-based services
relating to genetically engineered animal models may exceed $250 million per
year based on the estimated 200,000(+) such strains that are expected to be
analyzed at $1,000 to $2,000 for each strain.

         The Future Markets.  Potential long-term markets for our core 
technologies include:

     o     application of our PEMSRF electromagnetic signals or iontophoretic
           electric fields in tissue repair and
     o     genetic databases related to the nutritionally regulated genes.

         Analysts estimate that the market for products used in the repair and
regeneration of skin and cartilage from wounds, inflammatory diseases and
arthritis exceeds $5 billion annually, based on the number of procedures
performed to repair tissue damages from trauma and degenerative diseases. The
potential market size for products or treatment modalities for peripheral nerve
damages and degenerative brain diseases (such as Alzheimer's disease) is also in
the multibillion dollar range. Genetic databases being developed by the gene
sequencing companies ("functional genomics" and "pharmacogenomics") are being
used by pharmaceutical and biotechnology companies to screen new drug candidates
and create diagnostic gene probes. Within the past few years, the licensing and
other revenues paid to "genomics" companies for the use of these databases have
exceeded $200 million. Our QuEST databases complement the current databases and
are expected to be used by the companies developing therapeutic products to
further refine the selection of drug candidates for chronic diseases such as
heart diseases, osteoporosis, cancer


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and diabetes. In addition, the use of our QuEST databases and gene activity
profile analysis are expected to be applicable to more than five million
Americans who are projected to be members in various diet/nutrition, wellness
and anti-aging programs by the year 2001. Finally, we expect that our database
of genetic phenotyping of genetically engineered animals will be used by
companies developing genetic diagnostic and therapeutic products.

         Competition in the markets being targeted by our products is intense.
In addition to all the major pharmaceutical and biotechnology companies, several
commercial companies such as Vertex Pharmaceuticals, Millennium Pharmaceutical,
Lynx Therapeutics and Gene Logic Inc. are engaged in the design or the
identification of gene targets for novel small molecule drugs based on gene
discoveries; Collagenex Pharmaceuticals, Medarx Inc. and others are creating
products to treat cancer metstasis; Iomed Inc., Sano and Nanosystems (now
subsidiaries of Elan), Alkermes and others are pursuing novel drug delivery
technologies. These and many other companies, as well as numerous academic and
not-for-profit research centers, are pursuing clinical indications and product
candidates that are substantially similar to those we are developing. Numerous
commercial, academic and not-for-profit research centers also have developed and
are developing various types of genetic databases.

Patents, Intellectual Property and Proprietary Information

         We have exclusive licenses to and/or ownership of certain patents and
pending patent applications relating to our core technologies. We actively seek,
when appropriate, protection of our products and proprietary information by
means of United States and foreign patents, trademarks and contractual
arrangements. In addition, we rely upon trade secrets and contractual agreements
to protect certain of our proprietary information and products.

         As of June 30, 1998, we owned three issued U.S. patents relating to the
PEMSRF technology and products, an exclusive license to one issued U.S. patent
related to a cancer cell-associated enzyme, an exclusive license to a pending
patent application relating to a family of nucleobase compounds and owned
certain other pending applications relating to cancer cell targets, nucleobase
compounds, genetic database development methodology for nutritionally regulated
genes, and controlled release delivery matrix for certain drugs and biologicals.

         Drug Delivery Intellectual Property. We have licensed from Elan certain
rights to several pending patent applications relating to the flexible
iontophoretic patch technology. We also own the following three issued U.S.
patents related to its PEMSRF technology:

         o        #5,370,680 dated December 6, 1994 entitled "Athermapeutic
                  Apparatus Employing Electromagnetic Fields";

         o        #5,584,863 dated December 17, 1996 entitled; and "Pulsed Radio
                  Frequency Electrotherapeutic System"; and

         o        #5,723,001 dated March 3, 1998 entitled "Apparatus and Method
                  for Treating Human Body Tissue with Electromagnetic
                  Radiation".

         We also have one corresponding case issued in Canada and a pending
application designating a number of foreign countries. We intend to file
additional applications in the U.S. and foreign countries based


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on the results of the contemplated clinical and molecular studies and claim
certain applications of therapeutically active PEMSRF, methods of delivering the
same and uses therefor.

         We are the assignee of U.S. patent application number 08/381,769
(filing date February 1, 1995) entitled "Calcium Phosphate Precipitate
Formulations and Uses Therefor" related to controlled delivery of biological and
drug substances with potential use in tissue regeneration.

         Drug Design and Targets Intellectual Property. We have exclusively
licensed from Aronex Pharmaceutical a U.S. patent application corresponding to a
provisional application number 60/023907 (filing date August 14, 1996) entitled
"Phosphazole Compounds" and all corresponding patent applications thereto. This
application relates to nucleobase modifications and the inventor of this
application is now an employee of our company.

         We have exclusively licensed a U.S. patent #5,726,015 dated March 10,
1998 entitled "Method to Determine Metastatic Potential of Tumor Cells" and
related know-how from Vanderbilt University as a potential target for our cancer
product development program.

         We are in final stages of filing two additional U.S. patent
applications that are assigned to our company relating to nucleobase
modifications for "DNA diagnostic" and "protein-targeting therapeutic"
applications. We also are in final stages of filing two additional U.S. patent
applications that are assigned to our company, one of which relates to the
"design and uses of compounds related to a metastatic cancer cell-associated
molecule implicated in invasivity or spread of cancers" and the other relates to
"a method of identifying diet-regulated disease-linked genes, databases and uses
therefor".

         There can be no assurance that any patents will issue from any of our
pending patent applications or, even if patents issue or have issued, that the
claims thereof will provide us with any significant protection against
competitive products or otherwise be valuable commercially. Our patent
applications in foreign countries are either not filed yet with respect to
certain inventions and are not being prosecuted in all major foreign countries
in other instances. There can be no assurance that we or our corporate partners
will have the financial resources to file and prosecute patent applications in
all major foreign countries. See "Risk Factors - Uncertainty about Patents,
Confidential Information, Trade Secrets and Others' Rights."


         With respect to proprietary know-how that is not patentable and for
processes for which patents are difficult to enforce, we have chosen to rely on
trade secret protection and confidentiality agreements to protect our interests.
We believe that several elements of our product development and research involve
proprietary know-how, technology or data which are not covered by patents or
patent applications. Some of this data will be the subject of patent
applications whereas other data will be maintained as proprietary trade secret
information. We have taken security measures to protect our proprietary know-how
and technologies and confidential data and continue to explore further methods
of protection. While we require all employees, consultants and collaborators to
enter into confidentiality agreements, there can be no assurance that
proprietary information will not be disclosed, that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets, or that we can
meaningfully protect our trade secrets. In the case of a strategic partnership
or other collaborative arrangement which requires the sharing of data, our
policy is to make available to our partner only such data as are relevant to the
partnership or arrangement, under controlled circumstances, and only during the
contractual term of the strategic partnership or collaborative arrangement, and
subject to a duty of


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confidentiality on the part of our partner or collaborator. There can be no
assurance, however, that such measures will adequately protect our data.

Manufacturing

         We will rely, at least in part, on third party manufacturers to produce
our drugs or other products for preclinical and clinical studies and also for
commercial production of most of our products that are approved for marketing.
We have not yet established a quality assurance program, including a set of
standard operating procedures, intended to ensure that third party manufacturers
under contract produce our compounds in accordance with the FDA's current Good
Manufacturing Practices ("cGMP") and other applicable regulations.
See "Business - Government Regulation."

         We believe that all of our existing product candidates can be produced
using available methods, primarily through standard techniques of pharmaceutical
synthesis. We currently do not have the capacity to manufacture our potential
products, are dependent on third party manufacturers or collaborative partners
for such production for preclinical research and clinical trial purposes and
expect to be dependent on such manufacturers or collaborative partners for some
or all commercial production of any of our products that are approved for
marketing. We believe that we will be able to continue to negotiate arrangements
on commercially reasonable terms and that it will not be necessary for us to
develop internal production capability in order to develop our products
successfully. In the event that we are unable to obtain contract manufacturing,
or obtain such manufacturing on commercially reasonable terms, we may not be
able to commercialize our products as planned. Our objective is to maintain
flexibility in deciding whether to develop internal manufacturing capabilities
for certain of our potential products. We have only a limited expertise in the
manufacture of class III medical devices and no experience in manufacturing
pharmaceutical or biotechnology products or in conducting manufacturing testing
programs required to obtain FDA and other regulatory approvals. We can not
assure that we will develop such capabilities successfully.

         Since our potential products are at an early stage of development, we
will need to improve or modify our existing processes and capabilities to
produce any product for clinical trials or commercial marketing. We cannot
quantify the time or expense that may ultimately be required to improve or
modify our existing process technologies, but it is possible that such time or
expense could be substantial.

         The production of our products is expected to be based in part on
technology that we believe will be proprietary. We may license this technology
to contract manufacturers to enable them to manufacture compounds for our
product development programs. We can not assure that such manufacturers will
abide by any limitations or confidentiality restrictions in licenses with us. In
addition, any such manufacturer may develop process technology related to the
manufacture of our products that such manufacturer owns either independently or
jointly with us. This would increase our reliance on such manufacturer or
require us to obtain a license from such manufacturer in order to have our
products manufactured. We can not be sure that any such license would be
available on terms acceptable to us, if at all.

         Some of our corporate partners are expected to have certain
manufacturing rights with respect to our products under development, and there
can be no assurance that such corporate partners' rights will not impede our
ability to conduct the development programs and commercialize any resulting
products in accordance with the schedules and in the manner currently
contemplated by us. See "Risk Factors - Dependence on Corporate Partners."


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Competition

         We are engaged in pharmaceutical fields characterized by extensive
research efforts, rapid technological progress and intense competition. There
are many public and private companies, including pharmaceutical companies,
chemical companies and biotechnology companies, engaged in developing products
for the human therapeutic applications targeted by us. Further, we believe that
interest in the application of drug design and related technologies may continue
and may accelerate as the technologies become more widely understood. We are
aware of efforts by others to develop products in each of the areas in which we
have products in development. In order for us to compete successfully in these
areas, we must demonstrate improved safety, efficacy, ease of manufacturing and
market acceptance over our competitors, who have received regulatory approval
and are currently marketing. Furthermore, academic institutions, governmental
agencies and other public and private research organizations are conducting
research to develop technologies and products that may compete with those under
development by us. In addition, other technologies are, or may in the future
become, the basis for competing products. We can not be certain that our
competitors will not succeed in developing technologies and products that are
more effective than the ones we are developing or that would render our
technology and products obsolete or noncompetitive. We also can not be sure that
our products in development will be able to compete effectively with products
which are currently on the market. See "Risk Factors -- Uncertainty About
Technologies and Successful Development of Products."

         Many of our competitors have substantially greater financial, technical
and human resources than we do. In addition, many of our competitors have
significantly greater experience than our staff in conducting preclinical
testing and human clinical trials of new pharmaceutical products, and in
obtaining FDA and other regulatory approvals of products. Accordingly, certain
of our competitors may succeed in obtaining regulatory approval for products
more rapidly than we would. If we obtain regulatory approval and commence
commercial sales of our products, we will also compete with respect to
manufacturing efficiency and sales and marketing capabilities, areas in which we
currently have no experience. See "Risk Factors -- Intense Competition; Rapid
Technological Change; Technology Obsolescence."

Product Pricing and Reimbursement

         Our ability, with or without corporate partners, to commercialize our
products successfully will depend in part on the extent to which appropriate
reimbursement levels for the cost of such products and related treatment are
obtained from government authorities, private health insurers and other
organizations, such as health maintenance organizations ("HMOs"). Third party
payors and government authorities are continuing efforts to contain or reduce
the cost of health care. For example, in certain foreign markets, pricing and/or
profitability of prescription pharmaceuticals are subject to government control.
There can be no assurance that similar controls will not be implemented in the
United States. Also, the trend toward managed health care in the United States
and the concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of health care services and products, may
result in lower prices for our products. The cost containment measures that
health care providers and third party payors are instituting and any proposed or
future health care reform measures, including any reductions in Government
reimbursement programs such as Medicaid and Medicare, could affect our or our
partners' ability to sell our products.

         The success of our products in the United States and other significant
markets will depend, in part, upon the extent to which a consumer will be able
to obtain reimbursement for the cost of such products from


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government health administration authorities, third-party payors and other
organizations. Significant uncertainty exists as to the reimbursement status of
newly approved therapeutic products. Even if a product is approved for
marketing, there can be no assurance that adequate reimbursement will be
available. We are unable to predict what additional legislation or regulation
relating to the health care industry or third-party coverage and reimbursement
may be enacted in the future or what effect the legislation or regulation would
have on our business.

Sales and Marketing

         We divested our sales and marketing force for SofPulseTM, the medical
device that was divested as a part of our recent restructuring ( "-- Recent
Corporate Reorganization"). We do not plan to build our own sales and marketing
team in the near future. We intend to focus on direct contacts into the academic
research community to market our special services using our drug design
expertise during the foreseeable future. We may establish alliances with
distributors to market our services and research reagents that we produce. In
the long-term, our goal would be to use our corporate partners' sales forces to
market our products.

Facilities

         The Company maintains leased administrative manufacturing and research
office space at two facilities. The Company's principal executive offices, which
consists of approximately 1,800 square feet of useable space, are located at
1109 NW 13th Street, Gainesville, Florida. This facility is leased to the
Company until September 1999. Its research and manufacturing facility, Gemini
Biotech division, which consists of approximately 4,000 square feet of useable
space, is located at 3608 Research Forest Drive, The Woodlands, Texas. These
facilities are leased to the Company until February 1999. The Company believes
its existing facilities are adequate and suitable for its present needs and that
additional space will be available as needed.

Employees

         As of October 30, 1998, the Company had 17 full-time employees, 6 of
whom hold doctorate degrees while others hold advanced business or technical
degrees. Of the Company's 17 full-time employees on that date, 5 were engaged in
research and development, 5 in laboratory support services, and 7 in marketing
and general administration. The Company's future success depends in significant
part upon the continued service of its key technical and senior management
personnel and its continuing ability to attract and retain highly qualified
technical and managerial personnel. None of the Company's employees are
represented by a labor union and the Company considers its relations with its
employees to be good. See "Risk Factors -- Attraction of and Dependence on Key
Personnel."

Legal Proceedings

         In February 1993, Diapulse Corporation of America, Inc. ("Diapulse")
filed a citizen's petition requesting that the FDA revoke the substantial
equivalence finding for the SofPulse and prevent the Company from making certain
labeling claims. The Company believes, based upon the advice of regulatory


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counsel, that Diapulse's petition is without merit. The Company has responded to
the petition. The Company, however, in response to comments received by the
Company from the FDA, has made revisions in its promotional materials to obviate
any claim that such material is inconsistent with FDA regulations. The Company
has received an opinion [date] of regulatory counsel stating that Diapulse's
petition is lacking in merit and that it is highly unlikely that the FDA will
grant the petition. Nevertheless, in the event that the FDA were to grant the
petition, the Company's business and prospects would be materially adversely
affected. In October 1993, Diapulse submitted additional information to the FDA
in support of its petition and the Company responded. As of the date hereof, the
FDA has not notified the Company as to any action with respect to the
aforementioned petition.

         In August 1994, Diapulse filed a lawsuit in the Supreme Court of the
State of New York, Nassau County ("The Court"), captioned Diapulse Corporation
of America V. Magnetic Resonance Therapeutics, Inc. et al., alleging that the
defendants, Magnetic Resonance Therapeutics, Inc., a legal predecessor to the
Company, Bio-Sales, Inc., the Company, and certain of the Company's present and
former directors and officers, including Joshua Barnum ("Barnum"), David Mills
("Mills"), Arthur Pilla ("Pilla"), David Saloff ("Saloff"), and David Winter
("Winer"), engaged in deceptive acts and practices, false advertising and unfair
competition in the marketing of a medical device. The complaint also alleges
that Barnum and Mills breached confidentiality and noncompetition agreements
with Diapulse and that the Company, Barnum and Pilla aided in the alleged
tortious breach of the agreements. Diapulse seeks unspecified compensatory
damages, disgorgement of profits realized by the defendants as a result of their
alleged acts, treble damages, punitive damages and reasonable attorneys' fees.
Diapulse also seeks unspecified injunctive relief prohibiting the defendants
from engaging in the alleged acts and ordering the defendants to take remedial
action to rectify the effects on consumers and Diapulse caused by the
defendants' alleged acts. The defendants jointly moved to dismiss the complaint
on jurisdictional and substantive grounds. The Court dismissed Winer from the
case based on lack of personal jurisdiction. The Court also dismissed certain
claims, as to the remaining individual defendants, including deceptive acts and
practices, false advertising and unfair competition. As to the claims remaining
against the individual defendants, certain of such claims may be indemnified by
the Company. As to the Company, the Court denied the motion to dismiss. The
Company answered the complaint, denied all material allegations, asserted
various affirmative defenses and counterclaimed against Diapulse and Jesse Ross,
individually. The counterclaims allege causes of action against Diapulse and
Jesse Ross for federal unfair competition and tortious interference of existing
and contractual business relations. In addition, the Company has asserted claims
against Diapulse for deceptive acts and unfair trade practices, and trade
disparagement. In its counterclaims, the Company seeks compensatory and punitive
damages in an amount to be proved at trial. This lawsuit is in a preliminary
stage and its outcome is uncertain. Although the Company believes that it has
meritorious defenses that it will vigorously pursue, there can be no assurance
that the outcome of such action will be resolved favorably to the Company or
that such litigation will not have an adverse effect on the Company's liquidity,
financial condition and results of operations.

         On August 28, 1997, Michelle O'Connell, formerly employed by Kinetech
Medical, Inc. ("Kinetech") as the Company's sales representative, filed a
complaint entitled O'Connell v. Kinetech Medical, Inc. and Electropharmacology,
Inc. in the County Court in Dallas County, Texas. The complaint alleged that
Kinetech and the Company were jointly and severally liable for an unspecified
amount of commissions earned by O'Connell from Kinetech, but unpaid, and
asserted a cause of action quantum meruit against the Company. O'Connell
dismissed the complaint against the Company in May 1998 and Kinetech immediately
filed a cross-complaint against the Company for breach of the agreement between
the Company and Kinetech for failing to pay commissions owed in excess of
$30,000. In August 1998, Kinetech joined National Patient Care Systems, Inc. as
an additional defendant for its share of the commissions owed. The


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Company answered the cross-complaint and asserted several affirmative defenses.
The case has not yet been set for trial and no discovery between the Company and
Kinetech has taken place.

         On July 14, 1998, Jack Baxter ("Baxter"), a former employee of the
Company, filed a complaint entitled Baxter v. Electropharmacology, Inc. in the
Circuit Court in Broward County, Florida. The complaint alleges the failure by
the Company to make payments of $20,000 due to Baxter under an agreement
pursuant to which Baxter and the Company had agreed to the terms of the
termination of their employer-employee relationship,. The Company answered the
complaint and asserted several affirmative defenses. The case has not yet been
set for trial and no discovery between the Company and Baxter has taken place.

Government and Environmental Regulation

         The Company's development, manufacture and potential sale of its
diagnostic and therapeutic products are subject to extensive regulation by
United States and foreign governmental authorities. In particular,
pharmaceutical products are subject to rigorous preclinical and clinical testing
and to other approval requirements by the FDA in the United States under the
Food, Drug and Cosmetic Act and by comparable agencies in most foreign
countries.

         As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animals to identify potential safety
problems. For certain diseases, animal models exist that are believed to be
predictive of human efficacy. For such diseases, a product candidate is tested
in an animal model. The results of the studies are submitted to the FDA as a
part of an Investigational New Drug application ("IND") for drugs or biologicals
or an Investigational Device Exemption ("IDE") for a therapeutic device, which
is filed to comply with FDA regulations prior to commencement of human clinical
testing. For other diseases for which no appropriately predictive animal model
exists, no such results can be filed. For certain of the Company's product
candidates, no appropriately predictive model exists. As a result, no in vivo
evidence of efficacy would be available until such compounds progress to human
clinical trials.

         Clinical trials for a drug or a biological are typically conducted in
three sequential phases, although the phases may overlap. In Phase I, which
frequently begins with the initial introduction of the drug into healthy human
subjects prior to introduction into patients, the compound will be tested for
safety, dosage tolerance, absorption, bioavailability, biodistribution,
metabolism, excretion, clinical pharmacology and, if possible, for early
information on effectiveness. Phase II typically involves studies in a small
sample of the intended patient population to assess the efficacy of the drug for
a specific indication, to determine dose tolerance and the optimal dose range
and to gather additional information relating to safety and potential adverse
effects. Phase III trials are undertaken to further evaluate clinical safety and
efficacy in an expanded patient population at geographically dispersed study
sites, to determine the overall risk-benefit ratio of the drug and to provide an
adequate basis for physician labeling. For a therapeutic device, the clinical
trials are customarily done in multiple stages, initiating with a limited number
of patients and subject to confirmation of safety and preliminary indication of
efficacy, a larger number of patients are enrolled in order to lead to the
collection of sufficient data required for safety and efficacy analysis. Each
trial for each product is conducted in accordance with certain standards under
protocols that detail the objectives of the study, the parameters to be used to
monitor safety and the efficacy criteria to be evaluated. Each protocol must be
submitted to the FDA as part of the IND or IDE, as the case may be. Further,
each clinical study must be evaluated by an independent Institutional Review
Board ("IRB") at the institution at which the study will


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<PAGE>


be conducted. The IRB will consider, among other things, ethical factors, the
safety of human subjects and the possible liability of the institution.

         Data from preclinical testing and clinical trials are submitted to the
FDA in a New Drug Application ("NDA") for drugs, a Product License Application
("PLA") or a Biologic License Application ("BLA") for a biologic, and a Pre
Market Approval ("PMA") for a device for marketing approval. The process of
completing clinical testing and obtaining FDA approval for a new product is
likely to take a number of years and require the expenditure of substantial
resources. Preparing an NDA, PLA, BLA or a PMA involves considerable data
collection, verification, analysis and expense, and there can be no assurance
that approval will be granted on a timely basis, if at all. The approval process
is affected by a number of factors, including the severity of the disease, the
availability of alternative treatments and the risks and benefits demonstrated
in clinical trials. The FDA may deny an approval if applicable regulatory
criteria are not satisfied or may require additional testing or information.
Among the conditions for marketing approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to the FDA's cGMP regulations, which must be followed at all times. In complying
with standards set forth in these regulations, manufacturers must continue to
expend time, monies and effort in the area of production and quality control to
ensure full technical compliance. Manufacturing establishments, both foreign and
domestic, also are subject to inspections by or under the authority of the FDA
and by or under the authority of other federal, state or local agencies.

         Even after initial FDA approval has been obtained, further studies,
including post-marketing studies, may be required to provide additional data on
safety and will be required to gain approval for the use of a product as a
treatment for clinical indications other than those for which the product was
initially tested. Also, the FDA will require post-marketing reporting to monitor
the side effects of the drug. Results of post-marketing programs may limit or
expand further marketing of the products. Further, if there are any
modifications to the product, including changes in indication, manufacturing
process, labeling or manufacturing facilities, a supplement to the NDA, PLA, BLA
or a PMA may be required to be submitted to the FDA.

         The Orphan Drug Act provides incentives to drug manufacturers to
develop and manufacture drugs for the treatment of diseases or conditions that
affect fewer than 200,000 individuals in the United States. Orphan drug status
can also be sought for diseases or conditions that affect more than 200,000
individuals in the United States if the sponsor does not realistically
anticipate its product becoming profitable from sales in the United States.
Under the Orphan Drug Act, a manufacturer of a designated orphan product can
seek tax benefits, and the holder of the first FDA approval of a designated
orphan product will be granted a seven-year period of marketing exclusivity for
that product for the orphan indication. While the marketing exclusivity of an
orphan drug would prevent other sponsors from obtaining approval of the same
compound for the same indication, it would not prevent other types of drugs from
being approved for the same use. The Company has not sought Orphan Drug status
for any of its contemplated products.

         Under the Drug Price Competition and Patent Term Restoration Act of
1984, a sponsor may be granted marketing exclusivity for a period of time
following FDA approval of certain drug applications if FDA approval is received
before the expiration of the patent's original term. This marketing exclusivity
would prevent a third party from obtaining FDA approval for a similar or
identical drug through an Abbreviated New Drug Application ("ANDA"), which is
the application form typically used by manufacturers seeking approval of a
generic drug. The statute also allows a patent owner to extend the term of the
patent for a period equal to one-half the period of time elapsed between the
filing of an IND and the


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filing of the corresponding NDA plus the period of time between the filing of
the NDA and FDA approval. The Company intends to seek the benefits of this
statute, but there can be no assurance that the Company will be able to obtain
any such benefits.

         Whether or not FDA approval has been obtained, approval of a product by
regulatory authorities in foreign countries must be obtained prior to the
commencement of commercial sales of the product in such countries. Historically,
the requirements governing the conduct of clinical trials and product approvals,
and the time required for approval, have varied widely from country to country.

         In addition to the statutes and regulations described above, the
Company is also subject to 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 present and potential future
federal, state and local regulations. See "Risk Factors -- Extensive Government
Regulation."

                             MANAGEMENT AND ADVISORS

Directors, Executive Officers, Promoters and Control Persons

         The following individuals serve as the Company's executive officers and
directors. The officers are elected by the Directors and serve until earlier of
their resignation or removal by the Board of Directors.

<TABLE>

<S>                                     <C>          <C>                                                         
Arup Sen, Ph.D.                         47           Chairman of the Board, Chief Executive Officer, President
                                                     and Secretary

Krishna Jayaraman, Ph.D.                48           Vice Chairman and Director; President and Chief Executive
                                                     Officer of Gemini Biotech Division

Richard K. Kneipper, Esq.               51           Vice Chairman and Director

Ganapathi Revankar, Ph.D.               62           Executive Vice President of Gemini Biotech Division

David Saloff                            46           Executive Vice President - Marketing; Chief Financial
                                                     Officer; Director

James Kaput, Ph.D.                      44           Vice President of Gemini Biotech Division

Murray Feldman                          63           Director

Bernard Carrico, Jr.                    52           Director
</TABLE>


         Arup Sen, Ph.D., Chairman of the Board of Directors and Chief Executive
Officer. Dr. Sen has been Chairman, Chief Executive Officer and President of the
Company since April 1997 and prior thereto was Executive Vice President since
November, 1996. He co-founded HealthTech Development Inc. (HTD), a biotechnology
commercialization company, in December 1993 and served as its Chairman and Chief


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Executive Officer until November, 1996 and thereafter was Chairman until HTD's
merger with the Company in August, 1998 (see "Business - Recent Corporate
Reorganization" and "Certain Transactions"). From April, 1995 until November,
1996 he also served as Vice Chairman of HealthTech Diagnostics Corporation, a
specialty clinical testing laboratory with multiple locations throughout the
U.S. Dr. Sen was President of Dallas Biomedical, Inc., a medical technology
venture capital fund in Dallas, Texas, from July 1992 until August, 1993.
Between January, 1983 until July 1992, Dr. Sen was a senior executive at two
biotechnology companies (International Genetic Engineering, Inc. (Ingene), Xoma
Corporation which acquired Ingene), and at Sterling Winthrop (a pharmaceutical
company that was a subsidiary of Eastman Kodak). At these companies, he had the
responsibility for managing medical technology research and development,
intellectual property, private and public financing. At Ingene and Xoma, he
established strategic alliances with medical companies worldwide (including,
Biomet Inc., The Green Cross Corporation of Japan, Eastman Kodak and Dow
Chemical). Dr. Sen received a Ph.D. in biochemistry in 1974 from Princeton
University and served on the staff at the National Cancer Institute and the
Research Institute of Scripps Clinic until 1983. He is an inventor in more than
20 U.S. and foreign patents related to the diagnosis and treatment of cancer,
osteoporosis, atherosclerosis, immune diseases and AIDS. Dr. Sen serves on the
board of directors of Aquagene, Inc., a development stage biotechnology Company
developing transgenic fish for human pharmaceutical production, and Bio-Florida,
the Florida state chapter of the Bio Industry Organization, and is a courtesy
professor at University of Florida, Gainesville Biotechnology Program.

         Krishna Jayaraman, Ph.D., Vice Chairman and Director; CEO - Gemini
Biotech Division. Dr. Jayaraman is the founder and has been President of Gemini
Biotech, Ltd., its general partner, Gemini Biotech, Inc. and its predecessor,
Delargen Corporation, since 1996. Since 1992 and until its merger to form Aronex
Pharmaceutical in 1995, Dr. Jayaraman managed and was one of the principals in
the scientific leadership at Triplex Pharmaceutical Corporation of The
Woodlands, Texas where he was responsible for a product development program with
a multi-year contract for more than $30 million with the industry giant Hoechst
Pharma ceutical. Dr. Jayaraman has over 15 years of experience in managing
multidisciplinary technology development teams prior to which he had established
himself as a leading scientist in the field of design and engineering of genetic
and protein biotechnology products. He was a Senior Scientist of Protein
Engineering and the Manager of DNA Core facility in the Life Sciences Research
at Eastman Kodak. He founded Gemini Biotech to capitalize his technical,
management and business development expertise and rapidly established Gemini as
a provider of custom synthetic gene probes to the leading developers of novel
DNA diagnostics. He also negotiated an exclusive license and recruited the key
inventor of a library of anti-cancer and anti-inflammatory compounds from Aronex
Pharmaceutical, which had acquired Triplex. Dr. Jayaraman received a Ph.D. in
Biochemistry in 1978 from the Indian Institute of Science, Bangalore, an
internationally recognized institution in India. Dr. Jayaraman holds an Adjunct
Professorship at Baylor College of Medicine, has authored over 50 publications
and is an inventor in 6 U.S. patents.

         Richard K. Kneipper, J.D., Vice Chairman and Director. Mr. Kneipper is
co-founder and has served as President and Chief Executive Officer of HealthTech
Development Inc. since 1996. He co-founded in 1995 and served as the Chairman of
the Board of HealthTech Diagnostics Corporation, a specialty clinical testing
laboratory with multiple locations throughout the U.S., where he led its mergers
and acquisitions, private financing and a sale of substantially all assets to a
public Company in January, 1997. Mr. Kneipper was with the New York City law
firm of Chadbourne & Parke from 1968 to 1981 and a senior partner at the
internationally recognized law firm of Jones, Day, Reavis & Pogue from 1982
until 1996, when he elected to become Of Counsel in order to devote a
significant portion of his time to various business activities. He has over 30
years experience as a corporate and securities lawyer specializing in mergers,
acquisitions, tender offers, private and public financings, transactions
involving financial institutions, corporate governance,


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<PAGE>


proxy contests and other major corporate transactions. He received his J.D.
degree from Cornell University in 1968. At Jones, Day, Reavis & Pogue, Mr.
Kneipper served in various management capacities, including as a Member of
Advisory Committee, Chairman of the Financial Institutions Section, Chairman of
the Management and Special Development Group, and Coordinator of Dallas Office
Corporate Group.

         Ganapathi R. Revankar, Ph.D., Executive Vice President, Gemini Biotech
Division. Dr. Revankar has been executive vice president of Gemini Biotech, Ltd.
("Gemini") since 1997. From 1992 until joining Gemini, he was Vice President at
Triplex Pharmaceutical and its successor, Aronex Pharmaceutical at The
Woodlands, Texas (a public biotechnology Company that develops novel
formulations of anti-infective and cancer drugs). Dr. Revankar held senior
management positions and directed technical operations at the Nucleic Acids
Research Institute of ICN Pharmaceutical Corporation of Irvine, California (an
industry leader in nucleic acid products and technologies). He has nearly 20
years of experience in rational drug design and drug development that provides
the Company with a unique perspective on commercial drug development. Dr.
Revankar is an internationally recognized expert in the chemistry of
nucleobases, the building blocks of the genetic material. He received a Ph.D.
degree in Organic Chemistry in 1966 from Karnatak University, a leading
institution in India. He has published over 200 articles and is an [inventor]
[recipient] of 20 patents issued by the U.S. Patents and Trademark Office in the
field of drug design based on chemical synthesis of analogs of genetic material.
He is an Adjunct Professor at Baylor College of Medicine in Houston, Texas.

         David Saloff, Executive Vice President - Marketing; Chief Financial
Officer and Director. Mr. Saloff became Executive Vice President - Marketing
upon the completion of the Recent Corporate Reorganization. He founded the
Company under the name Magnetic Resonance Therapeutics, Inc. in 1990 and served
as its Chairman and Chief Executive Officer until August 1996 when he became
Vice Chairman, and Executive Vice President of Corporate Development. Since
April, 1997, he has served as Chief Financial Officer. Mr. Saloff led
Electropharmacology, Inc. through several rounds of private financing and an
initial public offering in May, 1995. Mr. Saloff was responsible for the design
of SofPulseTM device based on PEMSRF technology and its clearance for commercial
marketing from the FDA. He brings more than ten years sales and marketing
background in a wide range of medical products and services. He had previously
completed a turnaround and the sale of Akros Manufacturing, a small company
engaged in manufacturing and marketing therapy beds, to Cybex Inc. (formerly
Lumex Inc.), an American Stock Exchange Company. He received a Bachelors Degree
in Business Administration in 1974 from Adelphi University and is the recipient
of one U.S. patent.

         James A. Kaput, Ph.D. Vice President Molecular Biology & Scientific
Planning, Gemini Biotech Division. Dr. Kaput joined the Company on October 12,
1998. Prior thereto, since January 1997, he had been Director of the
Biotechnology Laboratory at Northwestern University and Research Associate
Professor in the Robert H. Lurie Cancer Center at Northwestern University
Medical School. From September 1995, he has been honorary Program Director of
Molecular Genetics in Nutrition at The Sapients Institute, a not-for-profit
research institute in Houston, Texas. Dr. Kaput had been a faculty and staff
member at the University of Illinois at Urbana-Champaign from 1985 through July,
1995. He has conducted basic molecular and biochemical research in cell biology
and in nutritional biochemistry. During the past decade, he developed a research
program called "molecular genetics in nutrition" that combines methods and
strategies from biochemistry, molecular biology, genetics, and nutrition. In
1997, he co-founded and served as Chief Scientific Officer of GeneQuEST Inc., (a
subsidiary of HealthTech Development Inc., which was merged into the Company in
August 1998 (see "Business - Recent Corporate Reorganization" and "Certain
Transactions") with the mission to participate in the commercialization of
molecular genetic methods in nutrition research. He is currently continuing his
research collaborations with various research groups at 


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<PAGE>


Northwestern University. Dr. Kaput received a Ph.D. in biochemistry and cell and
molecular biology in 1980 from Colorado State University and completed his
postdoctoral training in molecular cell biology at the Rockefeller University
with Professor Gunter Blobel, a member of the National Academy of Sciences.

         Murray Feldman, Director. Mr. Feldman has been a Director of the
Company since September 1996 and is a major investor in the Company. From June
1982 to present, Mr. Feldman has served as President of Murray Financial
Associates, Inc., a Company primarily engaged in originating, selling, and
servicing residential mortgages. Mr. Feldman is the uncle of Mr. David Saloff,
the Executive Vice President of Marketing for the Company.

         Bernard V. Carrico, Jr., Director. Mr. Carrico has been a Director of
the Company since August 1998. Mr. Carrico has a broad-based background in
operations, finance and marketing in retail, consumer products, real estate and
financial service industries. Since March 1998, he has been a co-founder,
President and Chief Executive Officer of the Argo Funding Company, LLC, a
private investment firm. From 1995 to August, 1997, he co-founded Heartland
Capital Appreciation Fund, LP with Ms. Alice Walton and served as the President
and Chief Executive Officer of this $52 million investment fund. Prior thereto,
Mr. Carrico served as First Vice President of Drexel Burnham Lambert in Dallas,
President, Chief Operating Officer of Western Capital Corporation (Dallas,
Texas) and Chief Operating Officer of Christiana Company (NYSE), and as Chief
Financial Officer of Texas Federal Financial Corporation of Dallas (NASDAQ). Mr.
Carrico received a B.S. from St. Joseph's College, Indiana and an M.B.A. from
Wayne State University, Detroit, Michigan.

Scientific and Medical Advisory Board

         The Company has assembled a distinguished panel of scientists to serve
on its Scientific and Medical Advisory Board in order to provide the Company
with guidance and advice on various scientific, clinical and intellectual
property matters. The advisors meet as a group as well as individually with
Company staff on a project-by-project basis in specific areas of expertise.

         Michael E. Hogan, Ph.D. Dr. Hogan is Professor of Molecular Physiology
and Biophysics at the Baylor College of Medicine, Houston, Texas. Professor
Hogan is a leading international expert in nucleic acid chemistry and is an
inventor of a novel DNA triple helix. He also is recognized as an expert in the
area of DNA probe technologies that apply to chip-based and micro-array
diagnostics, a discipline that is expected to revolutionize the field of DNA
diagnostics. He was the Scientific Founder of Triplex Pharmaceuticals
Corporation. He recently founded Genometrix Inc., a nationally recognized
biotechnology Company engaged in the development of novel Chipbased DNA
diagnostics. Dr. Hogan has been on the Scientific Advisory Board of Gemini since
its inception. He served on the faculty of Princeton University until joining
Baylor College of Medicine. Dr. Hogan has published extensively in the area of
nucleic acid biophysics and nucleic acid chemistry, especially as they apply to
the pharmaceutical and diagnostic applications. He has authored numerous
publications in national and international journals and is an inventor on
multiple U.S. and foreign patents.

         Sheldon Marc Schuster, Ph.D. Dr. Schuster is Director of the
Biotechnology Program of the University of Florida College of Medicine,
Gainesville, Florida; Associate Director for Research of the University of
Florida Cancer Center; and Professor of Biochemistry and Molecular Biology,
Adjunct Professor of Medicine and Adjunct Professor of Chemistry at University
of Florida. Dr. Schuster is a


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nationally recognized authority on enzyme biochemistry, and is the recipient of
eight patents in the U.S. He is a member of the Board and Chief Scientist of
AquaGene, Inc. (Alachua, Florida); a member of the Scientific Advisory Board of
Ixion Biotechnology, Inc. (Alachua, Florida); a member of the Editorial Board of
Stedman's Medical Dictionary (Baltimore, Maryland); a member of the Board of
BioWeb, Inc. (Alachua, Florida); and a consultant for BioNebraska, Inc.
(Lincoln, Nebraska). In 1988 Dr. Schuster was a Visiting Professor in the
Department of Biological Sciences at Stanford University. From 1981 to 1988, he
had various positions with the University of Nebraska Lincoln, including
Director of its Gene Synthesis Facility and its Peptide Synthesis Facility.
Prior thereto he had acted in various research capacities at the University of
Wisconsin, the University of Arizona and the Syntex Research Institute of
Hormone Biology. Dr. Schuster received a Ph.D. from the University of Arizona in
1974.

         Bharat B. Aggarwal, Ph.D. Dr. Aggarwal is Professor of Medicine and
Chief of the Cytokine Research Section at M.D. Anderson Cancer Center, Houston.
Professor Aggarwal is an expert on Cytokine research and has authored over 245
publications and is an inventor in multiple U.S. and foreign patents. Prior to
joining the M.D. Anderson Cancer Center, Dr. Aggarwal was Group Leader of
Protein Chemistry, Molecular Biology and Molecular Immunology at Genentech Inc.,
the world's premier biotechnology Company. He was the first to clone the gene
for Tumor Necrosis factor-alpha and led the early evaluation of this critical
biological response modifier in the diagnosis and treatment of cancer on behalf
of Genentech. Dr. Aggarwal serves or has served on the Editorial Boards of the
Journal of Biological Chemistry, the Journal of Infection and Cytokine Research,
the Journal of Applied Biochemistry and Biotechnology and as the associate
editor of the Journal of Immunology. He is a scientific reviewer of over 20
premier journals including such prestigious journals as Science, Cell and the
Proceedings of the National Academy of Sciences. He is a member of the National
Institutes of Health study sections reviewing NIH-funded grants and has served
on several site visit committees. He has edited six books and has contributed
several chapters on cytokines, the key protein targets implicated in cancer,
inflammation and autoimmune diseases. His general area of research had focused
for the past fifteen years on the investigation of novel growth factors and
growth inhibitors produced by the cells of the immune system and by tumor cells.

         Martin L. McGregor, Ph.D., J.D., Consulting Director - Intellectual
Property and Technology Licensing. He is the founder and partner of McGregor &
Adler, P.C. in Houston, Texas and serves as Of Counsel to Winstead Sechrest &
Minick P.C. in Dallas, Texas. Mr. McGregor has over 19 years experience as a
lawyer on intellectual property matters, particularly in the chemical and
biotechnology industry. Prior to founding his current law firm in 1996, he was a
lawyer specializing in biotechnology patent prosecution and litigation with
Gardere & Wynne LLP, one of the largest law firms in Texas, and at Baker & Botts
LLP, a large nationally recognized law firm. He also is an Adjunct Faculty
Member for Patent and Regulatory Issues for Chemists at the University of Texas
at Arlington, a member of the Biotechnology Institute Board of the U.S. Patent
and Trademark Office, a member of the Editorial Board of "Biotechnology Law
Reports" and a member of the Board of BioTexas.

         George C. Fareed, M.D. Dr. Fareed is Chief of Medicine and Chairman of
Infection Control Committee of Pioneers Memorial Hospital, Brawley, California,
and is affiliated with El Centro Regional Medical Center, El Centro, California.
He also is Director of the Special Infection (HIV) Clinic in Brawley, California
and Medical Director of the AIDS Research Alliance, West Hollywood, California.
Dr. Fareed practices in general/family medicine and sports medicine (he also is
Team Physician to the U.S. Davis Cup Tennis Team). He co-founded International
Genetic Engineering Inc. (Ingene) in 1981 and served in various positions with
Ingene Inc. and its successor Xoma Corp., including Director of Scientific
Planning, Director of Cancer Biotherapy and Director of New Product Development.
Dr. Fareed was Associate Professor at


                                       74

<PAGE>


the UCLA School of Medicine, Visiting Professor at the University of Nice,
France and Assistant Professor at Harvard Medical School. He also is an inventor
in three U.S. patents. Dr. Fareed received his M.D. degree from the Harvard
Medical School and completed his internship at the Peter Bent Brigham Hospital,
Boston, Massachusetts.

         Brian M. Kinney, M.D. Dr. Kinney is Chairman of New Technology
Committee of the American Society of Plastic and Reconstructive Surgery and is
engaged in private practice in California. He serves as an adjunct faculty
member in the Department of Surgery at the University of Southern California
School of Medicine. He also is an advisor for various medical companies engaged
in the development of new technologies applicable to soft tissue surgery. Dr.
Kinney has authored numerous publications and serves on a number of national and
international committees. He received an M.D. degree from Tulane University,
completed his internship and residency at the University of California, Los
Angeles and then completed his residency and board certification in plastic
surgery at University of California, Los Angeles. Dr. Kinney also completed a
research fellowship on muscle and bone regeneration at the University of
California, Los Angeles.

                             EXECUTIVE COMPENSATION

         The following table sets forth certain information regarding
compensation paid during each of the Company's last three fiscal years to the
Company's President and Chief Executive Officer and the Company's other
executive officers employed by the Company (the "Named Executives").


                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                  Long-term Compensation
                                                                ------------------------
                                      Annual Compensation          Awards     Payout
                                ------------------------------  ----------  ---------

                                                                            Securities
                                                  Other Annual  Restricted  Underlying           All Other
Name and                 Fiscal                   Compensation  Stock       Options/    Ltip    Compensation
Principal Position       Year  Salary($)  Bonus($)   ($)        Awards($)   Sars(#)   Payout($)      ($)
------------------       ----  ---------  -------- -----------  ----------  --------- --------- ------------
<S>                      <C>    <C>          <C>     <C>         <C>         <C>           <C>          <C>
Arup Sen (1)             1997   123,604      --       6,000(2)   152,446(3)   25,000       --           --
  Chairman, President    1996    25,962              23,967(4)    31,162(5)   75,000       --           --
  & Chief Executive      1995
  Officer
David Saloff             1997   137,219      --      10,000           --          --       --           --
  Vice Chairman &        1996   143,297      --       8,500           --     100,000       --           --
  Executive Vice         1995   126,000      --       6,000           --          --       --           --
  Vice President
Joseph Mooibroek (1)     1997    53,109             132,269(6)                25,000(7)
  Former Chairman,       1996   112,644      --      70,396(8)    94,596(5)  592,086(9)    --           --
  President, Chief       1995        --      --          --           --          --       --           --
  Executive Officer
</TABLE>

----------
(1)      Dr. Arup Sen was appointed Chairman, President, Chief Executive Officer
         and Secretary on April 1, 1997. Mr. Mooibroek served as President and
         Chief Executive Officer from August 5, 1996 until he resigned from such
         positions on April 1,1997. As of April 12, 1997, Mr. Mooibroek entered


                                       75

<PAGE>


         into a severance agreement with the Company. (See "Management and
         Advisors"--Employment Contracts, Terminations of Employment and Change
         of Control Agreements").

(2)      Includes a $6,000 car allowance.

(3)      Represents the value on the various dates of grant of 116,047 shares of
         Common Stock received by Dr. Sen in lieu of cash compensation.

(4)      Includes a $833 car allowance, $13,838 of deferred compensation for the
         payment of taxes and, in lieu of cash compensation, 1,688 shares of
         Common Stock valued at $8,696 at December 31, 1996.

(5)      Represents the value at the date of grant of 10,838 and 32,903 shares
         of Common Stock received by Dr. Sen and Mr. Mooibroek, respectively,
         for reimbursement of relocation expenses.

(6)      Includes a $3,000 car allowance and $129,269 in severance payments and
         interest on note payable for such severance payments, $8,569 of which
         remained outstanding at year end.

(7)      Represents a ten-year warrant to purchase Common Stock at $2.25 per
         share.

(8)      Includes a $5,000 car allowance and $36,788 as reimbursement for the
         payment of taxes. Also includes $28,608 of deferred compensation. In
         lieu of cash compensation, Mr. Mooibroek elected to receive 5,555
         shares of Common Stock valued at $28,608 at December 31, 1996.

(9)      384,450 of these options were canceled on April 12, 1997 in connection
         with Mr. Mooibroek's severance agreement. The remaining 207,236 options
         became fully vested.

                     COMPENSATION OF DIRECTORS AND ADVISORS

         Pursuant to the Company's Non-Employee Directors' Equity Compensation
Plan, the Company pays each non-employee director $2,500 per fiscal quarter in
Common Stock priced at the closing on the last business day of trading in such
quarter, payable after January 1 of the following year. For 1997, each
non-employee director also received a stock option of 2,500 shares of Common
Stock, which option was granted on the last trading day of the year, immediately
vested and has a term of four years. At the time that a non-employee director
joins the Board of Directors, the director is granted a stock option of 15,000
shares of Common Stock, which option is granted upon the directors attendance at
the first meeting of the Board of Directors, vests immediately with respect to
20% of the underlying shares and with respect to the remaining shares vests an
additional 20% of the shares upon each anniversary year thereafter.

         Directors who are also employees of the Company do not receive
compensation for their participation as members of the Board of Directors of the
Company.

                                   EMPLOYMENT


                                       76

<PAGE>


         On August 25, 1998, the Board of Directors issued a memorandum to Arup
Sen, outlining in general the terms of employment of Dr. Sen as Chief Executive
Officer of EPi, effective as of September 1, 1998. The memorandum provides for
an initial base salary of $130,000, which has increased to $150,000, and may
further increase up to $200,000 in a series of stepped increments upon the
achievement of specified milestones. The memorandum also provides that the
Company will grant to Dr. Sen a ten- year option to purchase 500,000 shares at
the stock price at close of trading on the date of grant (August 25, 1998),
150,000 of which have vested based on the achievement of specific milestones set
by the Board of Directors, with the remainder to vest upon the achievement of
other such milestones. Stock and cash bonuses are to be at the sole discretion
of the Board of Directors. In the event that Dr. Sen's employment is terminated
without "cause" before three years, Dr. Sen is entitled to a severance of six
months' base salary subject to his mitigation of such payment by seeking other
employment. All his stock options will vest immediately and will remain
exercisable for the original term of the option in the event his employment is
terminated due to an acquisition by or merger with a third party not recommended
and/or approved by Dr. Sen, or without "cause".

         For a description of the employment agreement entered into between the
Company and Krishna Jayaraman, the President and Chief Executive Officer of the
Gemini Biotech Division of the Company and a director of the Company, on August
19, 1998 see "--Certain Transactions."

         On August 25, 1998, the Board of Directors issued a memorandum to David
Saloff, outlining in general the terms of employment of Mr. Saloff as Executive
Vice President- Sales and Marketing of the Company, effective as of September 1,
1998. The memorandum provides for an initial base salary of $80,000, which may
increase up to $110,000 upon certain events, including the achievement of
certaion increase annual revenue to be calculated by annualizing the prior six
months' revenues. The memorandum also provides that Mr. Saloff will be entitled
to an override on sales revenue at specified percentages of the annualized run
rate calculated on the previous month's revenues. Once Mr. Saloff's aggregate
annual compensation equals or exceeds $200,000, then the Company and Mr. Saloff
will negotiate a new mutually agreeable compensation arrangement. The memorandum
also provides that the Company will grant to Mr. Saloff on August 25, 1998, a
ten- year option to purchase 200,000 shares at the stock price at close of
trading on the date of grant with 20% of the shares covered thereby vesting upon
the first anniversary date, and an additional 20% each succeeding anniversary
date, with vesting to accelerate based on meeting certain sales revenue growth
targets and other events related to PEMS technologies and products. Stock and
cash bonuses are to be at the sole discretion of the Board of Directors. In the
event that Mr. Saloff's employment is terminated without "cause" before 18
months, Mr. Saloff is entitled to a severance of the prior six months'
compensation. The severance payment is subject to his mitigation of such payment
by seeking other employment unless Mr. Saloff has not been given notice of
termination at least three months prior to the end of the 18 month period and
Dr. Sen is no longer serving as the Company's Chief Executive Officer at such
time. All of his stock options will vest immediately and will remain exercisable
for the original term of the


                                       77

<PAGE>


option in the event his employment is terminated due to an acqusition by or
merger with a third party not recommended and/or approved by Mr. Saloff, or
without "cause".

         Mr. Mooibroek resigned from his position as Chairman, President and
Chief Executive Officer on April 1, 1997. As of April 12, 1997 the Company and
Mr. Mooibroek entered into a severance agreement that provided, among other
things, in settlement of all rights under his employment agreement with the
Company, for a cash payment of $128,700 to Mr. Mooibroek over approximately five
months, the issuance of 5,555 shares of Common Stock of the Company that were
assigned to Mr. Mooibroek in lieu of a portion of his salary during 1996, the
grant to Mr. Mooibroek of a 10-year warrant to purchase 25,000 shares of Common
Stock of the Company at $2.25 per share and the cancellation of 384,850 options
to purchase shares of Common Stock of the Company that were previously granted
to Mr. Mooibroek, leaving Mr. Mooibroek with 207,236 fully vested options to
purchase shares of Common Stock of the Company. The severance agreement also
provided for the cancellation of Mr. Mooibroek's right to be granted an option
to purchase one-tenth of the number of shares of Common Stock of the Company as
to which Mr. Herrick exercised his warrant. Mr. Mooibroek further agreed to
assign to the Company patent protection on inventions made by Mr. Mooibroek and
to cooperate with the Company in obtaining such patent protection.

                                  STOCK OPTIONS

Option Grants During 1997 Fiscal Year

         The following table provides information related to options granted to
the Named Executives during fiscal 1997.

<TABLE>
<CAPTION>
                                                                                          Potential Realized Value of
                                                                                         Assumed Annual Rates of Stock
                                           Individual Grants                          Price Appreciation for Option Term
                      ------------------------------------------------------------  ---------------------------------------
                         Number of        % of Total
                         Securities      Options/SARS      Exercise
                         Underlying       Granted to       or Base
                        Options/SARS     Employees in        Price    Expiration             5%                  10%
       Name             Granted (1)       Fiscal Year     ($/Share)       Date               ($)                 ($)
-------------------   --------------     -------------    ---------      ------             ----                 ---
<S>                         <C>              <C>             <C>        <C>
Arup Sen                    25,000(1)        83.3%           1.81       06/24/07
David Saloff                     -              -               -          -
Joseph Mooibroek                 -              -               -          -
</TABLE>

---------------
(1) Options to acquire shares of Common Stock all of which are currently
exercisable.

Option Exercises During 1997 Fiscal Year and Fiscal Year End Option Values

         The following table provides information related to options held by the
Named Executives. No stock options were exercised by a Named Executive during
fiscal 1997. Because the option exercise price exceeds 


                                       78

<PAGE>


the closing price for the Company's Common Stock on December 31, 1997, no
options held by Named Executives are considered in-the-money at December 31,
1997. The Company does not have any outstanding stock appreciation rights.

<TABLE>
<CAPTION>
                                                             Number of Securities            Value of Unexercised
                                                            Underlying Unexercised        In-The-Money Options/SARS
                                                          Options/SARS at FY-End (#)            at FY-End ($)(1)
                                                          --------------------------    ----------------------------
                             Shares
                            Acquired         Value
      Name                on Exercise    Realized($)(2)  Exercisable    Unexercisable    Exercisable    Unexercisable
-------------------       -----------    --------------  -----------    -------------    -----------    -------------
<S>                             <C>            <C>         <C>             <C>                <C>             <C>    
Arup Sen.................       0              -            70,000         30,000             -               -
David Saloff.............       0              -           100,000            -               -               -
Joseph Mooibroek.........       0              -           207,236            -               -               -
-------------------------
</TABLE>

(1)      The closing price for the Company's Common Stock as reported through
         the OTC Bulletin Board on December 31, 1997, the last trading day of
         the 1997 fiscal year, was $0.28. Value is calculated on the basis of
         the difference between the option exercise price and $0.28 multiplied
         by the number of shares of Common Stock underlying the option.

(2)      Value is calculated based on the difference between the option exercise
         price and the closing market price of the Common Stock on the date of
         exercise multiplied by the number of shares to which the exercise
         relates.

      LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION

         The Company's Amended and Restated Bylaws (the "Bylaws") provide that
the Company will indemnify its directors and executive officers and may
indemnify its other officers, employees and other agents to the fullest extent
permitted by Delaware law. The Company is also empowered under the Bylaws to
enter into indemnification agreements with its directors and executive officers.
The Company has entered into one such agreement with Dr. Jayaraman as part of
his employment agreement. See --"Certain Transactions." The Bylaws also allow
the Company to purchase insurance on behalf of any person it is required or
permitted to indemnify.

         In addition, the Company's Certificate of Incorporation, as amended
(the "Certificate") provides that the Company's directors shall not be liable
for monetary damages for breach of fiduciary duty to the Company and its
stockholders as a director, except for liability (i) for breach of their duty of
loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law;
(iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law;
or (iv) for any transaction from which the director derived an improper personal
benefit. The Certificate further provides that no amendment or repeal of this
provision shall apply to or have any effect on the liability or alleged
liability of any director of the Company for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal. If the
Delaware General Corporation Law is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, the
liability of directors then will be eliminated or limited to the fullest extent
permitted by Delaware law, as so amended. This provision does not affect a
director's responsibilities under any other laws, such as the federal securities
laws or state or federal environmental laws.


                                       79


<PAGE>


         At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification by the
Company would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which would result in a claim for such
indemnification.


                              CERTAIN TRANSACTIONS

         The Company consummated a significant reorganization (the
"Reorganization") as of August 24, 1998 as further described in Item 2 hereof,
including: (i) the merger of HealthTech Development Inc. ("HTD") with and into a
newly formed subsidiary of the Company ("EPi Sub") with the shareholders of HTD
receiving shares of Common Stock of the Company in exchange for their shares of
capital stock of HTD; (ii) the transfer of all of the assets of EPi Sub other
than those related to the SofPulse business (the "Sofpulse Assets") to Gemini
Health Technologies L.P. (the "Partnership") in exchange for partnership units
in the Partnership; (iii) the contribution by Krishna Jayaraman and Shashikala
Jayaraman (the "Jayaramans") of all of their partnership interests in Gemini
BioTech, Ltd. a Texas limited partnership ("Gemini"), and all of the stock of
Gemini BioTech, Inc., a Texas corporation and the general partner of Gemini, in
exchange for partnership units in the Partnership, which partnership units may
be converted after June 18, 1999 into 6,000,000 shares of Common Stock of the
Company; and (iv) the sale of the SofPulse Assets to a subsidiary of ADM Tronics
Unlimited, Inc., a company traded on the Nasdaq Small Cap Market ("ADM") in
exchange for (a) $150,000 in cash, (b) 1,400,000 shares of ADM common stock, (c)
the payment of $650,000 of the Company's payables by ADM and (d) the issuance of
a warrant to purchase additional shares of ADM common stock if ADM achieves
certain sales goals.

         In connection with the Reorganization, a Master Agreement, dated June
28, 1998 (along with all amendments thereto, the "Master Agreement") was entered
into among (i) HTD, the Company, and EPi Sub, (ii) Norton Herrick, David Saloff,
Murray Feldman, George Levine, and Paragon Capital Corporation at Spear, Leeds &
Kellogg, LLC (collectively, the "EPHI Group"), (iii) Arup Sen, James Kaput and
Richard Kneipper (collectively, the "HTD Group") and (iv) Krishna Jayaraman and
Shashikala Jayaraman (collectively, the "Gemini Group"). Pursuant to the Master
Agreement, the EPHI Group, the HTD Group and the Gemini Group agreed that
following the consummation of the Reorganization, in connection with the
election of directors to the Board of Directors of the Company they shall each
vote their shares of Common Stock in favor of a seven-person board of directors,
consisting of two persons nominated by the EPHI Group, two persons nominated by
the HTD Group, two persons nominated by the Gemini Group and one person who is
the Chief Executive Officer of the Company. In addition, in connection with the
election of the EPHI Group's nominees, Mr. Herrick and Mr. Feldman have agreed
to support the nomination of, and to vote their shares in favor of, a person
selected by the other. Pursuant to the Master Agreement, the EPHI Group has
selected David Saloff and Murray Feldman as their initial nominees, the HTD
Group has selected Bernard Carrico and Richard Kneipper as their initial
nominees, and the Gemini Group has selected Dr. Krishna Jayaraman as one of
their initial nominees and has not yet named the second nominee. Arup Sen, as
the Company's Chief Executive Officer, is the final initial nominee selected.

         Pursuant to the Master Agreement, upon consummation of the
Reorganization all shares of preferred stock and all warrants held by Mr.
Herrick (242,950 and 1,300,000, respectively) were redeemed and exchanged for an
aggregate of 1,575,000 shares of Common Stock. In addition, all warrants owned
by each of Mr. Feldman and Paragon (373,607 and 187,500, respectively) were
redeemed and exchanged for 160,000 shares and 90,000 shares of Common Stock,
respectively.



                                       80
<PAGE>

         Pursuant to the Master Agreement, Mr. Herrick, the EPHI Group, the HTD
Group and the Gemini Group agreed not to sell or otherwise dispose of any of the
shares of Common Stock received in the Reorganization until August 24, 1999,
provided that they each will be permitted to sell an amount of shares which,
when aggregated with all shares sold for their individual accounts within the
preceding three months, does not exceed the greater of (i) one percent of the
outstanding shares of Common Stock or (ii) the average weekly reported trading
volume of shares of the Common Stock during the preceding four calendar weeks.

         The Master Agreement will terminate on the earliest to occur of (i) on
August 24, 2000, or (ii) the date on which the market capitalization of the
Company equals or exceeds $40,000,000 for any period of 20 trading days within
any six-month period.

         Pursuant to a Registration Rights Agreement, dated as of June 28, 1998
(the "Registration Rights Agreement") among the Company, the EPHI Group, the HTD
Group and the Gemini Group, the Company agreed to file with the SEC as soon as
reasonable practicable a registration statement to register the shares of Common
Stock held by the EPHI Group, the HTD Group and the Gemini Group (collectively
the "Selling Stockholders") , including certain shares to be issued to the HTD
Group and the Gemini Group upon the achievement of certain milestones. The
Company has agreed to use its reasonable efforts to have the registration
statement declared effective and remain continuously effective for at least one
year (unless the registration statement can be filed or amended on From S-3, in
which case it shall remain effective until all the Selling Stockholders can
resell their shares under Rule 144(k)). In addition, any of the Selling
Stockholders can require the Company to continue to keep the registration
statement effective after the period of effectiveness is over by paying to the
Company on a pro rata basis the cost of maintaining the effectiveness. In
addition, if such registration statement is no longer in effect, the Company has
granted the Selling Stockholders piggyback registration rights on other
registration statements to be filed by the Company.

          In November 1995, the Company entered into a Preferred Stock and
Warrant Subscription Agreement with Mr. Norton Herrick, an investor in the
Company beneficially owning greater than 10% of the Common Stock of the Company,
whereby the Company issued to Mr. Herrick (i) 421,950 shares of Series A
Convertible Preferred Stock (the "Preferred Stock") and (ii) warrants to
purchase an aggregate of 1,721,950 shares of Common Stock in consideration of
$2,000,000. The balance of the shares of Preferred Stock and all of the Warrants
were redeemed and exchanged for 1,575,000 shares of Common Stock pursuant to the
Master Agreement described above.

         On November 25, 1997, the Company entered into an advisory services
agreement with 20th Century Associates, Inc. ("20th Century") relating to
planning, implementation and provision of investor and financial relations
services to the Company for which the Company agreed to issue 350,000 registered
shares of newly issued and registered Common Stock to 20th Century. As of
October 30, 1998, the Company had issued 250,000 shares of the Common Stock to
20th Century in consideration of the advisory services rendered under the
agreement.

         As part of the Reorganization, the Company entered into an employment
agreement with Krishna Jayaraman dated August 19, 1998, for a term expiring on
August 19, 2001 for Dr. Jayaraman's services as President and Chief Executive
Officer of The Gemini Biotech Division of the Company. This agreement provides
for a base salary of $120,000 which has increased to $150,000 and may further


                                       81
<PAGE>


increase to $200,000 in a series of steps based on certain corporate milestones
and revenues of the Gemini Biotech Division. He also is entitled to benefits, a
term life contract, an automobile allowance and four weeks vacation per year.
The agreement also provides that the Company will grant to Dr. Jayaraman on the
date of the agreement an option to purchase 250,000 shares of Common Stock with
50,000 of the shares covered thereby vesting immediately, 62,500 of the shares
covered thereby vesting on each of the first and second anniversaries of the
agreement and an additional 75,000 of the shares covered thereby vesting on the
third anniversary of the date of the agreement. The agreement also provides that
if Dr. Jayaraman's employment is terminated by him by permitted resignation or
by the Company other than for "cause", Dr. Jayaraman will receive an amount
equal to 85% of the remaining portion of the base salary due him under the term
of the agreement, unless there is a permitted resignation following a relocation
of Dr. Jayaraman due to a change in control not proposed or recommended by Dr.
Jayaraman. In such case, Dr. Jayaraman would receive the sum of his annual base
salary and the average annual bonus received by him during the previous two-year
period. In the event of termination without "cause" or by permitted resignation,
Dr. Jayaraman will continue to receive benefits pursuant to the Company's
welfare programs and perquisite plans until the earliest of one year after his
termination, the end of the term of the agreement, or until Dr. Jayaraman is
reemployed. In addition, all of Dr. Jayaraman's options will immediately vest
and be exercisable for the full term of the option. Dr. Jayaraman is also
subject to a non-compete agreement as part of his employment agreement.


                             PRINCIPAL STOCKHOLDERS

         The following table sets forth information as of September 30, 1998,
regarding the beneficial ownership of Common Stock by each person known by the
Company to own beneficially 5% or more of the outstanding shares of Common
Stock, each director and executive officers of the Company, and the directors
and executive officers of the Company as a group, and as adjusted to reflect the
offering of Common Stock by this Prospectus. The persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
owned by them, unless otherwise noted. The address for each person below listed
is c/o the Company, 1109 NW 13th Street, Gainesville, Florida 32601, unless
otherwise noted.


                                       82
<PAGE>

<TABLE>
<CAPTION>
                                                                                               Percent of Class
                                                                                          -------------------------
                                                          Amount and Nature of             Before            After
             Name of Beneficial Owner                     Beneficial Ownership            Offering         Offering
             ------------------------                     --------------------            --------         --------

<S>                                                        <C>                             <C>             <C>
Arup Sen, Chairman of the Board, Chief
  Executive Officer and President                          2,715,360 (1)(2)                20.23%          14.85%
 
David Saloff, Director and Executive Vice                    393,485 (2)(3)                 2.93%           2.14%
  President

Murray Feldman, Director                                     917,910 (2)(4)                 6.90%           5.01%

Richard K.  Kneipper, Vice Chairman and
  Director                                                 1,342,694 (2)(5)                10.11%           7.34%

Bernard Carrico, Director                                      3,000 (5)                     *               *

Krishna Jayaraman, Director and Chief
  Executive Officer, Gemini BioTech Division                  50,000 (6)                     *               *

James Kaput, Vice President, Gemini                        1,339,694 (2)                   10.09%           7.33% 
      Biotech Division

Norton Herrick
      2295 Corporate Blvd., NW, Suite 222
      Boca Raton, FL 33431                                 1,893,950 (2)(7)                14.26%          10.36%

Paragon Capital Corporation
  at Spear, Leeds, Kellogg, LLC
      c/o George Levine
      1250 E. Hallandale Beach Blvd., Suite 300
      Hallandale, FL 33309                                   571,039 (2)                    4.30%           3.12%

Elan International Services, Ltd.
      102 St. James Court         
      Flatts, Smith Parish, Bermuda FL04                   7,027,202 (8)                   35.98%          35.78%

All directors and executive officers
  as a group (7 persons)                                   5,416,449 (2)                   46.98%          35.97%

* Less than one percent (1%)
</TABLE>

(1)  Includes 436,966 shares subject to presently exercisable options.
(2)  To the extent that this person or persons shares voting power pursuant to
     the Master Agreement, such person or persons may be deemed to be a member
     of a "group" with the EPHI Group, the HTD Group and the Gemini Group
     pursuant to Rule 13d-5 under the Securities Exchange Ac of 1934, (the
     "Exchange Act") and this person or persons is deemed to beneficially own
     the shares of Common Stock currently beneficially owned by each of the
     other members of the group with which this person or persons shares such
     voting power, namely, Mr. Herrick (1,893,950 shares of Common Stock), Mr.
     Saloff (259,199 shares of Common Stock and presently exercisable options to
     purchase 134,286 shares of Common Stock), Mr. Feldman (895,410 shares of
     Common Stock and presently exercisable options to purchase 22,500 shares of
     Common Stock), Mr. Levine and Paragon Capital Corporation at Spear, Leeds &
     Kellogg, LLC (571,039 shares of Common Stock), Dr. Sen (2,278,394 shares of
     Common stock and presently exercisable options to purchase 436,966 shares
     of Common Stock), Mr. Kneipper (1,339,694 shares of Common Stock), Mr.
     Kaput (1,339,694 shares of Common Stock) and


                                       83
<PAGE>

     Mr. Jayaraman (50,000 presently exercisable options to purchase 50,000
     shares of Common Stock. See note (6) below regarding additional rights to
     acquire shares of Common Stock that are not currently exercisable. As of
     August 31 1998, the shares of Common Stock beneficially owned by the EPHI
     Group, the HTD Group and the Gemini Group represent approximately 70.13% of
     the issued and outstanding shares of Common Stock, calculated in accordance
     with Rule 13d-3 under the Exchange Act (based on 12,505,480 shares of
     Common Stock issued and outstanding following the consummation of the
     Reorganization, plus the 134,286, 22,500, 436,966 shares of Common Stock,
     respectively, issuable to Messrs. Saloff, Feldman and Sen, respectively,
     upon exercise of certain options in each case which may be deemed to be
     beneficially owned by such persons and which are deemed outstanding for
     purposes of this computation). Each such person or persons shares voting
     power of the shares of Common Stock beneficially owned by the respective
     group to which he belongs as described above, but has no other rights with
     respect to such shares and disclaims beneficial ownership of such shares.
(3)  Includes 134,286 shares subject to presently exercisable options.
(4)  Includes 22,500 shares subject to presently exercisable options.
(5)  Includes 3,000 shares subject to presently exercisable options.
(6)  Includes 50,000 shares subject to presently exercisable options. Dr.
     Jayaraman and his wife also have the right to convert their partnership
     units in the Partnership after August 23, 1999 into 6,000,000 shares of
     Common Stock.
(7)  Mr. Herrick disclaims beneficial ownership of 60,000 shares of Common Stock
     owned by Rozel International Holdings, which shares are pledged to Mr.
     Herrick as security for a loan.
 (8) Includes 7,500 shares of Series A Convertible
     Preferred Stock convertible into 6,250,000 shares of Common Stock.


                          DESCRIPTION OF CAPITAL STOCK

         General. As of the date of this Prospectus, the authorized capital
stock of the Company consisted of 30,000,000 shares of Common Stock, $.01 par
value, of which 12,505,480 shares were outstanding, and 10,000,000 shares of
Preferred Stock, $.01 par value, 7,500 shares of which were outstanding as the
Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock").
The Company is in the process of preparing an amendment to its Certificate of
Incorporation, as amended (the "EPI Certificate") and submitting such amendment
to the shareholders for approval, to increase the authorized number of shares of
Common Stock to 50,000,000 shares.

         The following description of the securities of the Company and certain
provisions of the EPI and Restated By-laws (the "EPI By-Laws"), is a summary and
is qualified in its entirety by the provisions of the EPI Certificate and the
EPI By-Laws as currently in effect. As of the date of this Prospectus, the
Company's Common Stock is held of record by 81 stockholders and its Series A
Preferred Stock, which is the only class of the Company's Preferred Stock issued
and outstanding, is held of record by one stockholder, Elan.

         EPI Common Stock. Holders of Common Stock are entitled to one vote for
each share held of record on all matters submitted to a vote of stockholders,
including the election of directors. Accordingly, holders of a majority of the
shares of Common Stock entitled to vote in any election of directors may elect
all of the directors standing for election if they choose to do so. The EPI
Certificate does not provide for cumulative voting for the election of
directors. Subject to preferential rights of any issued and outstanding
Preferred Stock, including the Series A Preferred Stock, holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Company's Board of Directors out of funds legally available
therefor, and will be entitled to receive, pro rata, all assets of the Company,
if any, remaining after payment of liabilities and the liquidation preferences
of any issued and outstanding Preferred



                                       84
<PAGE>

Stock and available for distribution to such holders upon liquidation,
dissolution or winding-up of the Company. Holders of Common Stock have no
preemptive, subscription or redemption rights. All outstanding shares of Common
Stock are, and the shares of Common Stock offered hereby, upon issuance, will
be, fully paid and nonassessable.

         Preferred Stock. Pursuant to the EPI Certificate, the Company is
authorized to issue up to 10,000,000 shares of "blank check" Preferred Stock,
which may be issued from time to time in one or more series upon authorization
by the Company's Board of Directors. Subject to the terms of any issued and
outstanding Preferred Stock (including without limitation the Series A Preferred
Stock), the Board of Directors, without further approval of the stockholders, is
authorized to fix the designations, powers, preferences, rights, qualifications,
limitations and restrictions of all shares of each such series, including
without limitation voting rights, dividend rates, redemption and sinking fund
provisions, liquidation preferences, conversion rights, and the number of shares
constituting each such series, and any other rights, preferences, privileges and
restrictions applicable to each series of the Preferred Stock. The issuance of
the Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, among other things, will likely
decrease the amount of earnings and assets available for distribution to holders
of the Common Stock as dividends or upon liquidation, respectively, and could
adversely affect the rights and powers, including the voting rights, of the
holders of the Common Stock and, under certain circumstances, make it more
difficult for a third party to gain control of the Company, discourage bids for
the Common Stock at a premium or otherwise adversely affect the market price of
the Common Stock.

         Series A Convertible Preferred Stock

         Liquidation Preference; Ranking. Each share of Series A Preferred Stock
has a liquidation preference of $1,000, plus accrued and unpaid dividends (the
"Liquidation Preference"). The Series A Preferred Stock ranks senior in right of
payment to all Common Stock, but ranks junior in right of payment to all
indebtedness of the Company.

         Dividends. 10% per annum, payable semi-annually in cash, or in the
Company's discretion, by the issuance of additional shares of Series A Preferred
Stock on the same terms and conditions as the original issuance. The Series A
Preferred Stock will share in the same amount of dividends as would be payable
on the number of shares of Common Stock into which the Series A Preferred Stock
could be converted.

         Conversion. At the option of the holders thereof, at any time or from
time to time, each share of Series A Preferred Stock will be convertible into a
number of shares of the Common Stock obtained by dividing the outstanding amount
($7,500,000) plus accrued paid-in-kind dividends by $1.20 subject to adjustment
in certain circumstances to prevent dilution.

         Redemption. The Company has the right to call all or any portion of the
Series A Preferred Stock for redemption in cash for an amount equal to the
Liquidation Preference from and after October 1, 2003, if the closing bid price
of the Common stock is equal or greater than $2.50 per share for 20 out of 30
consecutive trading days. Thirty to sixty days prior to redemption, the Company
must give notice of redemption. If prior to redemption, the closing bid price
per share of Common Stock is below $2.50 for 45 consecutive days, then any
redemption notice shall be ineffective and the time period shall begin again.
The Series A Preferred Stock is mandatorily redeemable by the Company in cash
for an amount equal to the Liquidation Preference on September 30, 2005, unless
the Company determines that it has insufficient capital resources, in which case
the Series A Preferred stockholder must elect either to (I) extend the mandatory
redemption date to a date acceptable to the Company or (ii) accept in redemption
a number of shares of Common Stock equal to the quotient obtained by dividing
the Liquidation Preference by the current market price of the Common Stock at
such time.



                                       85
<PAGE>

         Voting Rights. In addition to the other voting rights provided by law
and those described below, holders of the Series A Preferred Stock are entitled
to vote together with the holders of the Company's Common Stock as a single
class on all matters submitted to a vote of stockholders. With respect to any
such vote, each share of Series A Preferred Stock is entitled to one vote for
each share of Common Stock into which such share of Preferred Stock could then
be converted.

         The affirmative vote of the holders of at least a majority of the
outstanding shares of the Series A Preferred Stock is necessary to (I) increase
or decrease the authorized or outstanding number of the shares of Series A
Preferred Stock so as to adversely affect the shares, (ii) authorize or issue
stock or securities convertible into or exercisable for stock having equal or
greater rights than the Series A Preferred Stock, or (iii) authorize or issue a
series of Preferred Stock having equal or greater rights than the Series A
Preferred Stock.

         Right of Exchange. If, as a result of Elan's purchase of equity
securities of the Company, Elan's aggregate interest in the Common Stock exceeds
19.9% of the outstanding Common Stock, Elan may elect to receive non-voting
securities of the Company to the extent of such excess, and Elan also will have
the right to exchange the new class of equity security for voting securities of
the Company. Assuming a public offering price of $.80 per share, Elan will own
approximately 16% (excluding warrants) of the outstanding Common Stock after the
offering. See "Risk Factors - Potential Dilution; Absence of Dividends",
"Transactions Related to the Offering" and "Certain Transactions".

         Elan Nominee to Board of Directors. The Company has agreed to take all
necessary actions to create a vacancy in the board of directors, to be filled by
a designee of Elan who is reasonably satisfactory to the Company. As long as
Elan beneficially owns 5% of the outstanding Common Stock, the Company has
agreed to include Elan's designee in the management-recommended slate of
directors at all meetings at which directors are elected.


Warrants

         As an incentive to extend the maturity dates of notes payable to
related parties, in August and November 1993, the Company issued five-year
warrants for the purchase of an aggregate of 8,717 shares of Common Stock at
$5.42 per share.

         During 1994, the Company issued five-year warrants for the purchase of
9,685 shares of Common Stock at $5.03 per share to a shareholder and creditor of
the Company as consideration for extending the maturity date of notes payable
due to the shareholder. Also during 1994, the Company issued five-year warrants
for the purchase of 41,969 shares of Common Stock at $5.03 per share to a
consultant of the Company for certain contributions of scientific development of
the Company.



                                       86
<PAGE>

         During June 1995, the Company issued five-year warrants to purchase
30,000 shares of Common Stock at $4.00 per share to consultants of the Company
for certain investor relations work. Further, a four-year warrant to purchase
25,000 shares of Common Stock at $5.25 per share was issued to a consultant to
the Company for certain scientific contributions to the Company.

         In November 1995, the Company issued five-year warrants to an
investment banker to purchase 100,000 shares of Common Stock at $5.50 per share
in connection with services rendered in an investment transaction in the Company
by an investor. In December 1995, five year warrants to purchase 65,000 shares
of Common Stock at $1.00 per shares were issued to a consultant to the Company
as full consideration for a three year financial consulting contract. These
warrants issued in November 1995 contain certain piggyback registration rights.
See "-- Registration Rights."

         In April 1997, a ten-year warrant to purchase 25,000 shares of Common
Stock at $2.25 was issued to the Joseph Mooibroek as part of his severance
agreement.

         All of the foregoing warrants are currently exercisable but none of the
foregoing warrants have been exercised. The above warrants in the aggregate
entitle the holders thereof to acquire 317,371 shares of Common Stock.

         Under the Elan Agreements, on September 30, 1998, Elan was issued a
seven-year warrant to acquire 1,000,000 shares of Common Stock at an exercise
price of $2.50 per shares, which warrant is exercisable on or after June 27,
1999. The exercise price of the Elan Warrant is subject to adjustment in the
event of below-market issuances of Common Stock or below-market grants or
exercises of options or warrants, excluding outstanding warrants as of September
30, 1998 and up to 2,250,000 options. The Company has granted Elan certain
registration rights in connection with the Elan Warrant. See "-- Registration
Rights."


Elan's Obligation to Purchase Common Stock

         Under the Elan agreements, Elan has agreed to invest, upon request by
EPI during the 60-day period ending November 29, 1998, $2 million to acquire
shares of Common Stock at a price per share equal to the per share price at
which EPI sells up to an additional $2 million of Common Stock to other
investors or, if no sales are consummated, at the average closing price of the
EPI Common Stock for the 20 consecutive trading days prior to the acquisition,
and, in any event, at a maximum price of $1.375 per share. On October 30, 1998,
the Company issued Elan 777,202 shares of Common Stock at $0.772 per share, with
aggregate proceeds of $600,000.


Exchange Rights for Partnership Units

         Pursuant to the Reorganization, the Jayaramans have the right to
exchange their 6,000,000 partnership units in Gemini Health Technologies L.P.
(the "Partnership") on a one unit for one share basis for Common Stock on or
after June 18, 1999. The Jayaramans are also entitled to earn up to 2, 050,000
in the Partnership units upon the achievement of certain milestones. The
additional Partnership units are subject to the same exchange rights as the
6,000,000 Partnership units. See - "Eear Out Shares." The Jayaramans are also
entitled to certain demand and piggy-back registration rights. See -
"Registration Rights".


                                       87
<PAGE>

Earn-Out Shares

         Under the Reorganization, the shareholders of HTD are entitled on a pro
rata basis to earn up to an additional 1,650,000 shares of Common Stock upon the
achievement of certain milestones. These shares are subject to certain
registration rights (See - "Registration Rights"). Under the terms of the Gemini
acquisition, Gemini partners are entitled to receive an additional up to
2,050,000 Partnership Units, each exchangeable to the Company's Common Stock on
a one for one basis, upon the achievement of certain milestones relating to
Gemini service of business and Technologies and Certain if the earn-out shares
that may be issued to HTD shareholders and Gemini partners and adjustable based
on the trading price of the Company's Common Stock at the time when the
milestones are achieved.


Options

         As of October 30, 1998, options to purchase 1,500,000 shares of
Common Stock were outstanding under EPI's Stock Option, Plan, 1,134,988 of which
were exercisable on that date at prices ranging between $.26 and $5.50 per
share. An additional 408,988 shares have been granted, subject to amendment to
the Stock Option Plan authorizing sufficient additional shares under the plan to
cover such grants.


Registration Rights

         The holders of an aggregate of 9,462,828 shares of Common Stock and
other securities or rights exchangeable or convertible into 17,115,000 shares of
Common Stock consisting of 1,165,000 warrants, 3,700,000 earn out rights,
6,000,000 partnership units, and 7,500 shares of Preferred Stock convertible
into 6,250,000 shares of Common Stock are entitled to certain registration
rights as set forth below:

         Reorganization Agreements. Under the terms of a registration rights
agreement entered into in connection with the Reorganization Transactions,
certain registration rights were granted to the following individuals with
respect to shares of Common Stock issued or to be issued to such shareholders in
connection with the Reorganization Transactions: Gemini Group 6,000,000 shares,
the HTD Group 6,172,095 shares, Norton Herrick 1,893,950 shares and other
members of the EPHI Group 250,000 shares. The agreement also grants rights to
Gemini Group and the HTD Group to register up to 2,050,000 and 1,138,650 earn
out shares, respectively, which are issuable upon the achievement of certain
milestones.

         The Company agreed to file the current registration statement
registering such shares for sale by the holders as soon as reasonably
practicable, and to use its reasonable efforts to have the registration
statement declared effective and remain continuously effective for at least a
one-year period, subject to certain deferrals and restrictions, including the
right of underwriters of an offering to limit the number of shares to be
included in such registration. The Company agreed to use its reasonable efforts
to regain its eligibility to use Form S-3 and refile the registration statement
on Form S-3 and maintain its effectiveness until all of the holders can resell
their shares under Rule 144(k). Following the one-year period of effectiveness,
at the request of any holder, the Company has agreed to keep the registration
statement effective so long as such holder pays to the Company the cost of
maintaining the effectiveness of the registration statement. The holders also
have certain piggyback registration rights, subject to certain restrictions, if
the Company proposes to register its securities, either for its own account or
for the account of other security holders for cash.

         Under the terms of the HTD merger agreement entered into in connection
with the Reorganization Transactions, another 47,000 shares of Common Stock held
by EPI non-affiliate shareholders, an additional 1,349,197 shares of Common
Stock held by non-affiliate HTD shareholders, and up to 361,350 shares of Common
Stock issuable to non-affiliate HTD shareholders in connection with the
achievement of certain milestones, are subject to registration under the
registration statement and the Company has agreed to use its reasonable efforts
to cause the registration statement to become effective. The Company has agreed
to file all amendments or supplements to the registration statement in order to
allow for resales of the Common Stock described above for a period of one year
until August 24, 1999.


                                       88
<PAGE>
         In connection with the Reorganization, the Company issued Jones, Day,
Revis and Pogue 322,581 shares of Common Stock as payment for $650,000 in
overdue billings. The Company agreed to Register these shares in the Current
Registration Statement.


EPi Warrants

         Holders of 165,000 warrants issued in November 1995 (See - "Warrants")
have certain piggyback registration rights during the term of the warrant. They
are entitled to thirty days' prior notice of any registration by the Company,
and subject to certain restrictions, are entitled to have their shares included
in such registration statement.


Elan Transactions

         Pursuant to the Elan Agreement, any holder that holds securities
representing at least 1,250,000 shares of Common Stock has the right, on not
more than two occasions and subject to certain limitations, to require the
Company to register under the Securities Act, all or part of the registrable
securities, including approximately 2,527,202 shares of Common Stock (assuming a
$.80 per share market price on the remaining $1,400,000 of Common Stock which
Elan has agreed to purchase) and the 7,250,000 shares of Common Stock Elan may
acquire upon exercising its warrant and converting its Preferred Stock. The
Holders will have the right to select the investment bankers and managers to
administer an offering under a demand registration, subject to the Company's
approval. The Elan Agreement also provides that the Company shall include all
registrable securities beneficially owned by the Holder in the registration
statement, and if the registration statement is not declared effective, or the
effectiveness lapses, if the Company proposes to file a registration statement
under the Securities Act with respect to an offering by the Company, Elan will
be entitled to include all or part of its shares in that registration, subject
to the right of the managing underwriter to exclude shares from such
registration to the extent their inclusion would adversely affect the marketing
of the shares to be sold. To the extent that shares of the Common Stock have not
been sold pursuant to one of the foregoing registration statements, the Company
is required to register the Common Stock issuable upon conversion of the Series
A Preferred Stock within 60 days of the date of conversion; the other Common
Stock issued upon exercise of the Elan Warrant within 60 days of the initial
exercise thereof; and the Common Stock issued or issuable within 15 months of
September 30, 1998. In connection with the Elan Agreements, Elan has agreed not
to sell or otherwise dispose of any of its shares of Common Stock for a period
of 180 days following September 30, 1998. See "Shares Eligible for Future Sale."


                         DELAWARE ANTI-TAKEOVER LAW AND
                           CERTAIN CHARTER PROVISIONS

         The existence of the authorized but unissued Preferred Stock could have
the effect of making it more difficult for a third party to effect a change in
the control of the Board and therefore may discourage another person or entity
from making a tender offer for the Company's Common Stock, inducing offers at a
premium over the market price of the Common stock, and might result in a delay
in changes in control of management. In addition, these provisions could have
the effect of making it more difficult for proposals favored by shareholders to
be presented for shareholder consideration.

                                       89
<PAGE>

         The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or at any time during the prior three years has
owned) 15% or more of the corporation's voting stock.


                          TRANSFER AGENT AND REGISTRAR

         The transfer agent and registrar for the Company's Common Stock is
Continental Stock Transfer and Trust Company.


                         SHARES ELIGIBLE FOR FUTURE SALE

         The Company has outstanding an aggregate of 13,282,682 shares of Common
Stock and 7,500 shares of Series A Preferred Stock. In addition, the Company has
reserved for issuance the remaining 16,717,318 shares of its authorized Common
Stock to meet the following contingent commitments to issue Common Stock:
12,250,000 shares issuable upon conversion of the Preferred Stock and accrued
paid in kind dividends thereon, 6,000,000 shares issuable upon exchange of
partnership units, 3,700,000 shares issuable as earn out shares pursuant to the
Reorganization, 100,000 shares issuable pursuant to a consulting agreement,
20,000 shares issuable pursuant to the Non-Employee Directors Equity
Compensation Plan for calendar year 1998, 1,500,000 shares issuable upon
exercise of stock options under the Company's stock option plan, 1,165,000
shares exercisable upon the exchange of warrants and 1,750,000 shares issuable
to Elan to fulfill its remaining commitment to purchase the Common Stock. These
contingent commitments exceed the authorized number of shares of Common Stock by
6,067,682 shares. The Company, however, is in the process of preparing an
Amendment to the EPI Certificate, and submitting such amendment to the
stockholders for approval, to increase the authorized number of shares of Common
Stock to 50,000,000 shares.

         Upon completion of this Offering, the Company will have outstanding
17,799,305 shares of Common Stock. Of these shares, the 13,979,451 shares of
Common Stock to be sold in this offering by the Company and the Selling
Shareholders will be freely tradeable without restriction or limitation except
to the extent such shares are subject to the "lock-up" agreements described
below, and except for shares purchased by "affiliates" of the Company, as that
term is defined in the Act. In addition, an aggregate of _______ shares of
Common Stock presently outstanding are also freely tradeable without restriction
or limitation under the Act. The remaining _______shares of Common Stock held by
existing shareholders are "restricted securities" as that term is defined in
Rule 144. Restricted securities may be sold in the public market only if they
are registered or if they qualify for exemption from registration under Rules
1244 or 701 under the Securities Act or otherwise.

         Lock-Up Agreements. The Selling Shareholders, pursuant to the
Reorganization have agreed to a "lock-up" until August 23, 1999 of the 8,044,095
shares of Common Stock issued in the Reorganization and the 9,700,000 shares of
Common Stock which may be issued through exchange or earn out in the
Reorganization. In addition, Elan has agreed to a "lock up" until June 27, 1999,
of the 777,202 shares of Common Stock issued to them, an additional 1,750,000
shares of Common Stock to be issued prior to year-end, and 7,250,000 shares of
Common Stock which may be issued on the conversion of the preferred stock or the
exercise of warrants. Following the lock-up periods, these shares will be
eligible for sale in the public market, subject to the conditions and
restrictions of Rule 144 under Act, as hereinafter described.

                                       90
<PAGE>

         In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least one year is entitled to sell, within any three-month period
commencing 90 days after the date of this prospectus, a number of shares that
does not exceed the greater of (i) 1% of the then outstanding Common Shares or
(ii) the average weekly trading volume in the Common Shares during the four
calendar weeks preceding such sale, subject to the filing of a Form 144 with
respect to such sale and certain other limitations and restrictions. In
addition, a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, would be entitled to sell
such shares under Rule 144(k) without regard to the volume, manner of sale and
other limitations described above.


                              PLAN OF DISTRIBUTION

         The Company proposes to sell up to 5,000,000 shares of Common Stock at
a proposed price of $.80 per share directly to members of the public residing in
selected states. Announcements of this offering, in the form prescribed by Rule
134 of the Securities Act of 1933, will be communicated to selected persons.
There is no required minimum number of shares of Common Stock to be sold, and
all funds received will go immediately to the Company. If few shares of Common
Stock are sold, the result could be that all the proceeds will be used to pay
the expenses of this offering. This offering will begin on the date of this
Prospectus and continue for up to six months (unless extended) or until the
5,000,000 shares of Common Stock offered are sold or such earlier date as the
Company may close or terminate the offering. All shares of Common Stock will be
sold at the proposed public offering price of $.80 per share and a proposed
minimum purchase of 1,000 shares of Common Stock ($800) is required. Since there
is no minimum number of shares of Common Stock to be sold, there is no escrow
account for the deposit of subscribers' funds and no arrangements to return the
funds if all of the shares of Common Stock offered are not sold.

         The Company plans to offer and sell the shares of Common Stock directly
to investors through the Company's officers, employees and directors, and has
not retained any underwriters, brokers dealers or placement agents in connection
with this offering. However, the Company reserves the right to use brokers,
dealers, or placement agents and could pay commissions equal to as much as 10
percent of the gross proceeds. The Company will effect offers and sales of
shares of Common Stock through printed copies of this Prospectus delivered by
mail and electronically, by contacting prospective investors by publicizing this
offering through a posting on the Company's World Wide Website (which will be
established in November 1998), by publicizing this offering through newspaper
advertisements and by contacting additional potential investors by direct e-mail
and regular mail solicitation. Any voice or other communications will be
conducted in certain states through the Company's officers, employees and
directors, and in other states, where required, through a designated sales
agent, licensed in those states. Under Rule 3a4-1 of the Securities Exchange Act
of 1934 ("Exchange Act"), none of these officers, employees or directors of the
Company will be deemed a "broker", as defined in the Exchange Act, solely by
reason of participation in this offering, because (1) none is subject to any of
the statutory disqualifications in Section 3(a)(39) of the Exchange Act, (2) in
connection with the sale of the shares of Common Stock offered, none will
receive, directly or indirectly, any commissions or other remuneration based
either directly or indirectly on transactions in securities, (3) none is an
associated person (partner, officer, director or employee) of a broker or
dealer, and (4) each meets all of the following conditions: (a) primarily
performs substantial duties for the issuer otherwise than in connection with
transactions in securities; (b) was not a broker or dealer, or an associated
person of a broker or dealer, within the preceding 12 months; and (c) will not
participate in selling an offering of securities for any issuer more than once
every 12 months.

                                       91
<PAGE>

         To subscribe for shares of Common Stock, each prospective investor must
complete, date, execute and deliver to the Company (a) a Share Purchase
Agreement and (b) the purchase price of the shares of Common Stock subscribed
for by check payable to Electropharmacology, Inc. A copy of the Share Purchase
Agreement is included with this Prospectus at page ___.

         The Company reserves the right to reject any Share Purchase Agreement
in its entirety or to allocate shares of Common Stock for any reason whatsoever.
If any Share Purchase Agreement is rejected, funds received by the Company for
such subscription will be returned to the subscriber without interest or
deduction.

         Within five days of its receipt of a Share Purchase Agreement
accompanied by a check for the purchase price, the Company will send by first
class mail a written confirmation to notify the subscriber of the extent, if
any, to which such subscription has been accepted by the Company. Not more than
30 days following the mailing of its written confirmation, a subscriber's Common
Stock certificate will be mailed by first class mail. The Company shall not use
the proceeds paid by any subscriber until the Common Stock certificate
evidencing such investment has been mailed to such subscriber.

         There is only a limited public market for the Common Stock, and there
is no assurance that a more active trading market will develop as a result of
the completion of this offering (see "Price Range for Common Stock" and "Risk
Factors" Limited Prior Public Market for Common Stock; Possible Volatility of
Stock Price".)


                                  LEGAL MATTERS

         The validity of the Common Shares offered hereby will be passed upon
for the Company by Goodman Phillips & Vineberg, New York, New York.


                        CHANGES IN AND DISAGREEMENTS WITH
                        AUDITORS AND FINANCIAL DISCLOSURE

         On November 14, 1996, the Company discontinued the services of BDO
Seidman, LLP as its principal independent auditor. The report of BDO Seidman,
LLP on the financial statements of the Company for the year ended December 31,
1995, did not contain an adverse opinion or a disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audit of the fiscal year ended December 31, 1995 and
during the period from January 1, 1996 through November 14, 1996, there were no
disagreements with BDO Seidman, LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures or
any reportable events. The auditor's report of BDO Seidman, LLP on the financial
statements of the Company, as of and for the year ended December 31, 1994, was
modified to raise substantial doubt about the Company's ability to continue as a
going concern. BDO Seidman, LLP changed its auditor's report to an unqualified
opinion in connection with the issuance of the December 31, 1995 financial
statements. The decision to change auditors was approved by the Company's Board
of Directors.

         The Company retained, __________ in January 1997 to act as the
Company's independent auditors. The Company selected ________ because of its
breadth of experience in the health care industry.


                                       92
<PAGE>

                                    EXPERTS

         The financial statements of the Company at December 31, 1996 and 1997,
and for each of the two years in the period ended December 31, 1997, appearing
in this Prospectus and Registration Statement have been audited by______________
________, independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement, and are included in reliance
on such report given upon the authority of such firm as experts in accounting
and auditing.

         The financial statements of the Company at and for the year ended
December 31, 1995, appearing in this Prospectus and Registration Statement have
been audited by __________________, independent auditors, as set forth in their
report thereon appearing elsewhere herein and in the Registration Statement, and
are included in reliance on such report given upon the authority of such firm as
experts in accounting and auditing.

         Each of the following financial statements have been audited by
Sweeney, Gates & Co., as set forth in each of their reports thereon appearing
elsewhere herein and in the Registration Statement, and are included in reliance
on such reports given upon the authority of such firm as experts in accounting
and auditing:

         The financial Statements of HTD at December 31, 1996 and 1997, and for
each of the three years in the period ended December 31, 1997 and for the period
from December 14, 1993 (inception) to December 31, 1997;

         The financial statements of Delargen d/b/a Gemini Biotech, Inc.at
December 31, 1996 and for the six months ended June 30, 1997, the year ended
December 31, 1996 and for the period from January 14, 1996 (inception) to June
30, 1997; and

         The financial statements of Gemini Biotech, Ltd., at December 31, 1997
and for the period from July 1, 1997 (date of commencement of operations) to
December 31, 1997.


ADDITIONAL INFORMATION

         The Company is subject to the information and reporting requirements of
the Securities and Exchange Act of 1934, as amended, and in accordance therewith
files periodic reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Company intends to
furnish to its shareholders annual reports containing financial statements
audited by an independent public accounting firm and will make available copies
of quarterly reports containing unaudited financial statements for the first
three quarters of each fiscal year.

         The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement (which term shall include all amendments, exhibits and
schedules thereto) on Form S-1 under the Securities Act with respect to the
Common Shares offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, to which Registration Statement
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at N.W.,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. In addition, the Company is required to file
electronic versions of


                                       93
<PAGE>

these documents with the Commission through the Commission's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a
World




                                       94

<PAGE>


                        INDEX TO FINANCIAL STATEMENTS AND
                          SUPPLEMENTARY FINANCIAL DATA
<TABLE>
<CAPTION>

                                                                                          PAGE
                                                                                          ----
<S>                                                                                         <C>
Pro Forma Condensed Combined Financial Statements:
         Introduction                                                                     F-2
         Pro Forma Condensed Combined Balance Sheet -
              June 30, 1998 (unaudited)                                                   F-3
         Pro Forma Condensed Combined Statement of Operations - Six Months
              Ended June 30, 1998 (unaudited) and Year Ended December 31, 1997
              (unaudited)                                                                 F-4
         Notes to Pro Forma Condensed Combined Financial Statements                       F-6

EPi Financial Statements:
         Report of Independent Certified Public Accountants                               F-11
         Report of Independent Certified Public Accountants                               F-12
         Balance Sheets - June 30, 1998 (unaudited) and December 31, 1997 and 
              1996 (audited)                                                              F-13
         Statement of Operations - Six Months Ended June 30, 1998 and 1997
              (unaudited) and for Each of the Three Years in the Period Ended
              December 31, 1997 (audited)                                                 F-14
         Statements of Stockholders' Equity - Six Months Ended June 30, 1998
              (unaudited) and for Each of the Three Years in the Period Ended
              December 31, 1997 (audited)                                                 F-15
         Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997
              (unaudited) and for Each of the Three Years in the Period Ended
              December 31, 1997 (audited)                                                 F-16
         Notes to Financial Statements                                                    F-18

HTD Financial Statements:
         Report of Independent Certified Public Accountants, Sweeney, Gates &
              Company                                                                     F-37
         Balance Sheet - June 30, 1998 (unaudited)                                       
              and December 31, 1997 and 1996 (audited)                                    F-38
         Statements of Operations - Six Months Ended June 30, 1998 and 1997 and
              period from December 14, 1993 (inception) to June 30, 1998 
              (unaudited); For each of the Three Years in the Period Ended
              December 31, 1997; and Period from December 14, 1993 (inception)
              to December 31, 1997 (audited)                                              F-39
         Statements of Stockholders' Equity (Deficit)- for period from December
              14, 1993 to December 31, 1997 (audited) and Six Months Ended June
              30, 1998 (unaudited)                                                        F-40
         Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997 and
              for the Period from December 14, 1993 to June 30, 1998
              (unaudited); for each of the Three Years in the Period Ended
              December 31, 1997 and for the Period from December 14, 1993
              (inception) to December 31, 1997 (audited)                                  F-41
         Notes to Financial Statements                                                    F-42

Delargen d/b/a Gemini Biotech, Inc. Financial Statements:
         Report of Independent Certified Public Accountants, Sweeney, Gates &
              Company                                                                     F-46
         Balance Sheet - December 31, 1996                                                F-47
         Statements of Operations - Six Months Ended June 30, 1997, Year Ended
              December 31, 1996 and for the Period January 1, 1996 (inception)
              to June 30, 1997                                                            F-48
         Statements of Stockholders' Equity - For the Period January 1, 1996
              (inception) to June 30, 1997                                                F-49
         Statements of Cash Flows - Six Months Ended June 30, 1997, Year Ended
              December 31, 1996 and for the Period January 1, 1996 (inception)
              to June 30, 1997                                                            F-50
         Notes to Financial Statements                                                    F-51

Gemini Financial Statements:
         Report of Independent Certified Public Accountants, Sweeney, Gates &
              Company                                                                     F-55
         Balance Sheet - June 30, 1998 (unaudited) and December 31, 1997
              (audited)                                                                   F-56
         Statements of Operations - Six Months Ended June 30, 1998 and for the
              period July 1, 1997 (date of commencement of operations) to June
              30, 1998 (unaudited) and for the period July 1, 1997 (date of
              commencement of operations) to December 31, 1997 (audited)                  F-57
         Statements of Partnership Capital (Deficit) -Six Months Ended June 30,
              1998 (unaudited) and for the period July 1, 1997 (date of
              commencement of operations to December 31, 1997 (audited)                   F-58
         Statements of Cash Flows - Six Months Ended June 30, 1998 and for the
              period July 1, 1997 (date of commencement of operations) to June
              30, 1998 (unaudited) and for the period July 1, 1997 (date of
              commencement of operations) to December 31, 1997 (audited)                  F-59
         Notes to Financial Statements                                                    F-60
</TABLE>

                                      F-1

<PAGE>
                            ELECTROPHARMACOLOGY, INC.
                         PRO FORMA FINANCIAL INFORMATION
                                   (unaudited)


         The accompanying unaudited Pro Forma Condensed Combined Balance Sheet
as of June 30, 1998 and the related unaudited Pro Forma Condensed Combined
Statement of Operations for the period ended June 30, 1998 and the year ended
December 31, 1997 give effect to (i) the acquisitions by the Company of
HealthTech Development, Inc., a development stage company ("HTD"), and Gemini
Biotech L.P., a development stage company ("GBLP") as of August 24, 1998 (see
"Business-Recent Corporate Reorganization"); (ii) the sale of the Company's
medical device business to AA Northvale Medical Associates, Inc. ("AANMA") as of
August 24, 1998 (see "Business-Recent Corporate Reorganization"); and (iii) the
acquisition of a worldwide license to Elan's flexible iontophoretic patch
technology for non-cosmetic dermatology and wound care application as of
September 30, 1998 (see "Business-Recent Elan Transactions"); and (iv) the
investment of $600,000 in Common Stock of the Company by Elan as of October 30,
1998 and an additional investment of $1,400,000 in Common Stock of the Company
by Elan to be made in December 1998 (see "Business-Recent Elan Transactions").

         The pro forma adjustments assume that these transactions had occurred
as of June 30, 1998 in the case of the Pro Forma Condensed Combined Balance
Sheet, or January 1, 1997 in the case of the Pro Forma Condensed Combined
Statement of Operations.

         These unaudited pro forma financial statements have been prepared by
management of the Company and should be read in conjunction with the historical
financial statements of the Company, HTD and GBLP included elsewhere in this
Prospectus (see "Index to Financial Statements"). The historical balances
represent the financial position and results of operations for each company and
have been prepared in accordance with generally accepted accounting principles.

         These unaudited pro forma financial statements are based on certain
assumptions and estimates which are subject to change, including in particular
the valuations of the technologies and other assets acquired by the Company from
HTD, GBLP and Elan and allocation of the purchase prices therefor between
inventory and in-process research and development. In determining the purchase
prices for the valuations of each of such acquisitions of technology, the
Company considered various valuation methodologies including the income
approach, stock price approach and comparable company approach. The Company
concluded that the preceding 20 day average price for the Common Stock of the
Company issued in such acquisition was the most appropriate and logical
valuation methodology and thus used it to account for the valuation of the
respective technologies acquired. Although the Company has used valuations that
it believes are reasonable based on its significant knowledge of such assets,
the technologies, chemical compounds, gene databases, intellectual property
rights and other intangible assets so acquired are not


<PAGE>


at this time susceptible to precise valuation, and there can be no assurance
that such valuations are accurate or reliable (see "Risk Factors - Uncertainty
About Technologies and Successful Development of Products" and "Notes to Pro
Forma Financial Statements").

         In preparing our pro forma financial statements, we have attempted to
estimate the length of time and cost to advance each of the technologies into a
potential commercial product, as to which there can be no assurance (see "Risk
Factors"). Although we have used our experience and observation in the industry,
the results are estimates only. We are not sure if the valuation and the
respective allocation of the purchase price and the corresponding accounting
treatment as in-process research and development in the financial statements is
correct since we cannot at this time predict the outcome of any technology at
this early stage of development. Accordingly, these statements do not purport to
be indicative of the financial position or results of operations that might have
occurred, nor are they necessarily indicative of future results.


                                      F-2


<PAGE>


                           Electropharmacology, Inc.
              Unaudited Pro Forma Condensed Combined Balance Sheet
                                 June 30, 1998

<TABLE>
<CAPTION>

                                                          Historical                Merger                               
                                                    -----------------------       -----------                            
ASSETS                                                                             Pro Forma                   Pro Forma 
------                                                  EPi           HTD         Adjustments                   Combined 
                                                    -----------    --------       -----------                 -----------
<S>                                                 <C>            <C>             <C>                       <C>
Current assets:
   Cash                                                  62,465          48                                       62,513 
   Trade accounts receivable, net                       126,723                                                  126,723 
   Inventory                                            159,043                                                  159,043 
   Trade notes and other receivables                      2,181                                                    2,181 
   Prepaid expenses                                     161,962                                                  161,962 
                                                    -----------    --------        ----------                ----------- 
Total current assets                                    512,374          48                 -                    512,422 
                                                    -----------    --------        ----------                ----------- 

   Rental and other equipment, net                      568,497         966                                      569,463 
   Patents & Organization Cost, net                      86,088                                                   86,088 
   Deposits                                               5,075                                                    5,075 
   Acquired Developed Technology                                                                                       - 
   Investment in ADM Tronics                                                                                           - 
                                                    -----------    --------        ----------                ----------- 
Total Assets                                          1,172,034       1,014                 -                  1,173,048 
                                                    ===========    ========        ==========                =========== 

LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
   Note Payable                                         719,276                                                  719,276 
   Accounts payable                                     509,330      44,500                                      553,830 
   Accrued expenses                                     308,224                                                  308,224 
   Accrued commissions                                   14,262                                                   14,262 
   Accrued payroll                                        1,767                                                    1,767 
   Customer deposits                                          -                                                        - 
   Deferred Revenue                                      75,000                                                   75,000 
   Notes payable to related parties                      65,926                        63,654 (4)                129,580 
                                                                                                                       - 
                                                    -----------    --------        ----------                ----------- 
Total current liabilities                             1,693,785      44,500            63,654                  1,801,939 
                                                    -----------    --------        ----------                ----------- 

Long term Note Payable                                   90,260                                                   90,260 
Minority Interest in Limited Partnership                                                                                 
                                                    -----------    --------        ----------                ----------- 
Total Liabilities                                     1,784,045      44,500            63,654                  1,892,199 
                                                    ===========    ========        ==========                =========== 

Commitments and contingencies

Net capital deficiency/Equity:
   Convertible Preferred Stock                            2,430                        (2,430)(7)                      - 
   Common Stock                                          41,325          32            80,409 (1),(7)            121,766 
   Additional paid-in capital                        15,277,249     194,522         1,703,225 (1)             17,174,996 
   Deferred Compensation                                (67,678)                                                 (67,678)
   General Partner (1%)                                                                                                  
   Limited Partners (99%)                                                                                                
   Deficit/Retained Earnings                        (15,865,337)   (238,040)       (1,844,858)(1),(4),(7)    (17,948,235)
                                                    -----------    --------        ----------                ----------- 
   Net capital deficiency/Total Equity                 (612,011)    (43,486)          (63,654)                  (719,151)
                                                    -----------    --------        ----------                ----------- 
     Total liabilities and net capital deficiency     1,172,034       1,014                 -                  1,173,048 
                                                    ===========    ========        ==========                =========== 

<CAPTION>

                                                                                                  Medical Device     
                                                     Historical       Merger                        Divestiture      
                                                    -----------    ------------                   --------------     
ASSETS                                                              Pro Forma         Pro Froma      Pro Forma       
------                                                  GBLP       Adjustments         Combined     Adjustments      
                                                    -----------    ------------      -----------    -----------      
<S>                                                 <C>            <C>               <C>             <C>
Current assets:
   Cash                                               285,064                            347,577      135,000 (3)    
   Trade accounts receivable, net                      57,697                            184,420                     
   Inventory                                            7,528         730,000 (2)        896,571     (152,233)(3)    
   Trade notes and other receivables                   30,200                             32,381                     
   Prepaid expenses                                         -                            161,962                     
                                                    ---------      -----------       -----------     --------        
Total current assets                                  380,488         730,000          1,622,910      (17,233)       
                                                    ---------      -----------       -----------     --------        

   Rental and other equipment, net                    252,976                            822,439     (613,466)(3)    
   Patents & Organization Cost, net                    67,034                            153,122                     
   Deposits                                             3,350                              8,425                     
   Acquired Developed Technology                                                               -                     
   Investment in ADM Tronics                                                                   -      606,667 (3)    
                                                    ---------      -----------       -----------     --------        
Total Assets                                          703,848         730,000          2,606,896      (24,032)       
                                                    =========      ===========       ===========     ========        

LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
   Note Payable                                        97,185                            816,461     (672,750)(3),(6)
   Accounts payable                                      (480)                           553,350      (48,169)(3),(6)
   Accrued expenses                                    68,958                            377,182      (29,081)(3),(6)
   Accrued commissions                                      -                             14,262                     
   Accrued payroll                                     22,361                             24,128                     
   Customer deposits                                                                           -                     
   Deferred Revenue                                                                       75,000                     
   Notes payable to related parties                                                      129,580                     
                                                                                               -                     
                                                    ---------      -----------       -----------     --------        
Total current liabilities                             188,025               -          1,989,964     (750,000)       
                                                    ---------      -----------       -----------     --------        

Long term Note Payable                                932,791                          1,023,051                     
Minority Interest in Limited Partnership                            2,422,985 (2)      2,422,985                     
                                                    ---------      -----------       -----------     --------        
Total Liabilities                                   1,120,816       2,422,985          5,436,000     (750,000)       
                                                    =========      ===========       ===========     ========        

Commitments and contingencies

Net capital deficiency/Equity:
   Convertible Preferred Stock                                                                 -                     
   Common Stock                                                                          121,766        3,226 (3),(6)
   Additional paid-in capital                                                         17,174,996       96,774 (3),(6)
   Deferred Compensation                                                                 (67,678)                    
   General Partner (1%)                               (85,656)         87,919 (2)          2,263                     
   Limited Partners (99%)                               5,000         219,096 (2)        224,096                     
   Deficit/Retained Earnings                         (336,312)     (2,000,000)(2)    (20,284,547)     625,968 (3),(6)
                                                    ---------      ----------        -----------     --------        
   Net capital deficiency/Total Equity               (416,967)     (1,692,985)        (2,829,104)     725,968        
                                                    ---------      ----------        -----------     --------        
     Total liabilities and net capital deficiency     703,848         730,000          2,606,896      (24,032)       
                                                    =========      ==========        ===========     ========        

<CAPTION>

                                                                              Elan
                                                                          Transactions
                                                     Pro Forma           --------------         Pro Forma   
ASSETS                                               Combined              Pro Forma            Combined    
------                                             (as adjusted)          Adjustments         (as adjusted) 
                                                   -------------         --------------       --------------
<S>                                                 <C>                    <C>                 <C>
Current assets:
   Cash                                                 482,577             2,000,000 (5)        2,482,577
   Trade accounts receivable, net                       184,420                                    184,420
   Inventory                                            744,338                                    744,338
   Trade notes and other receivables                     32,381                                     32,381
   Prepaid expenses                                     161,962                                    161,962
                                                    -----------            ----------          -----------
Total current assets                                  1,605,677             2,000,000            3,605,677
                                                    -----------            ----------          -----------

   Rental and other equipment, net                      208,973                                    208,973
   Patents & Organization Cost, net                     153,122                                    153,122
   Deposits                                               8,425                                      8,425
   Acquired Developed Technology                              -                                          -
   Investment in ADM Tronics                            606,667                                    606,667
                                                    -----------            ----------          -----------
Total Assets                                          2,582,864             2,000,000            4,582,864
                                                    ===========            ==========          ===========

LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
   Note Payable                                         143,711                                    143,711
   Accounts payable                                     505,181                                    505,181
   Accrued expenses                                     348,101                                    348,101
   Accrued commissions                                   14,262                                     14,262
   Accrued payroll                                       24,128                                     24,128
   Customer deposits                                          -                                          -
   Deferred Revenue                                      75,000                                     75,000
   Notes payable to related parties                     129,580                                    129,580
                                                              -                                          -
                                                    -----------            ----------          -----------
Total current liabilities                             1,239,964                     -            1,239,964
                                                    -----------            ----------          -----------

Long term Note Payable                                1,023,051                                  1,023,051
Minority Interest in Limited Partnership              2,422,985                                  2,422,985
                                                    -----------            ----------          -----------
Total Liabilities                                     4,686,000                     -            4,686,000
                                                    ===========            ==========          ===========

Commitments and contingencies

Net capital deficiency/Equity:
   Convertible Preferred Stock                                -                75,000 (5)           75,000
   Common Stock                                         124,992                25,000 (5)          149,992
   Additional paid-in capital                        17,271,770             9,400,000 (5)       26,671,770
   Deferred Compensation                                (67,678)                                   (67,678)
   General Partner (1%)                                   2,263                                      2,263
   Limited Partners (99%)                               224,096                                    224,096
   Deficit/Retained Earnings                        (19,658,579)           (7,500,000)(5)      (27,158,579)
                                                    -----------            ----------          ----------- 
   Net capital deficiency/Total Equity               (2,103,136)            2,000,000             (103,136)
                                                    -----------            ----------          ----------- 
     Total liabilities and net capital deficiency     2,582,864             2,000,000            4,582,864
                                                    ===========            ==========          =========== 

</TABLE>

(1) To reflect the elimination of HTD equity accounts, issuance of EPI shares
    and allocation of the purchase price in excess of net tangible assets
    acquired, see Note 2.
(2) To reflect the elimination of the GBLP equity accounts, issuance of EPI
    shares and allocation of the purchase price in excess of net tangilble
    assets acquired, see Note 2.
(3) To reflect the sale of the Medical Device Business for $150,000 cash (net of
    $15,000 registration fee) and ADM stock (2,925,000 shares) pursuant to the
    Asset Purchase Agreement.
(4) To record a related party payable of $63,654 related to the exercise of
    244,823 options issued to the President as if the change in control occurred
    on June 30, 1998.
(5) To record the initial license fee ($7.5M), convertible preferred stock
    investment ($7.5M), and common stock investment ($2M) assumed 2,500,000
    shares at $0.80 per share. See Note 5.
(6) To record the settlement of certain legal expenses ($100,000) through the
    issuance of common shares. See Note 6.
(7) To record the issuance of 1,872,000 common shares for the conversion of the
    outstanding preferred stock and in exchange for certain outstanding
    warrants. See Note 7.



                                      F-3

<PAGE>


                            Electropharmacology, Inc.
         Unaudited Pro Forma Condensed Combined Statement of Operations
                         Six Months Ended June 30, 1998


<TABLE>
<CAPTION>

                                                                 Historical                   Merger                            
                                                           ---------------------            ----------                          
                                                                                             Pro Forma                Pro Forma 
                                                              EPi          HTD              Adjustments                Combined 
                                                           ---------      ------            -----------               ----------
<S>                                                        <C>            <C>                <C>                     <C>
Revenue:
  Rentals                                                    143,445           -                                        143,445 
  Sales                                                       42,000           -                                         42,000 
                                                           ---------      ------             ----------              ---------- 
Total revenue                                                185,445           -                      -                 185,445 

Operating expenses:
  Cost of revenue                                             67,064           -                                         67,064 
  Selling, general and administrative                        419,874       2,664                 79,944 (3),(5)         502,482 
  Research and development                                    13,863         300              2,000,000 (1)           2,014,163 
                                                           ---------      ------             ----------              ---------- 
Total operating expenses                                     500,801       2,964              2,079,944               2,583,709 
                                                           ---------      ------             ----------              ---------- 
Loss from operations                                        (315,356)     (2,964)            (2,079,944)             (2,398,264)

Other income  (expense)
  Interest expense                                           (20,939)          -                                        (20,939)
  Interest and other income                                    2,561          10                                          2,571 
  Loss on disposal of equipment                                    -                                                          - 
                                                           ---------      ------             ----------              ---------- 
Total other income  (expense)                                (18,378)         10                      -                 (18,368)
                                                           ---------      ------             ----------              ---------- 
Net loss                                                    (333,734)     (2,954)            (2,079,944)             (2,416,632)
                                                           =========      ======             ==========              ========== 

Net loss per share - basic and diluted                         (0.08)         (1)                                         (0.20)
                                                           =========      ======                                     ========== 

Weighted average number of common shares outstanding -
   basic and diluted                                       4,130,727       3,247             12,174,822              12,174,822 
                                                           =========      ======                                     ========== 

<CAPTION>

                                                                                                        Medical Device 
                                                          Historical      Merger                          Divestiture  
                                                          ----------    ----------                      -------------- 
                                                                         Pro Forma        Pro Froma        Pro Forma   
                                                             GBLP       Adjustments        Combined       Adjustments  
                                                           --------     -----------       ----------      -----------  
<S>                                                        <C>          <C>               <C>              <C>
Revenue:
  Rentals                                                         -                          143,445       (143,445)(2)
  Sales                                                     416,962                          458,962        (42,000)(2)
                                                           --------     ----------        ----------       --------    
Total revenue                                               416,962              -           602,407       (185,445)   

Operating expenses:
  Cost of revenue                                           205,817                          272,881        (67,064)(2)
  Selling, general and administrative                       327,681                          830,162       (200,000)(2)
  Research and development                                        -      2,000,000 (1)     4,014,163                   
                                                           --------     ----------        ----------       --------    
Total operating expenses                                    533,498      2,000,000         5,117,206       (267,064)   
                                                           --------     ----------        ----------       --------    
Loss from operations                                       (116,536)    (2,000,000)       (4,514,799)        81,619    

Other income  (expense)
  Interest expense                                                -                          (20,939)        20,939 (2)
  Interest and other income                                   6,584                            9,155                   
  Loss on disposal of equipment                                                                    -                   
                                                           --------     ----------        ----------       --------    
Total other income  (expense)                                 6,584              -           (11,784)        20,939    
                                                           --------     ----------        ----------       --------    
Net loss                                                   (109,952)    (2,000,000)       (4,526,584)       102,558    
                                                           ========     ==========        ==========       ========    

Net loss per share - basic and diluted                            -                            (0.37)                  
                                                           ========                       ==========                   

Weighted average number of common shares outstanding -
   basic and diluted                                              -                       12,174,822        322,581    
                                                           ========                       ==========                   

<CAPTION>

                                                                                     Elan
                                                                                 Transactions
                                                              Pro Forma          ------------           Pro Forma  
                                                              Combined             Pro Forma            Combined   
                                                            (as adjusted)         Adjustments         (as adjusted)
                                                            -------------         -----------         -------------
<S>                                                           <C>                  <C>                  <C>
Revenue:
  Rentals                                                              -                                         -
  Sales                                                          416,962                                   416,962
                                                              ----------           ----------           ---------- 
Total revenue                                                    416,962                    -              416,962

Operating expenses:
  Cost of revenue                                                205,817                                   205,817
  Selling, general and administrative                            630,162                                   630,162
  Research and development                                     4,014,163            7,500,000 (4)        7,500,000
                                                              ----------           ----------           ---------- 
Total operating expenses                                       4,850,142            7,500,000            8,335,979
                                                              ----------           ----------           ---------- 
Loss from operations                                          (4,433,180)          (7,500,000)          (7,919,017)

Other income  (expense)
  Interest expense                                                     -                                         -
  Interest and other income                                        9,155                                     9,155
  Loss on disposal of equipment                                        -                                         -
                                                              ----------           ----------           ---------- 
Total other income  (expense)                                      9,155                    -                9,155
                                                              ----------           ----------           ---------- 
Net loss                                                      (4,424,026)          (7,500,000)          (7,909,863)
                                                              ==========           ==========           ========== 

Net loss per share - basic and diluted                             (0.35)                                    (0.53)
                                                              ==========                                ========== 

Weighted average number of common shares outstanding -
   basic and diluted                                          12,497,403            2,500,000           14,997,403
                                                              ==========                                ========== 

</TABLE>

(1) To record the purchase of in-process research and development. See Note 2.
(2) To reflect the sale of the Medical Device Division, including related
    depreciation expense and savings of $200,000 in SG&A costs, as if it had
    occurred on January 1, 1998. See "Business-Recent Corporate Reorganization".
(3) To record a related party payable of $63,654 related to the exercise of
    244,823 options issued to the President as if the change in control occurred
    on June 30, 1998. See "Certain Transactions"
(4) To record the initial license fee ($7.5M) paid by the Company to Elan in
    connection with the Elan transaction. See Note 5 and "Business-Recent Elan
    Transactions"
(5) To record the settlement of certain legal expenses ($100,000) through the
    issuance of common shares. See Note 6.
(6) To record the issuance of 1,872,000 common shares for the conversion of the
    outstanding preferred stock and in exchange for certain outstanding
    warrants. See Note 7.


                                      F-4

<PAGE>

                            Electropharmacology, Inc.
         Unaudited Pro Forma Condensed Combined Statement of Operations
                          Year Ended December 31, 1997
<TABLE>
<CAPTION>
                                                                         Merger                                        Merger       
                                                                    ----------------                               -------------    
                                                  Historical                                          Historical                    
                                             -------------------                                      -----------                   
                                                                        Pro Forma          Pro Forma                  Pro Forma     
                                              EPi          HTD        Adjustments         Combined       GBLP        Adjustments    
                                           --------     ---------  ----------------      ---------   ----------    -------------    
<S>                                         <C>                                      <C>                                        
Revenue:
  Rentals                                   1,700,486           -                          1,700,486           -                    
  Sales                                       700,763           -                            700,763     118,018                    
                                         ------------    --------     ----------         -----------   ---------      ----------    
Total revenue                               2,401,249           -              -           2,401,249     118,018               -    
                                                                                                                                    
Operating expenses:                                                                                                                 
  Cost of revenue                             611,702           -                            611,702      92,619                    
  Selling, general and administrative       3,177,031      89,972         79,944 (3),(5)   3,346,947     193,169                    
  Research and development                    214,686      28,070      2,000,000 (1)       2,242,756           -       2,000,000 (1)
                                         ------------    --------     ----------         -----------   ---------      ----------    
Total operating expenses                    4,003,419     118,042      2,079,944           6,201,405     285,788       2,000,000    
                                         ------------    --------     ----------         -----------   ---------      ----------    
Loss from operations                       (1,602,170)   (118,042)    (2,079,944)         (3,800,156)   (167,770)     (2,000,000)   
                                                                                                                                    
Other income  (expense)                                                                                                             
  Interest expense                            (25,135)     (2,198)                           (27,333)    (71,622)                   
  Interest and other income                     9,894         124                             10,018      13,033                    
  Loss on disposal of equipment               (30,506)                                       (30,506)                               
                                         ------------    --------     ----------         -----------   ---------      ----------    
Total other income (expense)                  (45,747)     (2,074)             -             (47,821)    (58,589)              -    
                                         ------------    --------     ----------         -----------   ---------      ----------    
Net loss                                   (1,647,917)   (120,116)    (2,079,944)         (3,847,977)   (226,359)     (2,000,000)   
                                         ============    ========     ==========         ===========   =========      ==========    
                                                                                                                                    
Net loss per share - basic and diluted          (0.45)        (37)                             (0.33)          -                    
                                         ============    ========                        ===========   =========                    
Weighted average number of common shares                                                                                            
   outstanding - basic and diluted          3,697,611       3,247     11,741,706          11,741,706           -                    
                                         ============    ========                        ===========   =========                    
                                                                                                                                    
(RESTUBBED TABLE)
                                                              Medical Device                      Elan                             
                                                                Divestiture                    Transactions                        
                                                            -----------------                 -------------                        
                                                                                                                                   
                                                                                   Pro Forma                         Pro Forma      
                                                Pro Froma       Pro Forma           Combined     Pro Forma           Combined       
                                                 Combined      Adjustments       (as adjusted)  Adjustments        (as adjusted)    
                                                ---------   ----------------    ------------  ------------        -------------     
                                                                                                                                   
                                               
Revenue:                                 
  Rentals                                         1,700,486      (1,700,486) (2)             -                                 -    
  Sales                                             818,781        (700,763) (2)       118,018                           118,018    
                                                -----------   -------------         ----------     -----------       -----------    
Total revenue                                     2,519,267      (2,401,249)           118,018               -           118,018    
                                                                                                                                    
Operating expenses:                                                                                                                 
  Cost of revenue                                   704,321        (611,702) (2)        92,619                            92,619    
  Selling, general and administrative             3,540,116      (2,000,000) (2)     1,540,116                         1,540,116    
  Research and development                      (14,242,756)                         7,500,000       7,500,000 (4)    11,742,756    
                                                -----------   -------------         ----------     -----------       -----------    
Total operating expenses                          8,487,193      (2,611,702)         5,875,491       7,500,000        13,375,491    
                                                -----------   -------------         ----------     -----------       -----------    
Loss from operations                             (5,967,926)        210,453         (5,757,473)     (7,500,000)      (13,257,473)   
                                                                                                                                    
Other income  (expense)                                                                                                             
  Interest expense                                  (98,955)         25,135  (2)       (73,820)                          (73,820)   
  Interest and other income                          23,051                             23,051                            23,051    
  Loss on disposal of equipment                     (30,506)                           (30,506)                          (30,506)   
                                                -----------   -------------         ----------     -----------       -----------    
Total other income (expense)                       (106,410)         25,135            (81,275)              -           (81,275)   
                                                -----------   -------------         ----------     -----------       -----------    
Net loss                                         (6,074,336)        235,588         (5,838,748)     (7,500,000)      (13,338,748)   
                                                ===========   =============         ==========     ===========       ===========    
                                                                                                                                    
Net loss per share - basic and diluted                (0.52)                             (0.48)                            (0.92)   
                                                ===========                         ==========                       ===========    
Weighted average number of common shares                                                                                            
   outstanding - basic and diluted               11,741,706         322,581         12,064,287       2,500,000        14,564,287    
                                                ===========                         ==========                       ===========    
</TABLE>
(1) To record the purchase of in-process research and development. See Note 2.
(2) To reflect the sale of the Medical Device Division, including related 
    depreciation expense and savings of $200,000 in SG&A costs, as if it had 
    occurred on January 1, 1997. See "Business-Recent Corporate Reorganization".
(3) To record a related party payable of $63,654 related to the exercise of
    244,823 options issued to the President as if the change in control occurred
    on June 30, 1998. See "Certain Transactions"
(4) To record the initial license fee ($7.5M) paid by the Company to Elan in 
    connection with the Elan transaction. See Note 5 and "Business-Recent Elan
    Transactions"
(5) To record the settlement of certain legal expenses ($100,000) through the 
    issuance of common shares. See Note 6.
(6) To record the issuance of 1,872,000 common shares for the conversion of the
    outstanding preferred stock and in exchange for certain outstanding 
    warrants. See Note 7.

                                      F-5
<PAGE>


                            Electropharmacology, Inc.

                     NOTES TO PRO FORMA FINANCIAL STATEMENTS


1. Determination of Purchase Price for HTD and GBLP

         The purchase price for both HealthTech Development, Inc., a development
stage company ("HTD"), and Gemini Biotech L.P. (GBLP) was determined by the
Company's management (see Notes to the Financial Statements - "Use of
Estimates") in accordance with APB 16 and was based upon a number of objective
and subjective factors including but not limited to (a) reference to the market
price of Common Stock during the negotiation period and leading up to the
execution of the acquisition agreements; (b) the Company's management's
estimation that the outstanding liabilities, transaction costs and ongoing
operation costs of HTD through the closing of its merger into the Company would
generally offset the realizable value of tangible assets, such that the only
material assets of HTD remaining as of the effective time of the merger would be
intangible assets consisting of technology rights and license agreements (see
"Business - Product Development Programs"); (c) the Company's management's
assessment of the synergistic value of (i) HTD's various technologies (ii)
GBLP's various technologies and (iii) the technologies licensed through the
licensing agreement with Elan Pharma International Limited, as well as the
investment by Elan International Services, Ltd. in Common Stock of the Company
(see "Business - Recent Elan Transactions") in combination with the Company's
own drug delivery technologies in attracting corporate sponsors, facilitating
technology licenses and other fund raising activities, and providing a greater
balance to the Company's stock holders.

         APB 16 states that the cost of an acquired company is measured by the
fair value of the consideration received. Since at the time of the foregoing
transactions there was no active trading market for the Company's Common Stock,
an objective measurement of its fair value is difficult. The Company utilized
various valuation methodologies including the income approach, stock price
approach and company comparable approach. Based on these methodologies, the
Company determined that the 20 day average stock price preceding each
transaction represented the most logical valuation methodology and has accounted
for the valuation of the respective technologies accordingly. This methodology
indicated a value of approximately $2,000,000 for HTD and $2,730,000 for GBLP
and their related developed technology (as defined below), which were the
primary assets being acquired by the Company given its current business
strategy. Since the technologies, chemical compounds, gene databases,
intellectual property rights and other intangible assets so acquired are not at
this time susceptible to precise valuation, the Company has used valuations that
it believes are reasonable based on its significant knowledge of such assets but
there can be no assurance that such valuations are accurate or reliable.


                                      F-6

<PAGE>


2. Accounting for Mergers and Allocation of Purchase Price

         The HTD and GBLP mergers will be accounted for as a purchase
transaction with the Company as the acquiring company. The total estimated
purchase price of $2,000,000 for HTD and $2,730,000 for GBLP has been allocated
to the fair market values of the assets acquired and the liabilities assumed.
The pro forma allocation of the purchase price is based upon information that
was available at the date of preparation of the pro forma financial statements
and is subject to change, although this preliminary allocation is not expected
to materially differ from the final allocation.

         In accordance with the provisions of APB Nos. 16 and 17, all
identifiable assets acquired, including identifiable intangible assets, were
assigned a portion of the purchase price on the basis of their fair values. To
this end, the Company performed and detailed analysis to determine the fair
value of the identifiable assets in allocating the purchase price among the
Acquired Assets.

         The income, stock valuation, and comparable market approaches were used
to value the Acquired Assets. Standard valuation procedures indicate that these
are appropriate methodologies for valuing intangible assets such as patents and
patent applications, licenses, employment agreements, noncompete agreements,
chemical compounds, genetic databases, and various other intellectual property.

         In the case of HTD, the base technologies (the "Developed Technology")
have various ascertainable development timelines with additional human or
financial resources still required for further development in order to realize
economic benefits. These base technologies include intellectual property in the
application of cancer drugs, new drug targets, and immune system booster
technologies. Since the technology is not well defined and understood by the
biotechnology community, management of the Company has determined that a
combination of the various valuation methodologies would provide the most
reliable valuation. Other intangibles considered included license agreements,
patents issued and patent applications pending, reputation and associated
goodwill, as well as the potential for incomplete research and development
projects. A review of the assets and liabilities carried on HTD's balance sheet
as of December 31, 1997 indicated that the carrying value of such assets and
liabilities did not approximate their fair values at that date and, accordingly,
various intangible assets of $2,000,000 have been recorded. As a result of the
acquired technologies development timeline, substantial development costs,
technological feasibility, and various other uncertainties involved related to
the commercialization of these technologies, the Company has classified the
acquired intangible assets as in-process research and development in the
allocation of the purchase price. Although we have used our experience and
observation in the industry, the results are estimates only. We are not sure if
the valuation and the respective allocation of the purchase price and the
corresponding accounting treatment as in-process research and development in the
financial statements is correct since we cannot predict the outcome of any
technology at this early stage of development.


                                      F-7

<PAGE>


         The calculation of the estimated purchase price is as follows:

         NET LIABILITIES:
             Net liabilities (less fair value of assets)............. $   43,486
         EQUITY:
             Common Stock issued (6,172,000 shares valued
                  At $0.317 per share)...............................  1,956,514
                                                                      ----------

         Estimated Total Purchase Price.............................. $2,000,000

         As a condition to the HTD merger agreement, up to an additional
1,650,000 shares of Common Stock of the Company may be issued to the former
shareholders of HTD based on certain minimum net revenues amounts, certain net
pretax profit percentages, and the certain development milestones.

         The estimated allocation of the purchase price is as follows:

         In-Process Research and Development......................... $2,000,000
                                                                      ----------
             Estimated net assets acquired........................... $2,000,000


         In the case of GBLP, the base technologies (the "Developed Technology")
have various ascertainable development timelines with additional human or
financial resources still required to be expended for further development in
order to realize economic benefits. These base technologies include intellectual
property in the application of cancer and inflammation drugs. Management of the
Company has determined that a combination of the various valuation methodologies
would provide the most reliable valuation. Other intangibles considered include
license agreements, patents issued and patent applications pending, reputation
and associated goodwill, as well as the potential for incomplete research and
development projects. A review of the assets and liabilities carried on GBLP's
balance sheet as of December 31, 1997 indicated that the carrying value of such
assets and liabilities did not approximate their fair values at that date and
accordingly, various intangible assets of $2,730,000 have been recorded and
classified as inventory and in-process research and development in the
allocation of the purchase price. As a result of the acquired technologies
development timeline, substantial development costs, technological feasibility,
and various other uncertainties involved related to the commercialization of
these technologies, the Company has classified the majority of the acquired
intangible assets as in-process research and development in the allocation of
the purchase price. Although we have used our experience and observation in the
industry, the results are estimates only. We are not sure if the valuation and
the respective allocation of the purchase price and the corresponding accounting
treatment as in-process research and development in the financial statements is
correct since we can not predict the outcome of any technology at this early
stage of development.


                                      F-8

<PAGE>



         The calculation of the estimated purchase price is as follows:

         NET LIABILITIES:
             Net liabilities (less fair value of assets)............. $  416,968
          EQUITY:
             Partnership Units issued (6,000,000 units convertible
             Into 6,000,000 shares of Common Stock of the Company 
             after 12 months, valued at $0.3855 per unit)............  2,313,032
                                                                       ---------

         Estimated Total Purchase Price..............................  2,730,000

         As a condition to the GBLP merger agreement, additional partnership
units of up to 1,050,000 (convertible into 1,050,000 shares of Common Stock of
the Company) may be issued to the former partners of GBLP based on certain
development milestones.

         The estimated allocation of the purchase price is as follows:

         Inventory................................................... $  730,000
         In-Process Research and Development.........................  2,000,000
                                                                       ---------
                  Estimated net assets acquired......................  2,730,000


3. Divestiture of Company's SofPulse Business

         On August 18, 1998, the Company sold substantially all of the assets of
its SofPulse medical device business to a wholly-owned subsidiary of ADM Tronics
Unlimited, Inc. ("ADM"), a publicly traded company, in exchange for a
combination of $150,000 in cash, 1,400,000 shares of ADM common stock issued to
the Company, and additional 1,540,000 shares of ADM common stock issued to pay
approximately $650,000 of the Company's payable (see "Certain Transactions") and
a warrant to purchase additional shares of ADM common stock if ADM achieves
certain sales objectives with respect to its conduct of the SofPulse business.
The Company recorded an extraordinary gain on the disposition of assets of
approximately $640,000 as a result of this divestiture.


4. Additional Stock Options Issued to the Company's President

         Effective as of August 24, 1998 as a result of merger with HTD and the
acquisition of GBLP in conjunction with certain change of control provisions in
the President's employment contract, the Company recorded a related party
payable to the President for $63,654 related to the exercise of 244,823 options
to purchase common stock at $.26 per share. This has been shown as additional
compensation expense for pro-forma presentation.


                                      F-9

<PAGE>


5. Elan License Agreement and Investment in EPi

         On October 1, 1998, the Company acquired a worldwide license to the
flexible iontophoretic patch technology for non-cosmetic dermatology and wound
care applications from Elan Pharma International Limited ("Elan Pharma"). The
Company made a cumulative up-front payment of $7,500,000 to Elan Pharma for
in-process research and development and will pay prescribed royalties and
license fees to Elan Pharma based on the Company's future revenues from the
commercialization of the technology.

         Management has determined that the licensed technology has various
ascertainable development timelines with additional human or financial resources
still required to be expended for further development in order to realize
economic benefits. As a result of the acquired technology's development
timeline, substantial development costs, technological feasibility, and various
other uncertainties involved related to the commercialization of these
technologies, the Company has classified the licensed intangible assets as
in-process research and development.

         Separately, Elan International Services, Ltd. ("Elan International")
invested $7,500,000 in the Company to acquire 7,500,000 shares of Convertible
Preferred Stock and warrants to acquire up to 1,000,000 shares of Common Stock
of the Company at an exercise price of $2.50 per share and also committed to
invest an additional $2,000,000 to acquire shares of Common Stock at the
election of the Company at the 20 day average closing price, not exceeding
$1.375. This $2,000,000 investment in Common Stock has been shown for pro-forma
presentation as 2,500,000 shares issued at $0.80. On October 30, 1998, Elan
International acquired 777,202 shares of Common Stock of the Company at $0.77
per share, or an aggregate of $600,000. In December 1998 Elan International will
acquire additional shares of the Company for an aggregate of $1,400,000 at the
20 day average stock price preceding the close.


6. Settlement of Certain Legal Expenses

         On August 24, 1998, in conjunction with the merger of HTD, the Company
issued 322,581 common shares at a price of $0.31 per share in settlement of
certain legal expenses totaling $100,000 with the Company's previous corporate
counsel.


7. Conversion of Preferred Stock and Exchange of Warrants

         On August 24, 1998, in conjunction with the merger of HTD, the Company
issued 1,872,000 common shares for the conversion of the outstanding preferred
stock and in exchange for certain outstanding warrants. As a result of these
issuances, the Company recorded additional consulting expense of $16,290.


                                      F-10


<PAGE>



               Report of Independent Certified Public Accountants

Board of Directors
Electropharmacology, Inc.

We have audited the accompanying balance sheet of Electropharmacology, Inc. (the
Company) as of December 31, 1997 and the related statements of operations,
shareholders' equity and cash flows for each of the two years in the period
ended December 31, 1997. 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 audit.

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

In our opinion, the financial statement referred to above present fairly, in all
material respects, the financial position of Electropharmacology, Inc. at
December 31, 1997 and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 2 to
the financial statements, the Company incurred significant recurring operating
losses and has both a working capital deficit and a net capital deficiency.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard in to these matters are also
described in Note 2. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that might result from
the outcome of this uncertainty.




                                      F-11



<PAGE>


Report of Independent Certified Public Accountants



The Board of Directors
Electropharmacology, Inc.


We have audited the accompanying balance sheet of Electropharmacology, Inc. as
of December 31, 1995, and the related statements of operations, shareholders'
equity (capital deficit) and cash flows for each of the two years in the period
ended December 31, 1995. 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 the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also 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 out 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 Electropharmacology, Inc. as of
December 31, 1995, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.






                                      F-12


<PAGE>


                            ELECTROPHARMACOLOGY, INC.
                                  Balance Sheet


<TABLE>
<CAPTION>

                                                                 June 30,             December 31,
                                                                 ---------        --------------------
                                                                   1998            1997           1996
                                                                  ------          ------         ------
                                                                (unaudited) 
<S>                                                              <C>            <C>             <C>
ASSETS
Current assets:
  Cash                                                          $     62,465    $   111,496     $  223,523
Trade accounts receivable, net of allowance for doubtful             
  accounts of $30,158 at 6/30/9, $26,000 at 12/31/97 &
  $134,000 at 12/31/96                                               126,723        169,404        572,202
Inventory                                                            159,043        152,233         94,164
Trade notes and other receivables                                      2,181         32,748        248,190
Prepaid expenses                                                     161,962        157,065         50,127
                                                                ------------     ----------    -----------
Total current assets                                                 512,374        622,946      1,188,206
Rental and other equipment, net                                      568,497        713,466        945,058
Patents, net of accumulated amortization of $14,000                   86,088         89,129             --
Deposits and other assets                                              5,075         18,001         79,816
                                                                ------------     ----------    -----------
Total assets                                                    $  1,172,034    $ 1,443,542    $ 2,213,080
                                                                ============    ===========    ===========
LIABILITIES AND NET CAPITAL DEFICIENCY

Current liabilities:
  Notes payable                                                 $    719,276    $   804,179    $        --
  Accounts payable                                                   509,330        380,313        316,746
  Accrued expenses                                                   308,224        187,933        513,130
  Accrued commissions                                                 14,262         46,181         30,845
  Accrued payroll                                                      1,767         18,385        104,701
  Customer deposits                                                       --          7,561          7,561
  Deferred revenue                                                    75,000             --             --
  Notes payable to related parties                                    65,926         73,926             --
Current maturities of obligations under capital leases                    --             --         22,386
Total current liabilities                                          1,693,785      1,518,478        995,369
                                                                ------------    -----------    -----------
Long-Term Liabilities:
  Notes payable
                                                                ------------    -----------    -----------
Obligations under capital leases, less current maturities             90,260             --          3,336
                                                                ------------    -----------    -----------
Total liabilities                                                  1,784,045      1,518,478        998,705
                                                                ------------    -----------    -----------
Commitments and contingencies

Net capital deficiency:
  Convertible preferred stock, $.01 par value -- 10,000,000
     authorized shares (entitled to $2,000,043 in liquidation)         2,430          2,430          4,220
         
  Common stock, $.01 par value -- 30,000,000 authorized
     shares; 4,132,493 shares issued and 4,071,194 shares
     outstanding at 6/30/98 and 12/31/97, respectively                41,325         40,711         35,402
  Additional paid-in capital                                      15,277,249     15,254,912     11,352,922
  Treasury stock, at cost, 10,493 common shares                           --             --        (60,000)
  Deferred compensation                                              (67,678)       (67,678)
Deficit                                                          (15,865,337)   (15,305,311)   (10,118,169)
                                                                 -----------    -----------    -----------
Net capital deficiency/Total shareholders' equity                   (612,011)       (74,936)     1,214,375
                                                                 -----------    -----------    -----------
Total liabilities and deficiency/equity                          $ 1,172,034    $ 1,443,542    $ 2,213,080
                                                                 ===========    ===========    ===========
</TABLE>

                             See Accompanying Notes

                                      F-13


<PAGE>


                            ELECTROPHARMACOLOGY, INC.
                            Statements of Operations

<TABLE>
<CAPTION>

                                               Six Months
                                             Ended June 30,                    Year Ended December 31,
                                           ------------------            ----------------------------------
                                              (Unaudited)
                                          1998           1997            1997           1996           1995
                                          ----           ----            ----           ----           ----
<S>                                     <C>            <C>            <C>            <C>            <C>
Revenue:
   Rentals                              $  359,143     $1,227,751     $ 1,700,486    $ 1,695,944    $   612,846
   Sales                                    75,860        287,000         700,763        409,818      1,383,817
                                        ----------     ----------     -----------    -----------    -----------
Total revenue                              435,003      1,514,751       2,401,249      2,105,762      1,996,663
Operating expenses:
   Cost of revenue                         138,599        202,649         611,702        376,197        224,155
   Selling, general and administrative     783,537      1,850,001       3,177,031      3,941,235      2,813,389

   Research and development                 37,974        183,173         214,686        815,722      1,690,163
                                        ----------     ----------     -----------    -----------    -----------
Total operating expenses                   960,110      2,235,823       4,003,419      5,133,154      4,727,707
                                        ----------     ----------     -----------    -----------    -----------
Loss from operations                      (525,107)      (721,072)     (1,602,170)    (3,027,392)    (2,731,044)
Other income (expense):
   Interest expense                        (36,649)        (5,582)        (25,135)        (8,933)      (463,172)
   Interest income                           2,595          7,152           9,894        108,335        124,630
   Loss on disposal of equipment              (865)            --              --             --             --
                                        ----------     ----------     -----------    -----------    ----------- 
                       
Total other income (expense)               (34,919)         1,570         (45,747)        99,402       (338,542)
                                        ----------     ----------     -----------    -----------    -----------
Net loss                                $ (560,026)    $ (719,502)    $(1,647,917)   $(2,927,990)   $(3,069,586)
                                        ==========     ==========     ===========    ===========    ===========
Net loss per share, basic and                
  diluted                                    (0.14)         (0.20)          (0.45)         (0.89)         (1.26)
                                        ==========     ==========     ===========    ===========    ===========
Weighted average number of common         
  shares outstanding, basic and            
  diluted                                4,113,328      3,606,388       3,697,611      3,298,849      2,429,880
                                        ==========     ==========     ===========    ===========    ===========
                                          
</TABLE>

                            SEE ACCOMPANYING NOTES


                                      F-14


<PAGE>



                            Electropharmacology, Inc.

           Statements of Shareholders' Equity (Net Capital Deficiency)

<TABLE>
<CAPTION>
                                     PREFERRED STOCK             COMMON STOCK                      ADDITIONAL   
                                    ------------------         ----------------      PAID-IN       DEFERRED     
                                    SHARES     AMOUNT          SHARES    AMOUNT      CAPITAL       COMPENSATION 
                                                                                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------

<S>                                 <C>        <C>          <C>        <C>        <C>              <C>
Balance at December 31, 1995         421,950    4,220       3,074,474   30,745     14,708,689                   
  Exercise of warrants                                        421,950    4,220                                  
  Issuance of common stock for
     services                                                  43,741      437        125,321                   
  Net loss                                                                                                      
 
----------------------------------------------------------------------------------------------------------------

Balance at December 31, 1996         421,950   $4,220       3,540,165  $35,402    $14,834,010                   

Issuance of common stock for
   services                                                   348,519    3,484        307,125                   
Issuance of common stock for
   employee stock plan                                         14,003      140         16,785                   
Retirement of treasury stock                                   10,493)    (105)        (1,758)                  
Conversion of preferred stock
   to common stock                  (179,000)  (1,790)         79,000    1,790
Issuance of stock options to
   purchase 72,500 shares of
   common stock                                                                        98,750       (67,678)    
 Net loss                                                                                                       
 
----------------------------------------------------------------------------------------------------------------

Balance at December 31, 1997         242,950   $2,430       4,071,194  $40,711    $15,254,912      $(67,678)    

Issuance of common stock
   for services (unaudited)                                    61,299      614         22,337                   
Net loss (unaudited)                                                                                            
Balance at June 30, 1998             
   (unaudited)                       242,950   $2,430       4,132,493  $41,325    $15,277,249      $(67,678)     
                                     
================================================================================================================
</TABLE>


<PAGE>


                                                                       TOTAL
                                       TREASURY                    SHAREHOLDERS'
                                        STOCK         DEFICIT         EQUITY
                                                                   (NET CAPITAL
                                                                    DEFICIENCY)
--------------------------------------------------------------------------------
Balance at December 31, 1995           (60,000)     (10,671,267)     4,012,387
  Exercise of warrants                                                   4,220
  Issuance of common stock for
   services                                                            125,758
  Net loss                                           (2,927,990)    (2,927,990)
 
--------------------------------------------------------------------------------
Balance at December 31, 1996          $(60,000)    $(13,599,257)    $1,214,375

Issuance of common stock for
   services                                                            310,609
Issuance of common stock for
   employee stock plan                                                  16,925
Retirement of treasury stock            60,000          (58,137)
Conversion of preferred stock
   to common stock                 
Issuance of stock options to
   purchase 72,500 shares of
   common stock                                                         31,072
 Net loss                                            (1,647,917)    (1,647,917)
 
--------------------------------------------------------------------------------
Balance at December 31, 1997                 -     $(15,305,311)     $ (74,936)

Issuance of common stock
   for services (unaudited)                                             22,951
Net loss (unaudited)                                   (560,026)      (560,026)
Balance at June 30, 1998                     
  (unaudited)                                -     $(15,865,337)     $(612,011)
                                             
================================================================================

SEE ACCOMPANYING NOTES.

                                      F-15


<PAGE>


                            ELECTROPHARMACOLOGY, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                  Six Months Ended June 30,         Year Ended December 31,
                                                  -------------------------     -------------------------------
                                                     1998          1997         1997         1996          1995
                                                     ----          ----         ----         ----          ----
                                                         (Unaudited)
<S>                                                 <C>           <C>         <C>          <C>           <C>
OPERATING ACTIVITIES:
Net Loss                                            $(560,026)    $(719,502)  $(1,647,917) $(2,927,990)  $(3,069,586)

Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:

Depreciation & Amortization                           132,822       145,618       303,093      289,553       531,497

Issuance of common stock and warrants for              
  services                                             22,951        64,304       310,609      125,758            --

Issuance of stock options to purchase common               
  stock                                                    --            --        31,072           --            --

Liability incurred for severance agreement                 --       128,700            --           --            --
 
Issuance of notes payable for service                      --            --       822,378           --            --

Loss on disposal of laboratory office equipment           865            --        30,506        6,426            --

Provision for doubful accounts                             --       (38,235)        9,214       93,000        45,728

Discount of trade note receivable                      30,567            --            --       21,982            --

Provision for impairment of inventory and             
  SofPulse units                                      248,190            --        99,518           --            --     
                                                     
Changes in operating assets and liabilities:

Trade notes receivable                                     --       248,190       210,442      273,162      (543,334)

Inventory                                              (6,810)     (153,935)      (67,294)     (47,893)     (139,271)

Accounts receivable                                    42,681       476,795       398,584     (315,370)     (110,007)

Prepaid                                                (4,897)       52,504       129,037       14,532       (59,291)

Deposits                                               12,926            --            --           --        15,425

Accounts payable                                      129,016        (4,711)       60,743       65,537      (175,870)

Deferred revenue                                       75,000            --            --           --            --

Accrued payroll                                            --            --       (86,316)      44,369       (24,406)

Accrued expenses, commissions and customer             
  deposits                                             64,193            --      (309,861)     194,543        85,008

Rental equipment (SofPulse units)                          --            --      (194,469)    (467,827)       51,954

Additional paid-in capital attributable to                 
  issuance of warrants for service                         --            --            --           --       214,500
                                                           
Net cash provided by (used in) operating            
  activities                                          (60,712)      199,728        99,339   (2,630,218)   (3,177,652)
                                                    ---------     ---------   -----------  -----------   -----------
INVESTING ACTIVITITES                              

Purchases of property and equipment                       (98)         (539)           --      (32,548)     (169,058)

Proceeds from sale of property and equipment           14,420            --         7,299           --            --

Patents, deposits and other assets                         --            --       (32,444)     (17,142)           --

Net cash used in investing activities                  14,322          (539)      (25,145)     (49,690)     (169,058)
                                                    ---------     ---------   -----------  -----------   ----------- 
</TABLE>


                                      F-16


<PAGE>


                            ELECTROPHARMACOLOGY, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                  Six Months Ended June 30,         Year Ended December 31,
                                                  -------------------------     -------------------------------
                                                     1998          1997         1997         1996          1995
                                                     ----          ----         ----         ----          ----
                                                         (Unaudited)
<S>                                                 <C>           <C>         <C>          <C>           <C>
FINANCING ACTIVITIES

Net proceeds from issuance of common stock and             
  warrants                                                 --            --            --           --     5,248,500 
                                                           
Net proceeds from issuance of preferred stock              --            --            --           --     1,900,000

Repayment of long-term notes payable and               
  capitalized lease obligations                         5,359       (44,693)     (127,446)     (50,537)      (48,945)     
                                                       
Repayment of notes payable to related parties          (8,000)      (75,700)     (120,700)    (120,000)   (1,562,000)

Proceeds from notes payable to related parties             --            --        45,000           --       400,000

Proceeds from sale of common stock                         --            --        16,925        4,220            --
                                                    ---------     ---------   -----------  -----------   -----------
Net cash used in financing activities                  (2,641)     (120,393)     (186,221)    (166,317)    5,937,555

Net increase (decrease) in cash                       (49,031)       78,796      (112,027)  (2,846,225)    2,590,845

Cash at begining of year                              111,496       223,523       223,523    3,069,748       478,903
                                                    ---------     ---------   -----------  -----------   -----------

Cash at end of year                                 $  62,465     $ 302,319   $   111,496  $   223,523   $ 3,069,748
                                                    =========     =========   ===========  ===========   ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION

Cash paid during the period for interest, net           5,782         5,582        12,287        6,596      162,154
                                                    ---------     ---------   -----------  -----------   -----------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
  AND FINANCING ACTIVITIES

Notes payable to related party converted to                
  common stock                                             --            --            --           --     1,000,000 
                                                           
Prepaid offering costs charges to additional               
  paid-in capital                                          --            --            --           --       144,543 
                                                 
Liability incurred for the repurchase of common            
  stock                                                    --            --            --           --        60,000 
                                                           
Issuance of common stock for services                  22,951        64,304       310,609      125,758            --
 
Notes payable for prepaid insurance                        --            --       235,975           --            --

Asset recognized and liability incurred for the       
  financing of the directors and officers
  liability insurance premiums                        166,790       212,421            --           --            -- 
                                                    ---------     ---------   -----------  -----------   -----------
                                                      
Liability incurred for execution of severance       
  agreement with related party                             --       128,700            --           --            --
                                                    =========     =========   ===========  ===========     =========
</TABLE>
                                                    
   The accompanying notes are an integral part of these financial statements.


                                      F-17


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       Summary of Significant Accounting Policies

Nature of Business and Major Suppliers

         Electropharmacology, Inc. (the "Company") was incorporated on August
31, 1990 under the laws of the State of California under the name Magnetic
Resonance Therapeutics, Inc. and reorganized through a merger with and into
Electropharmacology, Inc., a Delaware corporation, in February 1995. The Company
was engaged up until August 24, 1998 (See footnote 17. Subsequent Events -
Recent Corporate Reorganization") in the development of novel medical
applications for pulsed electromagnetic signals, and has been engaged in
designing, developing, manufacturing and marketing medical devices that deliver
pulsed electromagnetic signals in the radio frequency range.

         For the periods ended December 31, 1997 and 1996, the Company was
dependent on four suppliers to supply all the major components of its products.
For the period ended December 31, 1995, the Company was dependent on three
suppliers to supply all the major components of its products. During such
period, management believed that alternative sources were available if the
current supply of any of its product's components was discontinued, limited or
delayed.

Unaudited Financial Statements

         The balance sheet and statement of changes in stockholders' equity as
of June 30, 1998 and the statements of income and cash flows for the six months
ended June 30, 1998 and 1997 are unaudited, and in the opinion of management ,
include all normal and recurring adjustments necessary for a presentation of the
Company's financial position, results of operations and cash flows. The data
disclosed in these notes to the financial statements for these periods is also
unaudited. The results of operations for the periods presented are not
necessarily indicative of the operations for the full year.

Revenue Recognition

         Rental revenue is recognized over the month-to-month period in which
the related equipment is under lease to a customer, primarily on a per use
basis. Sales revenue is recognized upon shipment and the transfer of ownership
of the product.

Inventory

         Inventory, which consists primarily of raw materials and work in
process, is valued at the lower of cost (average cost method) or market. Upon
completion, finished goods are transferred to property and equipment.

Patents and Other Assets

         Patents are amortized using the straight-line method over 17 years from
the date of issuance of the patent. Other assets are amortized using the
straight-line method.

                                      F-18
<PAGE>

Rental and Other Equipment and Depreciation and Amortization

         Rental and other equipment is carried at cost. Depreciation and
amortization is computed using the straight-line method over the estimated
useful lives (or lease term if shorter) of the related assets as follows:

              Rental equipment            5 years
              Leasehold improvements      3 years
              Office equipment            4 to 7 years
              Laboratory equipment        4 to 7 years

Cost of Revenue

         Cost of revenue for the years ended December 31, 1997 and 1996 includes
costs associated with rental of the SofPulse units of approximately $485,000 and
$328,000, respectively.

Stock Based Compensation

         The Company has elected to follow Accounting Principles Board ("APB")
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under Financial Accounting
Standards Board (FASB) Statement No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB No. 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.

Net Loss per Share

         In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128 ("SFAS No. 128"), EARNINGS PER SHARE, which established new standards
for computing and presenting earnings per share. SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share.

         All loss per share amounts have been presented to conform to the SFAS
No. 128 presentation. Stock options and warrants have not been included in the
computation of diluted loss per share as the computation would not be dilutive.

         For additional disclosure regarding stock options and warrants see
Notes 7 and 8.

Advertising Costs

         Advertising costs, included in selling, general and administrative
expenses, are expensed as incurred and were $48,000 and $62,000 for 1997 and
1996, respectively.

                                      F-19
<PAGE>

Use of Estimates and Concentration of Credit Risk

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

         Up until August 24, 1998 (see "footnote 17. Subsequent Events - Recent
Corporate Reorganization") the Company sold and/or rented its SofPulse product
to healthcare providers such as nursing homes, hospitals and physician practices
with no specific geographic concentration and extended credit based on an
evaluation of the customer's financial condition, generally without requiring
collateral. Exposure to losses on receivables was principally dependent on each
customer's financial condition. The Company monitors its exposure for credit
losses and maintains allowances for anticipated losses.

         In 1997, sales to three customers, National Patient Care Services, Inc.
("NPC"), Physiologic Reps, Inc. and Matt Starring, accounted for 36%, 30% and
11%, respectively, of the Company's total sales. Accounts receivable at December
31, 1997 from NPC totaled approximately $30,000 (net of amounts owed by the
Company to NPC of $4,000)

Deferred Compensation

         Deferred compensation related to stock options is amortized over the
period during which the options become exercisable.

Income Taxes

         The Company provides for income taxes under the provisions of FASB
Statement No. 109, ACCOUNTING FOR INCOME TAXES, which requires the asset and
liability method of accounting for income taxes. Under the asset and liability
method of FASB Statement No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.


Net Loss per Common Share

         For the years ended December 31, 1997, 1996 and 1995, options and
warrants were excluded from the computation of net loss per share because the
effect of inclusion would be antidilutive due to the Company's net operating
losses.


Reclassifications

         Certain reclassifications have been made to the 1996 financial
statements to conform with the 1997 presentation.

                                      F-20
<PAGE>

2.       Liquidity and Basis of Presentation

         The accompanying financial statements have been prepared on a
going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.

         The Company reported a net loss of $1,647,917 for the year ended
December 31, 1997 and incurred cumulative net losses aggregating $15,305,311
through December 31,1997. In addition, at December 31, 1997, the Company had a
deficiency in working capital of $899,573 and a net capital deficiency of
$74,936.

         The Company reported a net loss of $2,927,990 for the year ended
December 31, 1996 and incurred losses aggregating $10,118,169 through December
31, 1996. At December 31, 1996, the Company had working capital of $192,837 and
shareholder's equity of $1,214,375.

         The Company reported a net loss of $3,069,586 for the year ended
December 31, 1995 and incurred cumulative net losses aggregating $7,190,179
through December 31, 1995. In addition, at December 31, 1995, the Company has
working capital of $2,824,190 and shareholders' equity of $4,012,387.

         The Company's 1998 operating plan consists of focusing on activities
involving the sale of the majority of its existing fleet of SofPulse devices to
a medical device company and entering into strategic alliances with or acquire
development stage biotechnology companies to better enable it to focus its
efforts in research and development (see "footnote 17. Subsequent Events -
Recent Corporate Reorganization"). It also contemplates stringent cost controls
and personnel reductions. The Company is also exploring alternative sources of
additional financing.

         The Company cannot predict whether the operating and financing plans
described above will be successful. If the Company is unable to successfully
implement its recent reorganization and restructuring, improve its operations
and obtain additional financings, it may not be able to continue as a going
concern. If the Company is unsuccessful in its efforts, it may be unable to meet
its obligations, making it necessary to undertake such other actions as may be
appropriate to preserve asset values.


3.       Trade Notes and Other Receivable

         During 1995, the Company received two promissory notes in connection
with the sale of SofPulse devices. In January 1997, the Company agreed to accept
$248,190 in full payment of these notes, which had an outstanding balance of
$270,172 at the time of the agreement. The notes were repaid in 1997, resulting
in a discount of $21,982. This discount was recognized in the statement of
operations for the year ended December 31, 1996. The balance in trade notes and
other receivables represents amounts received by NPC on behalf of the Company
relating to medical device rentals.

4.       Inventory

         The components of inventory are summarized as follows:

                                      F-21
<PAGE>
<TABLE>
<CAPTION>

                                                                                              (Unaudited)
                                            December 31, 1996        December 31, 1997       June 30, 1998
                                            -----------------        -----------------       -------------
                  <S>                            <C>                     <C>                    <C>
                  Work-in-process                $24,940                 $ 23,366               $ 32,712
                  Raw material                    69,224                  128,867                126,331
                                                 -------                 --------               --------
                                                 $94,164                 $152,233               $159,043
                                                 =======                 ========               ========

</TABLE>


5.       Rental and Other Equipment

         A summary of rental and other equipment is as follows:

<TABLE>
<CAPTION>

                                                                                                  (Unaudited)
                                                 December 31, 1996       December 31, 1997       June 30, 1998
                                                 -----------------       -----------------       -------------
              <S>                                    <C>                     <C>                     <C>
              Rental equipment                       $1,107,925              $1,171,060              $1,148,580
              Leasehold improvements                     68,270                  68,270                  68,270
              Office equipment under
                 capital lease                          153,580                 142,388                 142,388
              Office equipment                          118,530                 118,530                 118,628
              Lab equipment                              69,763                      --                      --
                                                     ----------              ----------              ----------
                                                      1,518,068               1,500,248              1,477,866
              Less accumulated depreciation
                 and amortization                      (573,010)               (786,782)               (909,369)
                                                     ----------              ----------              ----------
              Net rental and other equipment         $  945,058              $  713,466              $  568,497
                                                     ==========              ==========              ==========

</TABLE>


6.       Notes Payable

         Notes payable at December 31, 1997 and June 30, 1998 (unaudited)
consists of the following:

<TABLE>
<CAPTION>

                                                                                         (Unaudited)
                                                               December 31,                June 30
                                                                   1997                      1998
                                                               ------------              -----------
         <S>                                                     <C>                       <C>
         8% note payable to outside counsel, due
           on December 31, 1998                                  $672,751                  $672,751

         7.99% note payable to finance
           directors and officers insurance,
           due November 15, 1998                                  120,311                   136,785

         9.75% note payable to finance
           commercial general liability
           insurance, due April 21, 1998                           11,117                        --
                                                                 --------                  --------
                                                                 $804,179                  $809,536
                                                                 ========                  ========

</TABLE>

                                      F-22
<PAGE>

         The note payable to outside counsel is collateralized by a security
agreement on 55 SofPulse units and was settled infull as part of the recent
corporate reorganization (see "footnote 17. Subsequent Events Recent Corporate
Reorganization").


7.       Note Payable to Related Parties

         In October 1997, the Company issued three notes payable to its Chief
Financial Officer, Chief Executive Officer and a member of the board of
directors totaling $65,926 in exchange for cash advances of $45,000 and deferral
of salaries of $20,926. These notes bore interest at the prime rate (8.5% at
December 31, 1997) plus 1% and were due on demand.

         On April 12, 1997, the Company and the former Chief Executive Officer
entered into a severance agreement that provided for, among other things, a cash
payment by the Company of $128,700 in settlement of all rights under his
employment agreement with the Company. The loan and accrued interest were paid
in installments through January 1998. The balance due under this agreement at
December 31, 1997 was $8,000.

         The Company issued a $75,000 unsecured promissory note to a stockholder
of the Company, interest payable monthly at 9.5%, principal payable December 31,
1995, and convertible into shares of common stock at the lower of $5.42 per
share or the market price per share. This note was paid in full in January 1996.

         The Company issued a $45,000 unsecured promissory note to a stockholder
of the Company, interest payable monthly at 9.5%, principal payable December 31,
1995. The note was paid in full in January 1996.


8.       Shareholders' Equity and Warrants

         On January 11, 1993, the Company's Board of Directors approved an
amendment and restatement of its articles of incorporation to authorize
15,000,000 shares of no par value Common Stock and 5,000,000 shares of Preferred
Stock and to provide for an approximate 157 to 1 Common Stock split. On December
8, 1994, the Company's Board of Directors approved a reincorporation and
recapitalization of the Company under the laws of the State of Delaware and
approved a reverse stock split of shares of Common Stock on a 0.64568-for-1
basis and a change in the Company's authorized capital stock to 10,000 shares of
$.01 par value Common Stock and 1,000,000 shares of $.01 par value Preferred
Stock. All common share and per share amounts in the accompanying financial
statements have been retroactively adjusted to reflect these changes.

         As an incentive to extend the maturity dates of notes (payable to
related parties, in August and November 1993) the Company granted 5-year
warrants for the purchase of an aggregate of 20,339 shares of Common Stock at
$5.42 per share. No warrants have been exercised.

         During 1994, the Company issued 9,823 shares of Common Stock in
exchange for cash proceeds of $49,444 and issued 1,615 shares of Common Stock in
exchange for the rights to certain product related technology valued at $24,375.

         During 1994, the Company granted 5-year warrants for the purchase of
61,985 shares of Common Stock at $5.42 per share to a major shareholder and
creditor of the Company and for the purchase of 9,685 shares of

                                      F-23
<PAGE>

Common Stock at $5.03 per share to a shareholder and creditor of the Company as
consideration for extending the maturity date of notes payable due to the
shareholders. No warrants have been exercised.

         During 1994, the Company granted 5-year warrants for the purchase of
41,969 shares of Common Stock at $5.03 per share to a consultant of the Company
for certain contributions of scientific development of the Company. No warrants
have been exercised.

         During December 1994, in connection with the issuance of 10% promissory
notes, the Company issued the creditors an aggregate of 200,000 shares of Common
Stock, valued at $5.15 per share. The Company recorded a $230,000 discount on
the notes payable to give effect to issuance of shares of Common Stock.
Additionally, the Company incurred loan costs of $145,000 in connection with the
transaction. The loan discount and deferred loan costs were amortized over the
life of the notes, which were repaid on May 19, 1995, upon closing of the
Company's initial public offering.

         On May 12, 1995, the Company consummated its initial offering of
securities by the sale of 1,250,000 shares of Common Stock at $5.00 per share.
Additionally, 718,750 redeemable warrants to purchase Common Stock were issued
and sold for $0.10 per warrant. Each warrant entitles the registered holder
thereof to purchase one share of Common Stock at a price of $6.00, subject to
adjustment in certain circumstances, at any time commencing June 12, 1996,
through May 12, 1998. Net proceeds of this offering, after the underwriter's
commissions and all expenses, were $5,103,957.

         For an aggregate of $187.50 the underwriter was issued warrants to
purchase 125,000 shares of Common Stock at $7.00 per share and 62,500 warrants
to purchase warrants at $0.14 each to purchase Common Stock at $6.00 per share.
No warrants have been exercised.

         During June 1995, the Company issued warrants to purchase 30,000 shares
of Common Stock at $4.00 per share and 12,000 shares of Common Stock at $5.25
per share to consultants of the Company for certain investor relations work.
Each of these warrants vested immediately and expires in five years. Further, a
four-year warrant to purchase 25,000 shares of Common Stock at $5.25 per share
was issued to a consultant to the Company for certain scientific contributions
to the Company. No warrants have been exercised.

         In November 1995, the Company issued to an investor (i) 421,950 shares
of Series A Convertible Preferred Stock (the "Preferred Stock") and (ii)
warrants to purchase an aggregate of 1,721,950 shares of Common Stock in
consideration of $2,000,000. Each share of Preferred Stock is convertible at a
conversion price of $4.74 per share which was at a discount from the market
price of $6.50 per share, at the option of the holder, into one share of Common
Stock, subject to adjustment in certain circumstances, at any time until
November 13, 2000, at which time outstanding shares of Preferred Stock
automatically convert into Common Stock. Shares of Preferred Stock have votes
equal to those of Common Stock into which they are convertible and, subject to
certain exceptions and except as required by law, vote together with the common
stock as a single class. The Preferred Stock votes as a single class on certain
matters including the incurrence of secured indebtedness by the Company, changes
in the number and the terms of the directors of the Company and the issuance of
cash dividends and redemptions or repurchase of securities by the Company. The
Preferred Stock is entitled to receive noncumulative cash dividends, when, as
and if declared by the Board of Directors of the Company and has a liquidation
preference of $4.74 per share. In May 1997, the Preferred Stock investor
("Investor") converted 179,000 shares of the Preferred Stock in to the same
number of shares of Common Stock with no proceeds to the Company.

                                      F-24
<PAGE>

         In November 1995, a family member of an officer and current member of
the Board of Directors of the Company, converted an aggregate of $1,000,000
principle amount of promissory notes into 195,945 shares of Common Stock. In
consideration for such conversion, the Company granted five-year warrants to
purchase 300,000 shares of Common Stock at a price of $6.25 per share, subject
to adjustment in certain circumstances. Subject to certain limitations and
exclusions, the Company agreed to include the shares underlying the warrants in
an appropriate registration statement filed by the Company. No warrants have
been exercised.

         The Investor's warrants consist of warrants to purchase: (i) 421,950
shares of Common Stock at an exercise price of $.01 per share; (ii) 800,000
shares of common stock at an exercise price of $6.00 per share; (iii) 250,000
shares of Common Stock at an exercise price of $7.50 per share; and (iv) 250,000
shares of Common Stock at an exercise price of $9.00 per share. The warrants are
exercisable at any time until November 13, 2005. The exercise price and number
of shares issuable upon exercise of the warrants are subject to adjustment in
certain circumstances, including the issuance of securities for a price less
than the current market value of the Common Stock. In June 1996, for proceeds to
the Company of $4,220, the Investor exercised 421,950 warrants to purchase
Common Stock at an exercise price of $.01 per share.

         In December 1995, the Company repurchased 10,493 shares of Common Stock
for $60,000 in connection with the resignation of the Company's chief operating
officer. The entire 10,493 shares were retired by the Company in October 1997.

         On November 1, 1996, the Company's stockholders approved proposals to
increase the Company's authorized capital stock from 10,000,000 to 30,000,000
shares of $.01 par value Common Stock and from 1,000,000 to 10,000,000 shares of
$.01 par value Preferred Stock.

         In April 1997, a ten-year warrant to purchase 25,000 shares of Common
Stock at $2.25 was issued to the former President as part of his severance
agreement. The fair value of the warrant based on the Black-Scholes valuation
method was $1.8 per share using the assumptions described in Note 8 and the
actual life of the warrant.

         Warrants to purchase an aggregate of 3,052,707 shares of Common Stock
have been issued to date. During 1996, 421,950 warrants were exercised. No
warrants were exercised during 1997.

         The following table summarizes information relative to the Company's
warrants which are exercisable at various dates through April 12, 2007:

                                      Shares             Price Range
                                      ------             -----------
Outstanding January 1, 1996          3,449,657          $ .01 - $9.00
           Exercised                  (421,950)         $ .01
Outstanding December 31, 1996        3,027,707          $1.00 - $9.00
           Granted                      25,000          $2.25
Outstanding December 31, 1997        3,052,707          $1.00 - $9.00

         At December 31, 1997 and 1996, shares of the Company's authorized but
unissued Common Stock were reserved for issuance as follows:


                                      F-25
<PAGE>

                                                           NUMBER OF SHARES
                                                     --------------------------
                                                     December 31,  December 31,
                                                         1997          1996
                                                     ------------  ------------
           Exercise of warrants                        3,052,707     3,012,707
           Employee stock option plans (see Note 8)      590,778     1,113,860
           Convertible preferred stock                   242,950       421,950
                                                       ---------     ---------
                                                       3,886,435     4,548,517
                                                       =========     =========

         During 1997 and 1996, the Company issued 75,482 and 43,741 shares of
Common Stock, respectively, to officers of the Company in lieu of cash for
payment of outstanding employment related liabilities, totaling $158,609 and
$125,758, respectively.

         During 1997, the Company issued 250,000 shares of Common Stock at $.40
per share to consultants of the Company for certain investor relations work. The
Company recorded expense of $100,000 in connection with this transaction based
on the fair value of the Company's Common Stock on the date the shares were
issued.

         Effective November 1, 1996, the Board of Directors approved an Employee
Stock Purchase Plan ("ESPP") covering all employees who meet service period
requirements. The ESPP provides for the sale of Common Stock to employees of the
Company at a price equal to 85% of the lesser of the market value at the end of
or beginning of each respective quarter. No shares were issued under the ESPP
during 1996. During 1997 the Company issued 14,003 shares under the ESPP. The
ESSP was terminated effective October 1, 1997.

         Effective January 1, 1996, the Company established the
Electropharmacology, Inc. 1996 Non-Employee Director's Equity Compensation Plan
(the "Compensation Plan"). The Compensation Plan provides for the issuance of
Common Stock as compensation for serving as a director of the Company. No shares
were issued under the Compensation Plan during 1996. During 1997 the Company
issued 23,037 shares of Common Stock under the Compensation Plan.

         Additional equity and warrants have been issued in conjunction with the
Company's recent corporate reorganization (see footnote 17. Subsequent Events).


9.       Stock Options

         In April 1993, the Company adopted a stock option plan (the "Plan") for
officers, directors, employees and consultants. The options granted may be
either "incentive stock options" (for officers and employees only) within the
meaning of Section 422A of the Internal Revenue Code, and/or nonqualified stock
options (for officers, employees, directors and consultants). The exercise price
of incentive stock may not be less than 100% of the fair market value of the
Company's Common Stock as of the date of grant (110% of the fair market value if
the grant is to an employee who owns more than 10% of the outstanding Common
Stock (currently only the president of the Company). Nonqualified stock options
may be granted under the Plan at an exercise price less than the fair market
value of the Common Stock on the date of grant.

         As of December 31, 1995, the Board of Directors has authorized the
granting of options for up to 322,840 shares of Common Stock. Grants of options
to purchase 191,774 shares of Common Stock (net of forfeitures), (82,234 of
which are considered incentive stock options), have been formalized under the
Plan, of which 38,417 were granted in 1994 at an exercise price of $5.03 per
share, and 72,000 (net of forfeitures) were

                                      F-26
<PAGE>

granted in 1995 at prices ranging from $5.25 to $8.25 per share, of which 15,500
have been canceled. The exercise prices were estimated by management to
approximate fair market value at the date of grant or when originally committed.
The options generally vest with a range from immediately to ratably up to five
years on differing vesting schedules. The aggregate proceeds to the Company upon
exercise of all options vested (incentive stock options and nonqualified stock
options, respectively) as of December 31, 1995 were $240,477. The aggregate
proceeds to the Company upon exercise of all options outstanding as of December
31, 1995 were $933,693. The options expire at dates ranging from four to seven
years after date of grant.

         On November 1, 1996, the Company amended the Plan to increase the
number of options authorized to 1,500,000 shares of Common Stock. As of December
31, 1996, the Board of Directors has authorized the granting of options for up
to 1,500,000 shares of Common Stock. Grants of options to purchase 1,113,860
shares of Common Stock (1,043,860 of which are considered incentive stock
options) have been finalized under the Plan. The options generally vest with a
range from immediately to ratably up to five years on differing vesting
schedules. The aggregate proceeds to the Company upon exercise of all options
vested (incentive stock options and nonqualified stock options, respectively) as
of December 31, 1996 were $1,906,826. The aggregate proceeds to the Company upon
exercise of all options outstanding as of December 31, 1996 were $5,543,616. The
options expire at dates ranging from two to ten years after date of grant.

         As of December 31, 1997, the Board of Directors has authorized the
granting of options for up to 1,500,000 shares of Common Stock. Grants of
options to purchase 590,778 shares of Common Stock, (215,020 of which are
considered incentive stock options) have been formalized under the Plan. The
options generally vest immediately to ratably up to ten years on differing
vesting schedules. The options expire at dates ranging from two to ten years
after date of grant.

         As required by SFAS No. 123 ("SFAS No.123"), pro forma information
regarding net income and earnings per share has been determined as if the
Company had accounted for its employee stock options under the fair value method
of that statement. The fair value for these options was estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1997 and 1996:

                                     For the year ended December 31,
                                     -------------------------------

                                           1997              1996
                                       -------------       --------
         Risk free interest rate       5.71% - 6.69%         5.2%
         Expected lives (years)           4  - 10            10
         Expected volatility               .681             .775
         Expected dividend yield             -                -

         The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, the
existing models, in management's opinion, do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

                                      F-27
<PAGE>

         For the purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The effect
of compensation expense from stock option awards on pro forma net loss reflects
only the vesting of 1995 through 1997 awards in 1997 and the vesting of 1996 and
1995 awards in 1996, in accordance with SFAS No. 123. Because compensation
expense associated with a stock option award is recognized over the vesting
period, the initial impact of applying SFAS No. 123 may not be indicative of
compensation expense in future years, when the effect of the amortization of
multiple awards will be reflected in pro forma net loss. The Company's pro forma
information follows:

                                       1997            1996            1995   
                                   -----------     -----------     -----------
         Net loss                  $(2,015,631)    $(3,665,506)    $(3,109,269)
                                   ===========     ===========     ===========
         Loss per common share
           (basic and diluted)     $      (.55)    $     (1.11)    $     (1.28)
                                   ===========     ===========     ===========




                                      F-28

<PAGE>

         Transactions under the Plan are summarized as follows:

                                                                   Weighted
                                                                    Average
                                                    Number         Exercise
                                                      Of          Price per
                                                    Shares          Share
                                                   ---------      ----------
         Outstanding January 1, 1995                 203,712

         Exercised                                         0
         Expired                                           0
         Forfeited                                         0
         Canceled                                    (99,438)
         Granted                                      87,500
                                                   ---------
         Outstanding December 31, 1995               191,774          $4.87

         Exercised                                         0              0
         Expired                                           0              0
         Forfeited                                         0              0
         Canceled                                    (37,000)         $8.09
         Granted                                     959,086          $5.12
                                                   ---------        -------
         Outstanding December 31, 1996             1,113,860          $4.98

         Exercised                                         0              0
         Expired                                           0              0
         Forfeited                                         0              0
         Canceled                                   (608,082)         $4.87
         Granted                                      85,000          $2.55
                                                   ---------        -------
         Outstanding December 31, 1997               590,778          $4.73
                                                   =========        =======

                                                     1997            1996
                                                     ----            ----
         Exercisable at December 31,                 501,950        397,985
                                                   =========        =======
         Reserved for future option grants at
                December 31,                         909,222        386,140
                                                   =========        =======
         Weighted average fair value of options
                granted                              $1.30           $4.26 
                                                   =========        =======

         During 1997, the Company granted stock options to consultants for the
purchase of 72,500 shares of Common Stock at exercises prices ranging from
$3.375 to $5.75 per share. Deferred compensation of $98,750 was recorded in
connection with the issuance of these options based on the Black-Scholes
valuation model using the assumptions described above and the estimated life of
options. The Company will amortize the deferred compensation over the
consultants' required service period of four years. Compensation expense for the
year ended December 31, 1997 totaled $31,072.

                                      F-29
<PAGE>

         The following table sets forth the information about stock options
outstanding at December 31, 1997:

                    Number         Weighted
                  Outstanding       Average      Weighted
                     as of         Remaining      Average
Range of          December 31,    Contractual    Exercise   Exercisable as of
Exercise Prices       1997           Life          Price    December 31, 1997
---------------   ------------    -----------    --------   -----------------
$ .28 - $2.88        89,728       5.33 years      $2.34            68,728
$3.38 - $5.75       501,050       7.54 years      $5.16           433,222
                    -------       ----------      -----           -------
                    590,778       7.20 years      $4.73           501,950

         Additional Stock Options have been issued in conjunction with the
Company's recent corporate reorganization (see footnote 17. Subsequent Events).


10.      Income Taxes

         As of December 31, 1997 and December 31, 1996, the Company had net
operating loss carryforwards of approximately $10,719,000 and $9,013,000,
respectively, available to offset future taxable income. Such carryforwards,
which may provide future tax benefits, expire in the years 2008 through 2012 and
tax credits of $148,000 which expire approximately in the years 2008 through
2011. During 1993 and 1995 and recently during the Company's recent corporate
reorganization (see footnote 17. Subsequent Events - Recent Corporate
Reorganization) changes in ownership of greater than 50% occurred as a result of
the Company issuing equity securities. As a result, a substantial limitation
will be imposed upon the future utilization of the Company's net operating loss
carryforwards.

         Significant components of the Company's deferred income taxes are as
follows:

                                                  December 31,   December 31,
                                                      1997           1996
                                                  ------------   ------------
         Net operating loss carryforwards         $ 4,033,395    $ 3,392,000
         Other                                        221,262        158,600
                                                  -----------    -----------
         Deferred tax assets                        4,254,657      3,590,600
         Deferred tax liabilities--equipment          (90,097)       (75,300)
                                                  -----------    -----------
                                                    4,155,560      3,475,300
         Less valuation allowance                  (4,155,560)    (3,475,300)
                                                  -----------    -----------
         Net deferred tax assets                  $         0    $         0
                                                  -----------    -----------

         The net change in the valuation allowance for the year ended December
31, 1997 and 1996 was an increase of approximately $680,000 and $1,075,300,
respectively.

         The difference between the benefit for income taxes and the amount
which results from applying the federal statutory tax rate of 34% to the loss is
due to the increase in the valuation allowance in 1997 and 1996, resulting in no
tax benefit reported in any of those years.

                                      F-30
<PAGE>

                                               Year ended December 31,
                                            ----------------------------
                                             1997                   1996
                                             ----                   ----
Tax at U.S. statutory rate                 (34.00%)                (34.00%)
State taxes, net of federal benefit         (3.61%)                 (3.63%)
Nondeductible items                           .16%                    .30%
Change in valuation allowance               41.28%                  36.72%
Other                                       (3.82%)                   .61%
                                           ------                  ------
                                             0.00%                   0.00%
                                           ======                  ======


11.      Lease Commitments

         The Company leases certain office equipment under operating lease
agreements which expire at various dates through October 2, 2001. Prior to the
recent corporate reorganization (see footnote 17. Subsequent Events - Recent
Corporate Reorganization), the Company leased its administrative facilities on a
month-to-month basis at a monthly rate of $3,600.

         Future minimum rental payments required under operating leases that
have an initial term in excess of one year as of December 31, 1997, are as
follows:

                  Year ended December 31,
                  -----------------------
                  1998                          $22,709
                  1999                           22,709
                  2000                           17,459
                  2001                           13,091
                                                -------
                  Total                         $75,968
                                                =======

         Rent expense under operating leases approximated $73,258, $62,475 and
$51,083 for the years ended December 31, 1997, 1996 and 1995, respectively.

         Subsequent to June 30, 1998, the Company entered into a short-term
lease for its corporate offices at a monthly rate of $1,800.

12.      Employment Agreements

         As of December 31, 1997, the Company had employment agreements with
certain executive officers, the terms of which expired at various times through
December 31, 2001.

         In the recent corporate reorganization of the Company (see Footnote 17,
Subsequent Event - Recent Corporate Reorganization), these agreements were
terminated and replaced by memorandums by the Board of Directors to the
executive officers outlining in general the revised terms of employment of these
officers. In addition, on August 19, 1998, a new employment agreement was
entered into with the new Chief Executive Officer and President of the Gemini
Biotech Division of the Company, the term of which expires August 18, 2001.

         On August 25, 1998, the Board of Directors issued a memorandum to Arup
Sen, outlining in general the terms of employment of Dr. Sen as Chief Executive
Officer of Epi, effective as of September 1, 1998. The memorandum provides for
an initial base salary of $130,000, which has increased to $150,000 and may
increase up to $200,000 in a series of stepped increments upon the achievement
of specified milestones. The memorandum also provides that the Company will
grant to Dr. Sen a ten- year option to purchase 500,000 shares of the Common
Stock at the stock price at the close of trading on the date of grant (August
25, 1998), 150,000 of which have vested based on the achievement of specific
milestones set by the Board of Directors, with the remainder to vest subject to
the achievement of other such milestones. In the event that Dr. Sen's employment
is terminated without "cause" before three years, Dr. Sen is entitled to a
severance of six months' base salary, subject to his mitigation of such payment
by seeking other employment. All his stock options will vest immediately and
will remain exercisable for the original term of the option in the event his
employment is terminated due to an acquisition by or merger with a third party
not recommended and/or approved by Dr. Sen.

         On August 25, 1998, the Board of Directors issued a memorandum to David
Saloff, outlining in general the terms of employment of Mr. Saloff as Executive
Vice President- Sales and Marketing of the Company, effective as of September 1,
1998. The memorandum provides for an initial base salary of $80,000, which may
increase up to $110,000 upon certain events, including the achievement of
certain annual revenues to be calculated by annualizing the prior six months'
revenues. The memorandum also provides that Mr. Saloff will be entitled to an
override on sales revenue at a specified percentages of the annualized revenue
calculated based on the previous month's revenues. Once Mr. Saloff's aggregate
annual compensation equals or exceeds $200,000, then the Company and Mr. Saloff

                                      F-31
<PAGE>
will negotiate a new mutually acceptable compensation arrangement. The
memorandum also provides that the Company will grant to Mr. Saloff on August 25,
1998, a ten- year option to purchase 200,000 shares of the Common Stock at the
stock price of close of trading on the date of grant, with 20% of the shares
covered thereby vesting upon the first anniversary date, and an additional 20%
each succeeding anniversary date, with vesting to accelerate based on meeting
certain sales revenue growth targets and other events related to PEMS
technologies and products.

         As part of the reorganization transactions, the Company entered into an
employment agreement with Krishna Jayaraman dated August 19, 1998, for a term
expiring on August 19, 2001 for Dr. Jayaraman's services as President and Chief
Executive Officer of the Gemini Biotech Division of the Company. This agreement
provides for a base salary of $120,000 which has increased to $150,000 and may
increase further to $200,000 based on certain corporate milestones and revenues
of the Gemini Biotech Division. He is also entitled to benefits, a term life
contract, an automobile allowance and four weeks' vacation per year. The
agreement also provides that the Company will grant to Dr. Jayaraman on the date
of the agreement an option to purchase 250,000 shares of Common Stock, with
30,000 of the shares covered thereby vesting immediately, 62,500 of the shares
covered thereby vesting on each of the first and second anniversaries of the
agreement and an additional 75,000 of the shares covered thereby vesting on the
third anniversary of the date of the agreement. The agreement also provides that
if Dr. Hayaraman's employment is terminated by him by permitted resignation or
by the Company other than for "cause", Dr. Jayaraman will receive an amount
equal to 85% of the remaining portion of the base salary due him under the term
of the agreement, unless there is a permitted resignation following a relocation
of Dr. Jayaraman due to a change in control not proposed or recommended by Dr.
Jayaraman. In such case, Dr. Jayaraman would receive the sum of his annual base
salary and the average annual bonus received by him during the previous two-year
period. In the event of termination with out "cause" or by permitted
resignation, Dr. Jayaraman will continue to receive benefits pursuant to the
Company's welfare programs and perquisite plans until the earliest of one year
after his termination, the end of the term of the agreement, or until Dr.
Jayaraman in reemployed. In addition, all of Dr. Jayaraman's options will
immediately vest and be exercisable for the full term of the option. Dr.
Jayaraman is also subject to a non- compete agreement as part of his employment
agreement.

         For the year ended December 31, 1997 and 1996, approximately $152,446
and $37,000, respectively, of compensation was paid or is payable in Common
Stock.

         As of December 31, 1995, the President of the Company, had an
employment which provided for a annual base salary of $132,000 and a 10% annual
increase based on performance.




                                      F-32
<PAGE>

13.      Termination of Distribution Agreement

         The Company announced on July 18, 1997 that its purchase-distribution
agreement with NPC was terminated following the announcement by the U.S. Health
Care Financing Administration ("HCFA")of its new policy denying Medicare
reimbursement for the use of all electrical stimulation, including pulsed
electromagnetic fields, in treating wounds. The multi-year distribution
agreement for the sale and rental of SofPulse devices was initially executed as
of May 1, 1997 and required NPC to purchase from the Company specified minimum
quotas of SofPulse devices in exchange for exclusive distribution rights to
three selected market applications of SofPulse in the U.S. NPC was also to
assume responsibility for the growth and operation of the Company's current
fleet of rental devices including the Company's sales and marketing group and
was to make monthly payments to the Company for five years and pay royalties to
the Company on NPC's rental revenues. The Company also sold approximately
$270,000 of accounts receivable arising from April 1997 rental revenues to NPC
for an initial payment from NPC in the amount of $200,000. NPC will remit the
balance to the Company when it is collected from the rental customers after
deducting certain interest payments on the initial $200,000 advance. Upon the
termination of the NPC purchase-distribution agreement, the Company reacquired
the marketing rights and control of its fleet of SofPulse devices from NPC.
Subsequently, a U.S. District Court enjoined HCFA in November 1997 from
implementing the national policy noted above and HCFA notified the fiscal
intermediaries in February of 1998 not to abide by the July 1997 national policy
memorandum.


14.   Contingencies

Litigation

         In February 1993, Diapulse Corporation of America, Inc. ("Diapulse")
filed a citizen's petition requesting that the FDA revoke the substantial
equivalence finding for the SofPulse and prevent the Company from making certain
labeling claims. The Company believes, based upon the advice of regulatory
counsel, that Diapulse's petition is without merit. The Company responded to the
petition. The Company made revisions in its promotional materials relating to
its SofPulse device to obviate any claim that such material is inconsistent with
FDA regulations. The Company believes that Diapulse's petition is lacking in
merit and that it is highly unlikely that the FDA will grant the petition. Even,
in the event that the FDA were to grant the petition, the Company's believes
that its future business is not likely to be materially adversely affected. In
October 1993, Diapulse submitted additional information to the FDA in support of
its petition and the Company responded. As of the date hereof, the FDA has not
notified the Company as to any action with respect to the aforementioned
petition.

                                      F-33
<PAGE>

         In August 1994, Diapulse filed a lawsuit in the Supreme Court of the
State of New York, Nassau County ("The Court"), captioned Diapulse Corporation
of America V. Magnetic Resonance Therapeutics, Inc. et al., alleging that the
defendants, Magnetic Resonance Therapeutics, Inc., a legal predecessor to the
Company, Bio-Sales, Inc., the Company, and certain of the Company's present and
former directors and officers, including Joshua Barnum ("Barnum"), David Mills
("Mills"), Arthur Pilla ("Pilla"), David Saloff ("Saloff"), and David Winter
("Winer"), engaged in deceptive acts and practices, false advertising and unfair
competition in the marketing of a medical device. The complaint also alleges
that Barnum and Mills breached confidentiality and noncompetition agreements
with Diapulse and that the Company, Barnum and Pilla aided in the alleged
tortious breach of the agreements. Diapulse seeks unspecified compensatory
damages, disgorgement of profits realized by the defendants as a result of their
alleged acts, treble damages, punitive damages and reasonable attorneys' fees.
Diapulse also seeks unspecified injunctive relief prohibiting the defendants
from engaging in the alleged acts and ordering the defendants to take remedial
action to rectify the effects on consumers and Diapulse caused by the
defendants' alleged acts. The defendants jointly moved to dismiss the complaint
on jurisdictional and substantive grounds. The Court dismissed Winer from the
case based on lack of personal jurisdiction. The Court also dismissed certain
claims, as to the remaining individual defendants, including deceptive acts and
practices, false advertising and unfair competition. As to the claims remaining
against the individual defendants, certain of such claims may be indemnified by
the Company. As to the Company, the Court denied the motion to dismiss. The
Company answered the complaint, denied all material allegations, asserted
various affirmative defenses and counterclaimed against Diapulse and Jesse Ross,
individually. The counterclaims allege causes of action against Diapulse and
Jesse Ross for federal unfair competition and tortious interference of existing
and contractual business relations. In addition, the Company has asserted claims
against Diapulse for deceptive acts and unfair trade practices, and trade
disparagement. In its counterclaims, the Company seeks compensatory and punitive
damages in an amount to be proved at trial. This lawsuit is in a preliminary
stage and its outcome is uncertain. Although the Company believes that it has
meritorious defenses that it will vigorously pursue and that its ability to
develop its future technologies and products does not materially depend on the
outcome of this litigation, there can be no assurance that the outcome of such
action will be resolved favorably to the Company.

         On August 28, 1997, Michelle O'Connell, formerly employed by Kinetech
Medical, Inc. ("Kinetech") as the Company's sales representative, filed a
complaint entitled O'Connell v. Kinetech Medical, Inc. and Electropharmacology,
Inc. in the County Court in Dallas County, Texas. The complaint alleged that
Kinetech and the Company were jointly and severally liable for an unspecified
amount of commissions earned by O'Connell from Kinetech, but unpaid, and
asserted a cause of action quantum meruit against the Company. O'Connell
dismissed the complaint against the Company in May 1998 and Kinetech immediately
filed a cross-complaint against the Company for breach of the agreement between
the Company and Kinetech for failing to pay commissions owed in excess of
$30,000. In August 1998, Kinetech joined National Patient Care Systems, Inc. as
an additional defendant for its share of the commissions owed. The Company
answered the cross-complaint and asserted several affirmative defenses. The case
has not yet been set for trial and no discovery between the Company and Kinetech
has taken place.

         On July 14, 1998, Jack Baxter ("Baxter"), a former employee of the
Company, filed a complaint entitled Baxter v. Electropharmacology, Inc. in the
Circuit Court in Broward County, Florida. The complaint alleges the failure by
the Company to make payments of $20,000 due to Baxter under an agreement
pursuant to which Baxter and the Company had agreed to the terms of the
termination of their employer-employee relationship. The Company answered the
complaint and asserted several affirmative defenses. The case has not yet been
set for trial and no discovery between the Company and Baxter has taken place.

                                      F-34
<PAGE>

15.      Financial Instruments

         The carrying amount of financial instruments including cash, accounts
receivable, notes receivable from customers notes payable, notes payable to
related parties and accounts payable approximate fair value as of December 31,
1997 and 1996 because of the short maturity of these items.

16.      Fourth Quarter Adjustments

         Certain adjustments were recorded in the fourth quarter of 1997 which
included an adjustment to provide an additional allowance for obsolete inventory
and rental equipment of $73,000 and to reduce the carrying value of rental
equipment and inventory by $95,000.

17.      Subsequent Event - Recent Corporate Reorganization and Elan Transaction

         The Company consummated a corporate reorganization, consisting of five
steps, on August 18, 1998. First, the Company contributed all of its assets and
liabilities (other than those assets and liabilities related to its business of
manufacturing and distributing the SofPulse device (the "SofPulse Business")) to
its wholly-owned subsidiary, EPi HealthTech Inc., a Delaware corporation (EPi
Sub") in exchange for 100 shares of EPi Sub Common Stock. Second, HTD, a
privately held Company, was merged into EPi Sub, with the shareholders of HTD
receiving an aggregate of 6,172,095 shares of the Company's Common Stock (such
number of shares being substantially equivalent to the number of shares of the
Company's Common Stock outstanding at such time, or 6,333,385 shares). Third,
EPi Sub contributed all of its assets and liabilities (including both the assets
and liabilities contributed to it by the Company and the assets and liabilities
of HTD) to Gemini Health Technologies L.P., a newly-formed Delaware limited
partnership (the "Partnership") in exchange for 12,505,480 partnership units of
the Partnership (such number of partnership units corresponding to the number of
shares of the Company's Common Stock issued and outstanding following the
issuance of shares of the Company's Common Stock to the shareholders of HTD).
Simultaneously with contribution of EPi Sub's assets and liabilities to the
Partnership, Krishna and Shashikala Jayaraman (the "Jayaramans") transferred all
the limited partnership interests in Gemini, a privately held Texas limited
partnership and all the stock of its general partner, Gemini Biotech, Inc.
("GBI"), to the Partnership in exchange for 6,000,000 partnership units in the
Partnership, which partnership units are exchangeable, subject to certain
restrictions, for shares of the Company's Common Stock, on the basis of one
share of the Company's Common Stock for each partnership unit (subject to
adjustment in the case of certain events concerning the Company and/or the
Partnership). Fourth, the Company issued 1,872,000 shares of its Common Stock to
the holders of certain warrants and all outstanding Preferred Stock of the
Company in exchange for such warrants and Preferred Stock. Fifth, the Company
sold all of its assets and liabilities relating to the SofPulse Business to a
wholly-owned subsidiary of ADM Tronics Unlimited, Inc. ("ADMT"), a publicly
traded Company, in exchange for a combination of $150,000 in cash, 1,400,000
shares of ADMT Common Stock issued to the Company, an additional 1,525,000
shares of ADMT Common Stock issued to pay approximately $650,000 of the
Company's payable and a warrant to purchase additional shares of ADMT Common
Stock if ADMT achieves certain sales objectives with respect to its conduct of
the SofPulse Business.

         The effect of the corporate reorganization is that the businesses
previously conducted by the Company (other than the SofPulse Business), HTD and
Gemini are now being conducted by the Partnership and Gemini, with EPi Sub being
the general partner of the

                                      F-35
<PAGE>

Partnership and the Jayaramans being the limited partner of the Partnership, and
the Partnership being the limited partner of Gemini and Gemini Biotech, Inc.
remaining as the limited partner of the Partnership. At such time as the
Jayaramans exchange all of their partnership units in the Partnership for shares
of the Company's Common Stock, it is expected that the Partnership and Gemini
will be dissolved, EPi Sub will be dissolved and all of such businesses will be
conducted by the Company under the new corporate name of Gemini Health
Technologies Inc.

         On September 30, 1998, the Company has entered into an agreement with
Elan. Pursuant to the agreement, the Company acquired a worldwide license to
Elan's flexible iontophoresis patch technology for non-cosmetic dermatology and
wound care applications in exchange for a $7,500,000 up-front payment and
certain future payments of prescribed license fees and royalties payable from
the revenues of resulting products. Elan also made an investment of $7,500,000
in the Company to acquire convertible Preferred Stock and warrants, each at a
premium to the current market price and agreed to invest an additional
$2,000,000 to acquire shares of the Company's Common Stock at a price to be
determined by an agreed upon formula.

                                      F-36


<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders and
  Board of Directors of
HealthTech Development, Inc. (a development stage company)

We have audited the accompanying balance sheets of HealthTech Development, Inc.
(a development stage company) as of December 31, 1997 and 1996, and the related
statements of operations, shareholders' equity (deficit) and cash flows for the
years ended December 31, 1997, 1996 and 1995 and for the period from December
14, 1993 (inception) to December 31, 1997. 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 the audits 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 HealthTech Development, Inc. (a
development stage company) as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for the years ended December 31, 1997, 1996
and 1995, and for the period December 14, 1993(inception) to December 31, 1997,
in conformity with generally accepted accounting principles.

The Company is in the development stage and to date has had limited operations.
The continuation of the Company's business is dependent upon its ability to
obtain adequate financing arrangements and, ultimately, future profitable
operations.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred losses and will need to achieve
profitable operations and obtain adequate financing in order to continue
operations. These factors raise substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.




                                       Sweeney, Gates & Co.


Ft. Lauderdale, FL
July 17, 1998


                                      F-37

<PAGE>


                          HEALTHTECH DEVELOPMENT, INC.
                          (A Development Stage Company)

                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                  June 30,               December 31,
                                                                                  --------           ---------------------
                                                                                    1998             1997             1996
                                                                                    ----             ----             ----
<S>                                                                               <C>             <C>             <C>      
ASSETS                                                                          (unaudited)
Current assets:
  Cash and cash equivalents                                                       $      48       $     809       $   3,619
  Accounts receivable                                                                     -               -          56,000
                                                                                  ---------       ---------       ---------
     Total current assets                                                                48             809          59,619
                                                                                  ---------       ---------       ---------

Property and equipment                                                                1,931           1,931           1,931
Less accumulated depreciation                                                          (965)           (772)           (386)
                                                                                  ---------       ---------       ---------
                                                                                        966           1,159           1,545
                                                                                  ---------       ---------       ---------

                                                                                  $   1,014       $   1,968       $  61,164
                                                                                  =========       =========       =========

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
  Accounts payable and accrued expenses                                           $  44,500       $  44,500       $ 114,454
                                                                                  ---------       ---------       ---------
      Total current liabilities                                                   $  44,500          44,500         114,454
                                                                                  ---------       ---------       ---------

Shareholders' deficit:
  Common stock, $.01 par value, 1,000,000 shares authorized,
    3,247 shares issued and outstanding on June 30, 1998,
    3,247 shares issued and outstanding on December 31, 1997,
    800 shares issued and outstanding on December 31, 1996                               32              32               8
  Additional paid in capital                                                        194,522         192,522          55,172
  Accumulated deficit during development stage                                     (238,040)       (235,086)       (108,470)
                                                                                  ---------       ---------       ---------
                                                                                    (43,486)        (42,532)        (53,290)
                                                                                  ---------       ---------       ---------

                                                                                  $   1,014       $   1,968       $  61,164
                                                                                  =========       =========       =========
</TABLE>



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


                                      F-38


<PAGE>


                          HEALTHTECH DEVELOPMENT, INC.
                          (A Development Stage Company)

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                  December 14,                                                                         December 14,
                                      1993                                                                                 1993
                                 (inception) to         Six Months                                                    (inception) to
                                    June 30,          Ended June 30,                Year ended December 31,            December 31,
                                    --------    -----------------------      --------------------------------------    ------------
                                     1998          1998           1997         1997           1996          1995           1997
                                     ----          ----           ----         ----           ----          ----           ----
                                  (unaudited)   (unaudited)                                                          
<S>                                <C>           <C>           <C>           <C>           <C>           <C>              <C>      
Sales                              $ 157,662     $      --     $      --     $      --     $ 121,662     $  36,000        $ 157,662
Cost of sales                        133,750            --            --            --        97,750        36,000          133,750
                                   ---------     ---------     ---------     ---------     ---------     ---------        ---------
                                                                                                                     
Gross profit                          23,912            --            --            --        23,912            --           23,912
                                   ---------     ---------     ---------     ---------     ---------     ---------        ---------
                                                                                                                     
Operating expenses:                                                                                                  
   General and                                                                                                       
     Administrative                                                                                                  
     Expenses                        156,384         2,664        49,986        89,972        17,838        28,169          153,720
                                                                                                                     
   Research and                                                                                                      
     development                                                                                                     
     costs                           104,620           300        17,285        34,570        62,750         5,000          104,320
                                   ---------     ---------     ---------     ---------     ---------     ---------        ---------
Total operating                                                                                                      
   expenses                          261,004         2,964        62,271       124,542        80,588        33,169          258,040
                                   ---------     ---------     ---------     ---------     ---------     ---------        ---------
Operating loss                      (237,092)       (2,964)      (62,271)     (124,542)      (56,676)      (33,169   )     (234,128)
                                   ---------     ---------     ---------     ---------     ---------     ---------        ---------
                                                                                                                     
                                                                                                                     
Other income                                                                                                         
   (expense):                                                                                                        
   Interest expense                   (2,198)           --        (1,099)       (2,198)           --            --           (2,198)
   Interest income                     1,250            10            62           124           448           359            1,240
                                   ---------     ---------     ---------     ---------     ---------     ---------        ---------
                                        (948)           10        (1,037)       (2,074)          448           359             (958)
                                   ---------     ---------     ---------     ---------     ---------     ---------        ---------
                                                                                                                     
Net loss                           $(238,040)    $  (2,954)    $ (63,308)    $(126,616)    $ (56,228)    $ (32,810   )    $(235,086)
                                   =========     =========     =========     =========     =========     =========        =========
</TABLE>


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

                                      F-39


<PAGE>


                          HEALTHTECH DEVELOPMENT, INC.
                          (A Development Stage Company)

                  STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

          FOR THE PERIOD DECEMBER 14, 1993 (INCEPTION) TO JUNE 30, 1998



<TABLE>
<CAPTION>
                                                  Common stock
                                           ------------------------     Additional         Accumulated
                                            Number             Par       paid in         Deficit During
                                           Of shares          Value      capital        Development Stage      Total
                                           ---------          -----     ----------      -----------------      -----
<S>                                         <C>              <C>          <C>                <C>             <C>
Common stock issued
  December 14, 1993 through
  December 31, 1994                           666            $   7        $ 31,022           $     --        $ 31,029

Net loss December 14, 1993
  through December 31, 1993                    --               --              --            (19,432)        (19,432)
                                            -----            -----        --------           --------        -------

Balance, December 31, 1994                    666                7          31,022            (19,432)         11,597

Common stock issued                           134                1           7,499                              7,500

Capital contributions                          --               --          16,151                 --          16,151

Net loss for the year ended
  December 31, 1995                            --               --              --            (32,810)        (32,810)
                                            -----            -----        --------           --------        --------

Balance, December 31, 1995                    800                8          54,672            (52,242)          2,438

Contribution of capital                        --               --             500                 --             500

Net loss for the year ended
  December 31, 1996                            --               --              --            (56,228)        (56,228)
                                            -----            -----        --------           --------        --------

Balance, December 31, 1996                    800                8          55,172           (108,470)        (53,290)

Issuance of stock for
  expenses                                    822                8          46,139                 --          46,147

Issuance of stock for rights                  500                5          28,065                 --          28,070

Issuance of stock for services                800                8          44,904                 --          44,912
Issuance of stock for legal
  services                                    325                3          18,242                 --          18,245
Net loss for the year ended
  December 31, 1997                            --               --              --           (126,616)       (126,616)
                                            -----            -----        --------           --------        --------
Balance, December 31, 1997                  3,247               32         192,522           (235,086)        (42,532)
                                            -----            -----        --------           --------        ========

Capital Contribution (unaudited)                                             2,000                              2,000

Net loss for the six months ended
  June 30, 1998 (unaudited)                                                                    (2,954)         (2,954)
                                            -----            -----        --------           --------        -------- 
                                                                                             
Balance, June 30, 1998 (unaudited)          3,247            $  32        $194,522           $238,040        $(43,486)
                                            =====            =====        ========           ========        ========
</TABLE>


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


                                      F-40
<PAGE>


                                        HEALTHTECH DEVELOPMENT, INC.
                                       (A Development Stage Company)

                                          STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                    December 14, 1993
                                                      (inception) to       Six Months                     
                                                         June 30,        Ended June 30,             Year ended December 31, 
                                                         --------       ----------------         ------------------------------   
                                                           1998         1998        1997         1997         1996         1995    
                                                           ----         ----        ----         ----         ----         ----    
                                                       (unaudited)
<S>                                                    <C>          <C>          <C>          <C>          <C>          <C>        
Cash flows from operating activities:                 
  Net income                                             $(238,040)   $(2,954)     $(63,308)    $(126,616)   $(56,228)    $(32,810)
  Adjustment to reconcile net income to net
    cash provided by operating activities:
  Non-cash professional fees paid in common stock          18,245           -        9,122         18,245           -            - 
  Issuance of common stock for expenses
     paid by stockholder                                   46,147           -       23,074         46,147           -            - 
  Non-cash compensation charge for issuance of
     common stock                                          44,912           -       22,456         44,912           -            - 

  Issuance of common stock for intellectual rights         28,070           -       14,035         28,070           -            - 

  Depreciation and amortization
                                                              965         193          193            386         386            - 
 Changes in assets and liabilities:
   Decrease (increase) in:
     Accounts receivables                                       -           -       28,000         56,000     (40,000)     (16,000)
     Other assets                                               -           -            -              -           -          932
   Increase (decrease) in:
     Accounts payable and accrued expenses                 44,500           -      (31,321)       (69,954)     97,650       16,800
                                                         --------     -------      -------      ---------    --------     --------

        Total adjustments                                 182,839         193       65,559        182,646
                                                         --------     -------      -------      ---------    --------     --------

  Net cash provided (used) by operating activities        (55,201)     (2,761)       2,251         (2,810)      1,808      (31,078)
                                                         --------     -------      -------      ---------    --------     --------

Cash flows used for investing activities:
  Purchase of property and equipment                       (1,931)          -            -         (1,931)          -       (1,931)
                                                         --------     -------      -------      ---------    --------     --------
Net cash used for investing activities                     (1,931)          -            -              -      (1,931)           - 
                                                         --------     -------      -------      ---------    --------     --------

Cash flows from financing activities:
  Proceeds from sale of securities                         38,529           -            -              -           -        7,500

  Proceeds from capital contribution                       18,651       2,000            -              -         500       16,151
                                                         --------     -------      -------      ---------    --------     --------

  Net cash from financing activities                       57,180       2,000            -              -         500       23,651
                                                         --------     -------      -------      ---------    --------     --------

Net increase (decrease) in cash                                48        (761)      (2,251)        (2,810)        377       (7,427)

Cash and cash equivalents, beginning                            -         809          809          3,619       3,242       10,669
                                                         --------     -------      -------      ---------    --------     --------
Cash and cash equivalents, ending                        $     48     $    48      $ 3,060      $     809    $  3,619     $  3,242
                                                         ========     =======      =======      =========    ========     ========

Supplemental disclosure of cash flow information:
  Cash paid for interest during the period               $      -     $     -      $     -      $       -    $      -     $      - 
                                                         ========     =======      =======      =========    ========     ========
</TABLE>

                                                    December 14, 1993
                                                     (inception) to
                                                      December 31,
                                                      ------------
                                                          1997
                                                          ----
                                                     
Cash flows from operating activities:                
  Net income                                          $(235,086)
  Adjustment to reconcile net income to net          
    cash provided by operating activities:           
  Non-cash professional fees paid in common stock        18,245
  Issuance of common stock for expenses              
     paid by stockholder                                 46,147
  Non-cash compensation charge for issuance of       
     common stock                                        44,912
                                                     
  Issuance of common stock for intellectual rights       28,070
                                                     
  Depreciation and amortization                      
                                                            772
 Changes in assets and liabilities:                  
   Decrease (increase) in:                           
     Accounts receivables                                     -
     Other assets                                             -
   Increase (decrease) in:                           
     Accounts payable and accrued expenses               44,500
                                                      ---------
                                                     
        Total adjustments                               182,646
                                                      ---------
                                                     
  Net cash provided (used) by operating activities      (52,440)
                                                      ---------
                                                     
Cash flows used for investing activities:            
  Purchase of property and equipment                     (1,931)
                                                      ---------
Net cash used for investing activities                   (1,931)
                                                      ---------
                                                     
Cash flows from financing activities:                
  Proceeds from sale of securities                       38,529
                                                     
  Proceeds from capital contribution                     16,651
                                                      ---------
                                                     
  Net cash from financing activities                     55,180
                                                      ---------
                                                     
Net increase (decrease) in cash                             809
                                                     
Cash and cash equivalents, beginning                          - 
                                                      ---------
Cash and cash equivalents, ending                     $     809
                                                      =========
                                                     
Supplemental disclosure of cash flow information:    
  Cash paid for interest during the period             $      -
                                                      =========

Non cash transactions were as follows:

         Legal fees amounting to $18, 245 were paid in 1997 by issuing 325 share
of common stock valued at $56.14 per share.
         Operating expenses amounting to $46,147 paid by the officers of the
Company were paid in 1997 by issuing 822 shares of common stock valued at $56.14
per share including interest of $2,198.
         Officers were issued 800 shares of common stock for services rendered
in 1997, valued at $56.14 per share.
         An officer was issued 500 shares of common stock in payment for
intellectual rights valued at $56.14 per share.



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


                                      F-41


<PAGE>



                          HEALTHTECH DEVELOPMENT, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS


1. SIGNIFICANT ACCOUNTING POLICIES

Organization - HealthTech Development, Inc., (the "Company"), was incorporated
in the State of Texas on December 14, 1993. The Company was formed to acquire,
develop and commercialize emerging biomedical technologies. The Company is in
the development stage and its efforts through December 31, 1997, have primarily
involved acquiring technology rights and providing consulting services to other
biotech-related companies and universities.

Cash and cash equivalents - Cash and cash equivalents are defined as cash and
investments that have a maturity of less than three months.

Research and development - Research and development costs are expensed as
incurred. Payments related to the acquisition of technology rights, for which
development work is in process, are expensed and considered a component of
research and development costs.

Income taxes - The Company, with the consent of its shareholders, has elected
under the Internal Revenue Code to be an S corporation. In lieu of corporation
income taxes the shareholders of an S corporation are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes has been included in the financial
statements.

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

Stock-Based Compensation - The Company accounts for stock-based awards using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Accordingly, no
compensation cost has been recognized for its stock options. The Company
provides additional pro forma disclosures as required under Statement of
Financial Accounting Standard, No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123").


2. GOING CONCERN CONTINGENCY

The Company has minimal capital available to meet future obligations and to
carry out its planned operations. These factors raise substantial doubt about
the Company's ability to continue as a going concern.

In order to continue any significant operations, the Company will have to pursue
other sources of capital, such as raising equity, and the acquisition of other
profitable operations. The Company is also negotiating a sale of the Company to
another biotech-related company. See Note 6, Subsequent Events. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.


                                      F-42


<PAGE>


                          HEALTHTECH DEVELOPMENT, INC.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS (Continued)


3. RELATED PARTY TRANSACTIONS

The Company was paid for consulting services it performed for a related biotech
company. The services were provided pursuant to an oral agreement. The biotech
company was related by having common shareholders. The Company paid its former
President for performing the consulting services. Consulting income from the
related company was $80,000 and $36,000, respectively, for 1996 and 1995.
Consulting service expense was charged for the same amount in each year. The
Company paid its former President $57,500, $40,250, and $32,000, respectively,
for 1997, 1996, and 1995 for these as well as other consulting services.


4. SHAREHOLDERS' EQUITY

From inception through December 31, 1994, the founding shareholders were issued
666.7 shares for total consideration of $31,029. On December 31, 1995, the
Company sold 133.3 shares to an unrelated third party for $7,500 or $56.14 per
share. In 1995, the shareholders contributed $16,151 to capital. In 1996, one
shareholder contributed $500 to capital.

On January 31, 1997, the Company issued 822 shares of common stock valued at
$56.14 per share for expenses totaling $46,147, paid by the present Chairman of
the Board when he was the President and Chief Executive Officer of the Company.
The expenses principally related to 1996 and were charged in that period.
Interest expense of $2,198 was included in the agreement. At the same time, the
Company issued 500 shares in exchange for the assignment and transfer of all his
rights with respect to possible business opportunities involving the following:
Physical Optics Corporation, GeneQuEST Incorporated and Baxter Healthcare. These
rights were valued at $56.14 per share or a total of $28,070. In addition, the
Company issued 200 shares to the Chairman in exchange for an agreement to commit
to devote a portion of his time during 1997 to attempt to maximize the value of
the Company. The Company valued this commitment at $11,228 or $56.14 per share.
On the same date, the Company issued 600 shares to the present President in
exchange for an agreement to commit to devote a portion of his time during 1997
to attempt to maximize the value of the Company. The Company valued this
commitment at $33,684 or $56.14 per share.

On July 15, 1997, the Company issued to its attorney 325 shares of common stock
for legal services totaling $18,245. The shares were issued based on $56.14 per
share.

On January 31, 1997, the Company granted stock options for 154 shares of common
stock to the President and three shareholders at an exercise price of $1,000 per
share, exercisable at any time prior to January 1, 1998. The options were not
exercised and have expired.

On December 29, 1995, the Company granted stock options for 45 shares of common
stock to two individuals at an exercise price of $1,000 per share, exercisable
at any time prior to January 1, 1998. The options were granted as an inducement
for grantees to invest $700,000 each to purchase shares of common stock. The
options were not exercised and have expired. 


                                      F-43

<PAGE>


                          HEALTHTECH DEVELOPMENT, INC.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS (Continued)

4. SHAREHOLDERS' EQUITY (continued)

The options outstanding at the end of each of the last three years and changes
in options in each of those years are summarized as follows:

<TABLE>
<CAPTION>

                                                                        Weighted
                                          Number of  Exercise Price   Average Price
                                           Shares      Per Share        Per Share
                                          ---------  --------------   -------------
<S>                                        <C>         <C>              <C>   
Outstanding, January 1, 1995                 --            --               --
  Granted                                    45        $1,000           $1,000
  Exercised                                  --            --               --
                                           ----        ------           ------
Outstanding, December 31, 1995               45         1,000            1,000 
  Granted                                    --            --               -- 
  Exercised                                  --            --               --
Outstanding, December 31, 1996               45         1,000            1,000
                                           ----        ------           ------
  Granted                                   154         1,000            1,000
  Exercised                                  --            --               --
                                           ----        ------           ------
Outstanding, December 31, 1997              199        $1,000           $1,000
                                           ====        ======           ======
</TABLE>


Options exercisable at the end of each fiscal year are as follows:

<TABLE>
<CAPTION>
                                                                        Weighted
                                          Number of  Exercise Price   Average Price
                                           Shares      Per share        Per share
                                          ---------  --------------   -------------
<S>                                          <C>        <C>             <C>  
December 31,1995                              45        $1,000          $1,000
December 31, 1996                             45         1,000           1,000
December 31, 1997                            199         1,000           1,000
</TABLE>


The options outstanding at December 31, 1997 expired on January 1, 1998.

FASB Statement 123, "Accounting for Stock based Compensation"("FASB 123"),
requires the Company to provide pro forma information regarding net income and
earning per share as if compensation cost for the Company's options or warrants
has been determined in accordance with the fair value based method prescribed in
FASB 123. The Company estimates the fair value of each stock option or warrant
at the grant date by using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in the current period: a
dividend yield of 0%, estimated volatility of 0%, a risk-free interest rate of
5.50%, and an expected life of nine month to two years. Under the accounting
provisions of FASB 123, the Company's net loss and net loss per common share
would have been unchanged.


                                      F-44


<PAGE>


                          HEALTHTECH DEVELOPMENT, INC.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS (Continued)

5. RESEARCH AND DEVELOPMENT ACTIVITIES

The Company was formed in 1993 to acquire develop and commercialize emerging
biomedical technologies. The Company has entered into options to license and/or
license agreements with certain national laboratories and universities. The
Company initially focused on technologies related to the development of
vaccines, diagnostics for cancer and certain biodegradable materials and
achieved controlled release of biological substances to improve the function of
orthopedic devices. The Company abandoned two development projects related to
cancer vaccine development and biomaterials for bone healing with orthopedic
devices. In 1997, certain of the Company's exclusive licenses were terminated by
the licensors as a result of discontinuation of related development activities
by the Company. The Company is the assignee of intellectual property rights,
including pending patent applications, with respect to certain technologies
related to biodegradable materials for the controlled release of
pharmaceutically active materials, the design of small molecule drugs for the
treatment of cancer spread and the creation of genetic databases and genetic
tests for certain diet-regulated diseases. The Company maintains an exclusive
license to a United States patent related to a method of detection of certain
malignant cancers, although there can be no assurance that the Company will be
able fund further development (see Note 2, Going Concern Contingency). The
Company's management does not believe that the termination of this license will
have a material adverse effect on the Company's contemplated product development
programs.

The Company entered into two Sponsored Research Agreements with an educational
institution on January 1, 1996, which expired on December 31, 1997. The Company
was to sponsor the research and obtain the rights to intellectual property
developed during the course of such research with a view to profitable
commercialization of such intellectual property. The Company made the initial
payments of $6,250 on February 8, 1996. Additional payments of $152,061 were due
on September 1, 1996 and $93,447 on September 1, 1997 and were not paid. The
Company was in default of the agreements and the agreements were terminated. The
Company had total liability under the terms of the agreements to pay all
reasonable expenses incurred or committed to be expensed as of the effective
termination date, including salaries for appointees for the remainder of their
appointment. Although the Company will not get the intellectual rights, if any,
to the research, it has provided an estimate of $25,000 to meet future
contingencies related to this agreement.


6. SUBSEQUENT EVENT

On August 24, 1998, the Company split its shares 1,950.53 for one. The Company
was merged into Electropharmacology, Inc. ("EPi"), with the shareholders of HTD
receiving an aggregate of 6,172,095 shares of the Company's common stock (such
number of shares being substantially equivalent to the number of shares of the
EPi's common stock outstanding at such time, or 6,333,385 shares).


                                      F-45


<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS






To the Board of Directors
Delargen Corporation
d/b/a Gemini Biotech, Inc.


We have audited the accompanying balance sheet of Delargen Corporation d/b/a
Gemini Biotech, Inc. (a development, stage company) as of December 31, 1996 and
the related statements of operations, stockholder's equity (deficit) and cash
flows for the year ended December 31, 1996 and for the period from January 1,
1997 to June 30, 1997 and from January 1, 1996 (inception) to June 30, 1997.
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 audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Delargen Corporation d/b/a
Gemini Biotech, Inc. (a development stage company) as of December 31, 1996 and
the results of its operations and its cash flows for the periods from January 1,
1997 to June 30, 1997 and from January 1, 1996 (inception) to June 30, 1997 in
conformity with generally accepted accounting principles.

The Company is in the development stage and to date has had limited operations.
The continuation of the Company's business is dependent upon its ability to
maintain future profitable operations.






Ft. Lauderdale, Florida                                      Sweeney, Gate & Co.
September 28, 1998



                                      F-46

<PAGE>




                              DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (A Development Stage Company)

                                 BALANCE SHEET

                               DECEMBER 31, 1996

ASSETS

Current assets:
    Cash and cash equivalents                                    $ 33,519
    Accounts receivable                                             4,000
    Accounts receivable-related parties                            31,426
                                                                 --------

      Total current assets                                         68,945

Property and equipment, net                                        92,044


Other assets:
    Investment in partnership                                      18,000
    Organizational and loan costs, net                                575
                                                                 --------

      Total other assets                                           18,575
                                                                 --------

        Total assets                                             $179,564
                                                                 ========


LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Current maturities of long-term debt                         $ 36,324
    Accounts payable                                                4,949
    Note payable-related party                                      5,000
                                                                 --------

      Total current liabilities                                    46,273

Long-term debt                                                    120,569

Shareholders' equity:
    Common stock--$.01 par value; 1,000,000 authorized;             1,000
      100,000 shares outstanding
    Additional paid-in capital                                     40,000
    Deficit accumulated during the development stage              (28,278)
                                                                 --------

      Total Shareholders' equity                                   12,722
                                                                 --------

        Total liabilities and shareholders' deficit              $179,564
                                                                 ========


   The accompanying notes are an integral part of these financial statements


                                      F-47


<PAGE>


                              DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (A Development Stage Company)

                             STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  January 1, 1996     January 1, 1996
                                              January 1, 1997       (Inception)         (Inception)
                                                     to                 to                  to
                                               June 30, 1997     December 31, 1996    June 30, 1997
                                              -----------------  -----------------   -----------------
<S>                                                 <C>                <C>               <C>
Revenues:
  Sales                                             $ 16,244           $ 10,107          $ 26,351

Cost and expenses:
  Cost of sales                                        2,544              6,060             8,604
  General and administrative                          36,149             16,743            52,892
                                                    --------           --------          --------

         Total cost and expenses                      38,693             22,803            61,496
                                                    --------           --------          --------

Loss from operations                                 (22,449)           (12,696)          (35,145)

Other expenses:
      Interest expense                                 5,759             15,582            21,341
                                                    --------           --------          --------

Net loss                                            $(28,208)          $(28,278)         $(56,486)
                                                    ========           ========          ========
</TABLE>


                                      F-48


<PAGE>


                              DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (a Development Stage Company)

                        STATEMENT OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>

                                                                                                           Deficit   
                                                               Common Stock                              Accumulated 
                                                              $.01 Par Value            Additional       During the  
                                                      -------------------------------    Paid-in         Development 
                                                          Shares           Amount        Capital            Stage
                                                      ----------------  -------------  -------------   ----------------
<S>                                                        <C>            <C>            <C>              <C>
Common stock issued at inception
  of Company                                               100,000        $ 1,000        $40,000
Net loss--January 1, 1996 (inception)
  through December 31, 1996                                                                               $ (28,278)
                                                           -------        -------        -------          ---------
Balance--December 31, 1996                                 100,000          1,000         40,000            (28,278)

Net loss--January 1, 1997
  through June 30, 1997                                                                                    (28,208)
                                                           -------        -------        -------          ---------
Balance--June 30, 1997                                     100,000        $ 1,000        $40,000          $ (56,486)
                                                           =======        =======        =======          =========
</TABLE>


                                      F-49


<PAGE>



                              DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (A Development Stage Company)

                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                                   January 1, 1996   January 1, 1996
                                                                                January 1, 1997      (Inception)        (Inception)
                                                                                      to                 to                 to
                                                                                 June 30, 1997    December 31, 1996   June 30, 1997
                                                                                 -------------    -----------------   -------------


<S>                                                                                 <C>               <C>               <C>       
Cash flows from operating activities:
    Net (loss)                                                                      $(28,208)         $(28,278)         $ (56,486)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
        Depreciation and amortization                                                 10,436             1,123             11,559
        Changes in operating assets and liabilities:                                       -
           (Increase) in accounts receivable                                           4,000            (4,000)                 0
           (Increase) in accounts receivable - related parties                        31,426           (31,426)                 0
           (Increase) in other assets                                                      -              (575)              (575)
           Increase in accounts payable                                               (5,556)            4,949               (607)
                                                                                    --------          --------          ---------

Total adjustments                                                                     40,306           (29,929)            10,377
                                                                                    --------          --------          ---------

Net cash used for operating activities                                                12,098           (58,207)           (46,109)

Cash flows from investing activities:
    Purchase of equipment and other fixed assets                                     (26,788)          (93,167)          (119,955)
    Investment in partnership                                                         (6,000)          (18,000)           (24,000)
                                                                                    --------          --------          ---------

Net cash used for investing activities                                               (32,788)         (111,167)          (143,955)

Cash flows from financing activities:
    Increase in shareholder debt                                                       1,476             1,476
    Increase in note payable-related parties                                               -             5,000              5,000
    Proceeds from advances on SBA loan                                                     -            75,000             75,000
    Payments to reduce SBA loan                                                       (5,357)           (3,571)            (8,928)
    Proceeds from capital lease financing                                                               87,560             87,560
    Payments to reduce capital lease financing                                        (8,454)           (2,096)           (10,550)
    Proceeds from stock issuance                                                                        41,000             41,000
                                                                                    --------          --------          ---------

Net cash provided by financing activities                                            (12,335)          202,893            190,558
                                                                                    --------          --------          ---------

Net increase (decrease) in cash                                                      (33,025)           33,519                494

Cash at beginning of period                                                           33,519                 -                  -
                                                                                    --------          --------          ---------

Cash at end of period                                                               $    494          $ 33,519          $     494
                                                                                    ========          ========          =========

Supplemental disclosure of cash flow information:
      Cash paid for interest during the period                                      $  5,759          $ 15,582          $  21,341
                                                                                    ========          ========          =========
      Cash paid for income tax during the period                                    $      -          $      -          $       -
                                                                                    ========          ========          =========
</TABLE>


   The accompanying notes are an integral part of these financial statements


                                      F-50


<PAGE>


                              DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Organization - Delargen Corporation d/b/a Gemini Biotech, Inc. (the
"Company") is a biotechnology company incorporated in Texas on December 7, 1995.
It commenced operations on January 1, 1996 as a provider of synthesis of
nucleobases, their analogs and polymers for research purposes. On May 31, 1996,
the Company filed an assumed name certificate and began doing business as Gemini
Biotech, Inc. The Company is in the development stage and its efforts from
January 1, 1996 (inception) through June 30, 1997 primarily involved laboratory
services to other biotech companies or universities.

Cash and cash equivalents - Cash and cash equivalents are defined as cash and
investments that have a maturity of less than three months.

Inventories - Inventory is stated at cost, which is the lower of cost (first-in,
first-out) or market.

Property and Equipment - Property and equipment are recorded at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. The lives range from three to five years.

Revenue recognition - The Company recognizes revenue when the products are
shipped to the customer.

Organizational costs - Significant costs related to the organization of the
Company were deferred and amortized over a period of five years.

Income taxes - The Company accounts for income taxes on an asset and liability
approach to financial accounting. Deferred income tax assets and liabilities are
computed annually for the difference between the financial statement and tax
basis of assets and liabilities that will result in taxable or deductible
amounts in the future, based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period, plus or minus the change during the period
in deferred tax assets and liabilities. The Company made no provision for taxes
because there has not been any taxable profit since its inception.

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


                                      F-51


<PAGE>



                              DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS (Continued)


2.       GOING CONCERN CONTINGENCY

The Company incurred losses for the year ended December 31, 1996 and for periods
from January 1, 1997 to June 30, 1997 and from January 1, 1996 to June 30, 1997.
Management's plans in regard to these matters are to increase the revenue for
the laboratory service business and to commence research activities with its
scientific staff, and to obtain grant funding.

The Company is also negotiating a sale of the Company to another biotech-related
company. See Note 8 - Subsequent Events. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


3.       PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of December 31, 1996:

              Furniture and fixtures                                  $ 5,617
              Laboratory equipment                                     87,550
                                                                      -------
                                                                       93,167
               Less: accumulated depreciation                          (1,123)
                                                                      -------
               Property and equipment, net                            $92,044
                                                                      =======

Depreciation expense charged to income was $1,123 in 1996.

4.       LOAN AND NOTE AGREEMENTS

On April 30, 1996, the Company entered into loan and note agreement with a bank
and the U. S. Small Business Administration ("SBA") for $75,000. The SBA
guarantees eighty percent of the loan. The loan is to be repaid in eighty-four
principal installments of $892.86 plus interest. The interest rate is two and
three quarters of a percent over the minimum prime rate as published in the
Money Rate Section of the Wall Street Journal The final payment is due March 30,
2003. Collateral for the loan is all of the Company's equipment, inventory and
accounts receivable. In addition, the loan is guaranteed by the Company's
stockholder. As of December 31, 1996 the outstanding loan balance was $71,428.

Maturities of the note payable for the next five years are as follows:

        December 31,                                                 Amount
        ------------                                                 ------
          1997                                                      $10,714
          1998                                                       10,714
          1999                                                       10,714
          2000                                                       10,714
          2001                                                       10,714
          Thereafter                                                 17,858


                                      F-52


<PAGE>



                              DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS (Continued)


5.       CAPITAL LEASE AGREEMENTS

On January 1, 1998 the Company entered into a capital lease agreement for the
acquisition of laboratory equipment at a cost of $72,000. The lease agreement
required thirty-six payments of $2,241 and one balloon payment of $7,212.
Payment amounts included principal, interest at a rate of 13.319% and taxes. In
addition to the collaterized equipment covered by the lease, payments required
under the lease agreement were guaranteed by the Company's shareholder. For
financial reporting purposes, minimum lease payments relating to the equipment
have been capitalized. The lease expires December 2000. The leased property
under capital lease as of December 31, 1996 had a cost of $72,000, accumulated
amortization of $0 and a net book value of $72,000. Amortization of the leased
property is included in depreciation expense.

The future minimum lease payments under capital lease and the net present value
of the future minimum lease payments at December 31, 1996 were as follows:

          Total minimum lease payments                             $   87,702

          Amount representing interest                                 15,702

          Present value of net minimum lease payments                  72,000

          Current portion                                              19,087
                                                                     --------

          Long-Term capital lease obligation                         $ 52,913
                                                                     ========


6.       RESEARCH AND DEVLOPMENT ACTIVITES

The Company was formed December 1995 and as of January 1996 started to acquire,
develop and commercialize biomedical technologies and products. The Company is
engaged in the custom synthesis of oligonucleotides, peptides, genes and novel
nucleosides. The research activities focus on the design and synthesis of
therapeutic drugs and diagnostic agents using nucleic acid based compounds. The
Company has built a library of proprietary and exclusively licensed compounds
for the treatment of cancer and rheumatoid arthritis.

7.       INCOME TAXES

The tax effect of the net operating losses were not recorded in 1997 and 1996 as
a deferred tax asset since the realization was uncertain. The Company did not
record a federal or state income tax expense for 1997. At December 31, 1997, the
Company had approximately $56,485 in federal tax loss carryforwards that expires
in 2011.


                                      F-53

<PAGE>



                              DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS (Continued)


8.       SUBSEQUENT EVENTS

On July 1, 1997, the Company transferred all its assets and business to Gemini
Biotech, Ltd., ("Gemini") for a one percent general partnership interest in the
partnership. On August 24, 1998, the limited partners transferred all the
limited partnership interests in Gemini, a privately held Texas limited
partnership, and all the stock of the Company, the general partner, to Gemini
Health Technologies L.P., a newly-formed Delaware limited partnership (the
"Partnership"). A majority interest in the Partnership is owned by a publicly
held company, Electropharmacology, Inc. ("EPi"). The assets transferred to the
Partnership by the limited partners were exchanged for 6,000,000 partnership
units in the Partnership, which Partnership units are exchangeable, subject to
certain restrictions, for shares of EPi's common stock, on the basis of one
share of EPi's common stock for each Partnership unit (subject to adjustment in
the case of certain events concerning EPi and/or the Partnership).

The effect of the transaction is that the business previously conducted by EPi
and Gemini is now being conducted by the Partnership and Gemini, with a wholly
owned subsidiary of EPi ("Epi Sub") the general partner of the Partnership and
Shashikala and Krishna Jayaraman (the "Jayaramans") the previous limited
partners of Gemini, serving as the limited partners being the limited partner of
the Partnership, and the Partnership being the limited partner of Gemini and the
Company remaining as the general partner of the Partnership. At such time as the
Jayaramans exchange all of their partnership units in the Partnership for shares
of EPi's common stock, it is expected that the Partnership and Gemini will be
dissolved, EPi Sub will be dissolved and all of such businesses will be
conducted by EPi.


                                      F-54


<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To Partners and
Limited Partners of
Gemini Biotech, Ltd.


We have audited the accompanying balance sheet of Gemini Biotech, Ltd. (a
development stage Partnership) as of December 31, 1997 and the related
statements of operations, partners' capital (deficit) and cash flows for the
period July 1, 1997 (date of commencement of operations) to December 31, 1997.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Gemini Biotech, Ltd. as of
December 31, 1997 and the results of its operations and its cash flows for the
period July 1, 1997 to December 31, 1997 in conformity with generally accepted
accounting principles.

The Partnership is in the development stage and to date has had limited
operations. The continuation of the Partnership's business is dependent upon its
ability to maintain future profitable operations.

The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 2 to the
financial statements, the Partnership has incurred a significant loss in the
period from July 1, 1997 to December 31, 1997 and has a net capital deficiency
that raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
Partnership was not in compliance with certain of the ratios relating to worth
contained in a loan obtained from an insurance company. The insurance company
currently has the right to accelerate payment of the note. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.


Ft. Lauderdale, Florida                        Sweeney, Gates & Co.
June 30, 1998

                                      F-55


<PAGE>


                              GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                                  BALANCE SHEET



                                                   June 30,       December 31,
ASSETS                                               1998             1997
                                                  -----------     ------------
                                                  (unaudited)
Current assets:
    Cash and cash equivalents                      $  49,407      $  454,992
    Cash-restricted                                  235,657         235,657
    Accounts receivable                               57,697          43,090
    Inventory                                          7,528           5,000
    Prepaid expense                                        -           3,125
                                                   ---------      ----------
         Total current assets                        380,488         741,864
                                                   ---------      ----------

Property and equipment, net                          252,976         185,864
                                                   ---------      ----------

Other assets:
    Organizational and loan costs, net                67,034          71,737
    Deposits                                           3,350           3,350
                                                   ---------      ----------
         Total other assets                           70,384          75,087
                                                   ---------      ----------

                                                   $ 703,848      $1,002,815
                                                   =========      ==========

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
    Current maturities of long-term debt           $  97,185      $   97,185
    Accounts payable                                       -          26,818
    Accrued expenses                                  90,840          15,408
    Sales tax payable                                      -           3,748
                                                   ---------      ----------

         Total current liabilities                   188,025         143,159
                                                   ---------      ----------

Long-term debt                                       932,791       1,180,325
                                                   ---------      ----------

Partnership capital (deficit):
    General partner                                  (85,656)       (101,573)
    Limited partners                                (331,312)       (219,096)
                                                   ---------      ----------

       Total partnership capital (deficit)          (416,967)       (320,669)
                                                   ---------      ----------

                                                   $ 703,848      $1,002,815
                                                   =========      ==========



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

                                      F-56

<PAGE>

                              GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                             STATEMENT OF OPERATIONS


<TABLE>
<CAPTION>

                                                        For the Period         For the Period
                                        Six Months       July 1, 1997           July 1, 1997
                                          ended        (commencement) to      (commencement) to
                                         June 30,           June 30,             December 31,
                                           1998              1998                    1997
                                       -----------     -----------------      -----------------
                                       (unaudited)       (unaudited)            (unaudited)
<S>                                    <C>                <C>                    <C>
Sales, net of sales returns and        
  allowances                           $ 416,962          $ 534,980              $ 118,018
Cost of sales                           (205,817)          (298,436)               (92,619)
                                       ---------          ---------              ---------

         Gross profit                    211,145            236,544                 25,399
                                       ---------          ---------              ---------

Selling, general and
  administrative expenses               (327,681)          (520,850)              (193,169)
                                       ---------          ---------              ---------

         Loss from operations           (116,536)          (284,306)              (167,770)

Other income (expense):
     Interest expense                          -            (71,622)               (71,622)
     Interest income                       6,584             19,617                 13,033
                                       ---------          ---------              ---------
     Total other income (expense)          6,584            (52,005)               (58,589)
                                       ---------          ---------              ---------

Net loss                               $(109,952)         $(336,311)             $(226,359)
                                       =========          =========              =========

</TABLE>


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

                                      F-57


<PAGE>



                              GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                   STATEMENT OF PARTNERSHIP CAPITAL (DEFICIT)

        FOR THE PERIOD JULY 1, 1997 (date of commencement of operations)
                                TO JUNE 30, 1998


<TABLE>
<CAPTION>
                                               General         Limited           Limited
                                               Partner         Partner           Partner             Total
                                               -------         -------           -------             -----

<S>                                           <C>              <C>              <C>               <C>       
Profit percentage                                     1%            49.5%            49.5%            100.%
                                              =========        =========        =========         =========

Contribution of assets                        $                $   2,500        $   2,500         $   5,000
                                                                                                  ---------

Distributions                                   (99,310)               -                -           (99,310)

Net loss during development
  Stage                                          (2,263)        (112,048)        (112,048)         (226,359)
                                              ---------        ---------        ---------         ---------

Balance, December 31, 1997                    $(101,573)       $(109,548)       $(109,548)        $(320,669)
                                              ---------        ---------        ---------         ---------

Net loss for six months ended
  June 30, 1998 (unaudited)                   $  (1,100)       $ (54,426)       $ (54,426)        $(109,952)
                                              ---------        ---------        ---------         ---------
                                                                                   (1,100)          (54,426)

Distributions                                    17,018           (1,682)          (1,682)           13,654
                                              ---------        ---------        ---------         ---------

Balance, June 30, 1998 (unaudited)            $ (85,655)       $(165,656)       $(165,656)        $ 416,967
                                              =========        =========        =========         =========
</TABLE>


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


                                      F-58


<PAGE>


                              GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                             STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                         For the Period     For the Period
                                                                       Six Months         July 1, 1997       July 1, 1997
                                                                          Ended        (commencement) to   (commencement) to
                                                                      June 30, 1998      June 30, 1998      December 31, 1997
                                                                      -------------      -------------      -----------------
                                                                       (unaudited)        (unaudited)

<S>                                                                     <C>                <C>                <C>       
Cash flows from operating activities:
        Net loss                                                        $(109,952)         $(336,311)         $(226,359)
                                                                        ---------          ---------          ---------
Adjustment to reconcile net income to net
    cash provided by operating activities:
        Depreciation and amortization                                      40,005             68,410             28,405
    Changes in assets and liabilities:
        Decrease (increase) in:
           Accounts receivable                                            (14,607)           (57,697)           (43,090)
           Inventory                                                       (2,528)            (7,528)            (5,000)
           Prepaid expense                                                  3,125                  -             (3,125)
           Deposits                                                             -             (3,350)            (3,350)

        Increase (decrease) in:
           Accounts payable                                               (26,818)                 -             26,818
           Accrued expenses                                                72,540             87,948             15,408
           Sales tax payable                                               (3,748)                 -              3,748
                                                                        ---------          ---------          ---------
          Total adjustments                                                67,469             87,783             19,814
                                                                        ---------          ---------          ---------

    Net cash used in operating activities                                 (41,983)          (248,528)          (206,545)
                                                                        ---------          ---------          ---------

Cash flows used for investing activities:
        Purchase of property and equipment                                (98,714)          (306,608)          (207,894)
        Organizational and loan costs incurred                             (3,700)           (81,812)           (78,112)
                                                                        ---------          ---------          ---------
    Net cash used in investing activities                                (102,414)          (388,420)          (286,006)
                                                                        ---------          ---------          ---------

Cash flows from financing activities:
        Proceeds from note payable                                              -          1,315,000          1,315,000
        Principal payments on note payable                               (247,534)          (285,024)           (37,490)
        Distributions to general partner                                  (17,018)          (116,328)           (99,310)
        Contributions by limited partners                                   3,364              8,364              5,000
                                                                        ---------          ---------          ---------
    Net cash provided by financing activities                            (261,188)           922,012          1,183,200
                                                                        ---------          ---------          ---------

Net increase (decrease) in cash                                          (405,585)           285,064            690,649

Cash and cash equivalents, beginning                                      690,649                  -                  - 
Cash and cash equivalents, ending                                       $ 285,064          $ 285,064          $ 690,649
                                                                        =========          =========          =========


 Supplemental disclosure of cash flow information:
        Cash paid for interest during the period                        $  56,312          $ 127,934          $  71,622
                                                                        =========          =========          =========
</TABLE>


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


                                      F-59


<PAGE>
                              GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                          NOTES TO FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Organization - Gemini Biotech, Ltd. (the "Partnership") is a
biotechnology partnership formed in Texas on January 15, 1997. It commenced
operations on July 1, 1997 as a provider of synthesis of nucleobases, their
analogs and polymers for research purposes. The partnership was formed by the
contribution of assets from its general partner Delargen Corporation and its
limited partners Krishna Jayaraman and Sharma Jayaraman. The general partner
contributed a service business and laboratory equipment at book value. Since the
assets were less than the liabilities assumed, the partnership recorded a
distribution of $99,310. The limited partners contributed their interest in
certain inventory of nucleobases and polymers. The inventory was contributed at
the partners' cost of $5,000. The Partnership is in the development stage and
its efforts through December 31, 1997 primarily involved laboratory services to
other biotech companies or universities.

Cash and cash equivalents - Cash and cash equivalents are defined as cash and
investments that have a maturity of less than three months.

Inventories - Inventory is stated at cost, which is the lower of cost or market.

Property and Equipment - Property and equipment are recorded at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. The lives range from three to seven years. Leasehold
improvements are being amortized over the remaining term of the lease of 18
months.

Revenue recognition - The Partnership recognizes revenue when the products are
shipped to the customer.

Deferred Loan costs - The Partnership incurred costs in obtaining financing
which have been deferred and are being amortized over 101 months.

Organizational costs - Significant costs related to the organization of the
Partnership are deferred and amortized over a period of five years.

Research and development - Research and development costs are expensed as
incurred.

Income Taxes - The Company is formed as a partnership. All taxable income or
loss flows through to the partners. Accordingly, no income tax expense or
liability is recorded in the accompanying financial statements.

Fair Value of Financial Instruments - The fair value of the Partnership's
financial instruments such as account receivables, accounts payable, and notes
payable approximate their carrying value.


                                      F-60

<PAGE>


                              GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                          NOTES TO FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

2. GOING CONCERN CONTINGENCY

The Partnership incurred a significant loss for the period from July 1, 1997 to
December 31, 1997 and had a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. The Partnership was not in
compliance with certain of the ratios relating to net worth contained in a loan
obtained from an insurance company. The insurance company currently has the
right to accelerate payment of the note. Management's plans in regard to these
matters are to increase the revenue for the laboratory service business and to
commence research activities with its scientific staff, and to obtain grant
funding.

The Partnership is also negotiating a sale of the Partnership to another
biotech-related company. See Note 7, Subsequent Events. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of December 31, 1997:

     Laboratory equipment                                     $179,775
     Furniture and fixtures                                      9,291
     Computers                                                  12,874
     Leasehold improvements                                      5,954
                                                              --------
                                                               207,894
      Less: accumulated depreciation and
         Amortization                                           22,030
                                                              --------

      Property and equipment, net                             $185,864
                                                              ========

Depreciation and amortization expense charged to income was $22,030 in 1997.


                                      F-61


<PAGE>



                              GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                          NOTES TO FINANCIAL STATEMENTS


4. LOAN AND NOTE AGREEMENTS

On June 27, 1997, the Partnership entered into loan and note agreements (the
"Agreement") with an insurance company in the amount of $1,315,000. The loan
amortizes over 101 payments ending July 1, 2006. Interest is at two points over
prime. At December 31, 1997, the rate was 10.50%. The collateral for the note is
all the Partnership's assets including accounts receivable, inventory, property
and equipment owned by the Partnership and to be acquired in the future. In
addition, the loan is guaranteed by the Rural Biological Science Department of
the Federal Drug Administration. The limited partners have personally guaranteed
the repayment of this indebtedness.

As of December 31, 1997, the Partnership had been advanced $1,079,343 of the
total loan. The insurance company had recorded the transaction as though the
Partnership borrowed the entire $1,315,000 at the inception of the loan. The
insurance company had retained the balance as of December 31, 1997 of $235,657
in a bank. The amount is restricted awaiting documentation for the Partnership
to draw down the balance.

The Agreement states the Partnership must maintain certain financial covenants
principally relating to working capital, fixed charge ratios and net worth. The
covenants also include a limitation on compensation and distributions. All of
the amounts outstanding under the Agreement will become due and payable if an
event of default occurs. The Partnership was not in compliance with certain of
the ratios relating to net worth. The insurance company currently has the right
to accelerate payment of the note.

Maturities of the note payable for the next five years are as follows:

December 31,                                         Amount
------------                                         ------
  1998                                             $   97,185
  1999                                                 90,909
  2000                                                121,273
  2001                                                134,688
  2002                                                149,531
       Thereafter                                     683,924
                                                   ----------
                                                   $1,277,510
                                                   ==========

5. RESEARCH AND DEVLOPMENT ACTIVITES

The Partnership was formed in 1997 to acquire, develop and commercialize
biomedical technologies and products. The Partnership is engaged in the custom
synthesis of oligonucleotides, peptides, genes and novel nucleosides. The
research activities focus on the design and synthesis of therapeutic drugs and
diagnostic agents using nucleic acid based compounds. The Partnership has built
a library of proprietary and exclusively licensed compounds for the treatment of
cancer and rheumatoid arthritis.


                                      F-62

<PAGE>



                              GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                          NOTES TO FINANCIAL STATEMENTS


6. CONCENTRATION OF CREDIT RISK AND SALES

During the year the Partnership maintained cash balances in excess of the
Federally insured limits. The funds are with a major money center bank.
Consequently, the Partnership does not believe that there is a significant risk
in having these balances in one financial institution. The cash balance at
December 31, 1997 was $454,992.

One customer accounted for approximately 41% of the Partnership's sales for the
period July 1, 1997 (date of commencement of operations) to December 31, 1997.

7. COMMITMENTS AND CONTINGENCIES

The Partnership leases its office and laboratory facility under a 20-month lease
expiring February 28, 1999. The monthly rental is $3,350 and pass through of
expenses. Rent expense was $20,100 for the period ended December 31, 1997.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 1997, for each of the
next 5 years and in the aggregate are:

Years Ending December 31,                              Amount
-------------------------                              ------
1998                                                  $40,100
1999                                                    6,700
                                                      -------
                                                      $46,800

8. SUBSEQUENT EVENTS

On August 18, 1998, the limited partners transferred all the limited partnership
interests in Gemini, a privately held Texas limited partnership, and all the
stock of Delargen Corp., the general partner, to Gemini Health Technologies
L.P., a newly-formed Delaware limited partnership (the Partnership). A majority
interest in the Partnership is owned by a publicly held company,
Electropharmacology, Inc. ("EPi"). The assets transferred to the Partnership by
the limited partners were are being exchanged for 6,000,000 partnership units in
the Partnership, which Partnership units are exchangeable, subject to certain
restrictions, for shares of the EPi's common stock, on the basis of one share of
EPi's common stock for each Partnership unit (subject to adjustment in the case
of certain events concerning EPi and/or the Partnership).


                                      F-63


<PAGE>



                         COMMON STOCK PURCHASE AGREEMENT

To purchase any of the shares of Common Stock, you must be a resident of a state
where the sale of shares of Common Stock is permitted under the state's
securities laws and you may be required to meet certain investor suitability
requirements in certain states. A list of such states will be provided by the
Company upon request.

TO:      Electropharmacology, Inc.
         1109 N.W. 13th Street
         Gainesville, Florida 32601, USA
         Phone: (954) 367-9088
         Fax: (954) 367-0720
         Email: ephi@bellsouth.net

I have received and read the Prospectus dated _______________, 1988 by which the
shares of Common Stock of Electropharmacology, Inc. are offered.

Enclosed is payment for _________ shares of Common Stock (minimum _______
shares), at $_______ per share, totaling $_________. (Make check payable to
Electropharmacology, Inc.)

Signature(s):________________________________________         Date:_____________

Register the shares of Common Stock in the following name(s) and amount(s):

Name(s):____________________________   Number of Shares:________________________

As (check one): Individual _____  Joint Tenants _____  Trust _____  IRA _______

         Tenants in Common _____  Corporation _______  Keogh _____  Other _____

For the person(s) who will be registered owner(s):

Mailing address:__________________________________________________________

City, State and Zip Code:_________________________________________________

Business Phone: (      )                           Home Phone: (      )        
                __________________________________             ________________

Social Security or Taxpayer ID Number_____________________________________

    (Please attach any special mailing instructions other than shown above.)

         Electropharmacology, Inc. reserves the right to reject any Common Stock
Purchase Agreement in its entirety or to allocate shares of Common Stock for any
reason whatsoever.

        NO COMMON STOCK PURCHASE AGREEMENT IS EFFECTIVE UNTIL ACCEPTANCE

         (If accepted, you will be mailed a copy of this Agreement executed by
Electropharmacology, Inc. To retain for your records.)

Subscription accepted by Electropharmacology, Inc.:

______________________________________________________
Authorized Officer                          Date


                                       95





<PAGE>

                        PART II - REGISTRATION STATEMENT


Item 13.          Other Expenses of Issuance and Distribution

         The expenses payable by the Company in connection with the issuance and
distribution of the securities being registered are estimated to be as follows:

         SEC Registration Fee . . . . . . . . . . . . . . . . . . . . $6,445.16
         Printing and Edgarizing. . . . . . . . . . . . . . . . . . .     *
         Accounting Fees and Expenses. . . . . . . . . . . . . .  . .     *
         Legal Fees and Expenses. . . . . . . . . . . . . . . . . . .     *
         Blue Sky Fees and Expenses. . . . . . . . . . . . . . .  . .     *
         Transfer Agent's Fees and Expenses . . . . . . . . . . . . .     *
         Miscellaneous Expenses . . . . . . . . . . . . . . . . . . .     *
                                                                      ----------
                                            Total                     $   *
                                                                      ==========

*        To be completed by amendment.

Item 14.          Indemnification of Directors and Officers

         Section 145 of the Delaware General Corporation Law ("DGCL") empowers a
corporation to indemnify its directors and officers or former directors or
officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers. Such law provides further
that the indemnification permitted thereunder shall not be deemed exclusive of
any other rights to which the directors and officers may be entitled under a
corporation's certificate of incorporation, bylaws, any agreement or otherwise.

         Reference is made to Article Ninth of the Company's Certificate of
Incorporation, as amended (the "Certificate"), which Certificate appears as
Exhibit 3.1 to the Registration Statement. Article Ninth provides for the
indemnification of directors and officers. Reference is also made to Article
Tenth of the Certificate which limits the liability of directors to the full
extent permitted by the DGCL.

         Reference is made to Article XVII of the Company's By-laws, which
appear as Exhibit 3.2 to the Registration Statement. Article XVII provides for
the indemnification of directors and officers to the fullest extent permitted by
the DCGL.

         Sections 7 and 8 of the Underwriting Agreement dated May 12, 1995
between the Company and Paragon provide for the indemnification of the Company's
officers, directors and control persons under certain circumstances.


Item 15.          Recent Sales of Unregistered Securities






Item 16.          Exhibits and Financial Statement Schedules



                                       96

<PAGE>

                            ELECTROPHARMACOLOGY, INC.

                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>

                                                                                         Additions
                                                                                        (Deductions)
                                                                  Beginning           Charged to Costs        Balance at End
                                                                   of Year              and Expenses             of Period
                                                                  ---------           ----------------        --------------
<S>                                                              <C>                    <C>                     <C>
Six months ended June 30, 1998:
Deducted from asset accounts:

Valuation allowance for deferred tax assets                       4,155,560                     --               4,155,560

Allowance for uncollectible accounts                                134,000               (103,842)                 30,158
                                                                 ----------             ----------              ----------
Total                                                            $4,289,560               (103,842)             $4,185,718
                                                                 ==========             ==========              ==========


Year ended December 31, 1997:
Deducted from asset accounts:

Valuation allowance for deferred tax assets                       3,475,300                680,260               4,155,560

Allowance for uncollectible accounts                                134,000               (108,000)                 26,000
                                                                 ----------             ----------              ----------
Total                                                            $3,609,300               $572,260              $4,181,560
                                                                 ==========             ==========              ==========


Year ended December 31, 1996:
Deducted from asset accounts:

Valuation allowance for deferred tax assets                       2,400,000              1,075,300               3,475,300

Allowance for uncollectible accounts                                 85,100                 48,900                 134,000
                                                                 ----------             ----------              ----------
Total                                                            $2,485,100             $1,124,200              $3,609,300
                                                                 ==========             ==========              ==========


Year ended December 31, 1995:
Deducted from asset accounts:

Valuation allowance for deferred tax assets                       1,200,000              1,200,000               2,400,000

Allowance for uncollectible accounts                                106,969                (21,869)                 85,100
                                                                 ----------             ----------              ----------
Total                                                            $1,306,969             $1,178,131              $2,485,100
                                                                 ==========             ==========              ==========
</TABLE>

                                       97

<PAGE>

(A)      Exhibits

      Exhibit
       Number      Description of Exhibit
      -------      ----------------------

        3.1        Certificate of Incorporation, as amended (?) [Certificate of
                   Designations](1)

        3.2        Amended and Restated By-laws (1)

        5.1        Opinion of Goodman, Vineberg & Phillips regarding the
                   legality of the securities being issued (1)

       10.4        Employment Agreement dated August 5, 1996, between the
                   Company and Joseph Mooibroek (5)

       10.5        Employment Agreement dated August 5, 1996, between the
                   Company and David Saloff (4)

       10.6        Employment Agreement dated November 11, 1996, between the
                   Company and Arup Sen (4)

       10.16       Agreement dated April 12, 1997, between the Company and
                   Joseph Mooibroek (4)

       16.1        Letter from BDO Seidman, LLP regarding response to Change in
                   Certifying Accountants dated January 8, 1997 (10)

       23.1        Consent of Ernst & Young LLP, independent auditors (1)

       23.2        Consent of BDO Seidman LLP, independent auditors (1)

       24.1        Powers of Attorney (included in the Signature Page hereof)

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

(1)    To be filed by amendment.
(4)    Previously filed as an exhibit to the Company's Annual Report on Form
       10-KSB for the year ended December 31, 1996 and incorporated by reference
       herein.
(5)    Previously filed as an exhibit to the Company's Current Report on Form
       8-K dated August 5, 1996 and incorporated by reference herein.
(10)   Previously filed as an exhibit to the Company's Current Report on Form
       8-K dated December 13, 1996 and incorporated by reference herein.


(B)      Financial Statement Schedules

         None.


Item 17.          Undertakings


         (a)      The undersigned registrant hereby undertakes:

                  (1) To file, during any period in which offers or sales are
                  being made, a post-effective amendment to this registration
                  statement:

                           (I) To include any prospectus required by Section
                           10(a)(3) of the Securities Act of 1933;

                           (ii) To reflect in the prospectus any facts or events
                           arising after the effective date of the registration
                           statement (or the most recent post-effective
                           amendment hereof) which,

                                      98

<PAGE>

                           individually or in the aggregate, represent a
                           fundamental change in the information set forth in
                           the registration statement. Notwithstanding the
                           foregoing, any increase or decrease in volume of
                           securities offered (if the total dollar value of
                           securities offered would not exceed that which was
                           registered) and any deviation from the low or high
                           end of the estimated maximum offering range may be
                           reflected in the form of prospectus filed with the
                           SEC pursuant to Rule 424(b) if, in the aggregate, the
                           changes in volume and price represent no more than 20
                           percent change in the maximum aggregate offering
                           price set forth in the "Calculation of Registration
                           Fee" table in the effective registration statement;

                           (iii) To include any material information with
                           respect to the plan of distribution not previously
                           disclosed in the registration statement or any
                           material change to such information in the
                           registration statement.

                  (2) That, for the purpose of determining any liability under
                  the Securities Act of 1933, each such post-effective amendment
                  shall be deemed to be a new registration statement relating to
                  the securities offered therein, and the offering of such
                  securities at that time shall be deemed to be the initial bona
                  fide offering thereof.

                  (3) To remove from registration by means of a post-effective
                  amendment any of the securities being registered which remain
                  unsold at the termination of the offering.

         (b) Insofar as indemnification for liabilities arising under the
         Securities Act of 1933 may be permitted to directors, officers and
         controlling persons of the registrant pursuant to the foregoing
         provisions, or otherwise, the registrant has been advised that in the
         opinion of the Securities and Exchange Commission such indemnification
         is against public policy as expressed in the Act and is, therefore,
         unenforceable. In the event that a claim for indemnification against
         such liabilities (other than the payment by the registrant of expenses
         incurred or paid by a director, officer or controlling person of the
         registrant in the successful defense of any action, suit or proceeding)
         is asserted by such director, officer or controlling person in
         connection with the securities being registered, the registrant will,
         unless in the opinion of its counsel the matter has been settled by
         controlling precedent, submit to a court of appropriate jurisdiction
         the question whether such indemnification by it is against public
         policy as expressed in the Act and will be governed by the final
         adjudication of such issued.

         (c) The undersigned registrant hereby undertakes to supply by a means
         of a post-effective amendment all information concerning a transaction,
         and the Company being acquired involved therein, that was not the
         subject of and included in the registration statement when it became
         effective.

                                      99

<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registrant Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Gainesville, State
of Florida on November 9, 1998.

                                      ELECTROPHARMACOLOGY, INC.


                                      By:    s/ Arup Sen
                                         --------------------------------------
                                                         Arup Sen
                                         President and Chief Executive Officer


         Pursuant to the requirements of the Securities Act of 1933, this
Registrant Statement has been signed by the following persons in the capacities
indicated on November 9, 1998.

      Signatures                                Title
      ----------                                -----

---------------------------      Chairman of the Board
Arup Sen                         and Chief Executive Officer

            *
---------------------------      Executive Vice President of Marketing,
David Saloff                     Chief Financial Officer and Director
                                    (Principal Financial and Accounting Officer)

            *
---------------------------
Murray Feldman                   Director

            *
---------------------------
Richard K. Kneipper              Vice Chairman and Director

            *
---------------------------
Krishna Jayaraman                Director

            *
---------------------------
Bernard V. Carrico               Director


*    The undersigned, by signing his or her name hereto, does sign and execute
     this Registration Statement pursuant to the Powers of Attorney executed on
     behalf of the above-named officers and directors and contemporaneously
     filed herewith with the Securities and Exchange Commission.


                                      By:    s/ Arup Sen
                                         ---------------------------------------
                                                         Arup Sen
                                                    Attorney-in-Fact


                                       100
[{"type": "S-1", "sequence": "1", "description": "FORM S-1", "secsgml_size_bytes": 620462}]
{"company-data": {"conformed-name": "ELECTROPHARMACOLOGY INC", "cik": "0000934849", "assigned-sic": "3845", "irs-number": "954315412", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-67019", "film-number": "98741165"}, "business-address": {"street1": "1109 N W 13TH ST", "street2": "STE 102", "city": "GAINESVILLE", "state": "FL", "zip": "33069", "phone": "9549759818"}}
As filed with the Securities and Exchange Commission on _________, 1998
                                                     Registration No. 33-
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM S-1
             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

                            ELECTROPHARMACOLOGY, INC.
             (Exact name of Registrant as specified in its charter)
Delaware                                                             95-4315412
------------------------       ----------------------------              ------------------
(State of Incorporation)       (Primary standard industrial               (I.R.S. Employer
                               classification code number)               Identification No.)
1109 NW 13th Street
                           Gainesville, Florida 32601
                                 (352) 367-9088
          -------------------------------------------------------------
          (Address, Including Zip Code, and Telephone Number, Including
             Area Code, at Registrant's Principal Executive Office)
                             ----------------------
                                    Arup Sen
                      Chairman and Chief Executive Officer
                            Electropharmacology, Inc.
                               1109 NW 13th Street
                           Gainesville, Florida 32601
                                 (352) 367-9088
            ---------------------------------------------------------
            (Name, address, including Zip Code, and Telephone Number,
                   Including Area Code, of Agent for Service)
                             ----------------------
                                   Copies to:
                              Steven H. Levin, Esq.
                          Goodman, Phillips & Vineberg
                           430 Park Avenue, 10th Floor
                               New York, NY 10022
                                 (212) 588-5500
                             ----------------------
Approximate date of commencement of the proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.

If any of the securities being registered on this Form are to be offered as a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|

If this Firm is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |X|

                         CALCULATION OF REGISTRATION FEE
========================================================================================================================
                                                       Proposed Maximum        Proposed Maximum
    Title of Securities            Amount to            Offering Price            Aggregate              Amount of
      to be Registered         be Registered (1)         per Share(2)          Offering Price(2)      Registration Fee
------------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$.01 per share..............   37,094,452 shares            $0.625              $23,184,031.88           $6,445,16
========================================================================================================================
(1)      Includes (a) 4,516,623 shares being offered directly by the Company;
         (b) 9,462,828 shares to be offered by certain stockholders of the
         Company from time to time; (c) 6,000,000 shares issuable upon exercise
         of certain rights to receive Common Stock upon exchange of certain
         partnership units; (d) 6,250,000 shares issuable upon conversion of
         Preferred Stock of the Company; (e) 1,165,000 shares issuable upon the
         exercise of warrants; and (f) 9,700,000 shares that may be offered by
         the Company from time to time in the future on a delayed or continuous
         basis or pursuant to certain contingent share earn out rights or
         pursuant to paid in kind dividend obligations.

(2)      Estimated solely for the purpose of calculating the registration fee
         pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
         on the basis of the average of the high and low reported sales prices
         on November 3, 1998.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

                                       2
================================================================================

                            ELECTROPHARMACOLOGY, INC.

                              CROSS REFERENCE SHEET
                    Pursuant to Item 501(b) of Regulation S-K
Form S-1                                             Caption or Locations
                     Item Number and Heading                                        in Prospectus
                     -----------------------                                        -------------
1.   Forepart of the Registration Statement and Outside Front
       Cover Page of Prospectus............................................Facing Page; Cross Reference Sheet;
                                                                             Outside Front Cover Page of
                                                                             Prospectus; Alternate Front Cover
                                                                             Page of Prospectus

2.   Inside Front and Outside Back Cover Pages of Prospectus...............Inside Front Cover Page of Prospectus;
                                                                             Outside Back Cover Page of
                                                                             Prospectus

3.   Summary Information, Risk Factors and Ratio of
       Earnings to Fixed Charges..........................................."Summary"; "Investment
                                                                             Considerations"

4.   Use of Proceeds.......................................................  "Use of Proceeds"

5.   Determination of Offering Price.......................................  "Plan of Distribution"

6.   Dilution..............................................................  "Dilution"

7.   Selling Security Holders..............................................  "Plan of Distribution"

8.   Plan of Distribution..................................................Front Cover Page of Prospectus;
                                                                             Alternate Front Cover Page of
                                                                             Prospectus; "Underwriting"

9.   Description of Securities to be Registered............................Front Cover Page of Prospectus;
                                                                             Alternate Front Cover Page of
                                                                             Prospectus; "Summary"; "Capital
                                                                             Stock"

10.  Interests of Named Experts and Counsel................................  Legal Matters

11.  Information with Respect to the Registrant............................"Summary"; "Risk Factors"; "Dividend
                                                                             Policy"; "Capitalization"; "Selected
                                                                             Financial Data"; "Management's
                                                                             Discussion and Analysis of Financial
                                                                             Condition and Results of Operations";
                                                                             "Business"; "Management and
                                                                             Advisors"; "Certain Transactions";
                                                                             "Principal Stockholders"; "Description
                                                                             of Capital Stock"; "Shares Eligible for
                                                                             Future Sale"

12.  Disclosure of Commission Position on Indemnification for
       Securities Act Liabilities..........................................   *
--------------------

* Item is omitted because answer is negative or item is inapplicable

                                                         3
Subject to Completion November 9, 1998

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

                                5,000,000 Shares

                            ELECTROPHARMACOLOGY, INC.
                               1109 NW 13th Street
                           Gainesville, Florida 32609
                                 (352) 367-9088
                             ----------------------

         This is a public offering of shares of Common Stock by the Company.

         The Common Stock is quoted on the OTC Bulletin Board under the symbol
"EPHI". The last sale price of the Common Stock on November 6, 1998 was $.70
per share.

         Investing in the Common Stock involves a high degree of risk. See "Risk
Factors" beginning on page 12.

         Neither the Securities and Exchange Commission or any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

                                                            Per Share      Total
                                                            ---------      -----

Public Offering Price...................................  $             $

Underwriting Discounts and Commissions..................

Proceeds to Company.....................................

         The information is this Prospectus is not complete and may be changed.
We may not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

             The date of this Prospectus is __________________, 1998

                                        4
Subject to Completion November 9, 1998

================================================================================
                                                            ALTERNATE COVER PAGE

                                9,462,828 Shares

                            ELECTROPHARMACOLOGY, INC.
                               1109 NW 13th Street
                           Gainesville, Florida 32609
                                 (352) 367-9088
                             ----------------------

         This is a public offering of shares of Common Stock by the selling
stockholders named in this Prospectus. The Company will not receive any
proceeds from this offering, but will pay all expenses of this offering other
than selling stockholder brokerage commissions.

         The Common Stock is quoted on the OTC Bulletin Board under the symbol
"EPHI". The last sale price of the Common Stock on October November 6, 1998 was
$.70 per share.

         Investing in the Common Stock involves a high degree of risk. See "Risk
Factors" beginning on page 12.

         Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

                                                           Per Share      Total
                                                           ---------      -----

Public Offering Price..................................  $             $

Underwriting Discounts and Commissions.................

Proceeds to Company....................................

         This Prospectus, with a different cover page, also is being used in
connection with the public offering by the Company of ________ shares of Common
Stock. Therefore, certain sections of this Prospectus are not directly related
to the offering of shares by the selling stockholders.

         The information is this Prospectus is not complete and may be changed.
We may not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

             The date of this Prospectus is __________________, 1998

                                        5
You should rely only on the information contained in this Prospectus.
We have not authorized anyone to provide you with information different from
that contained in this Prospectus. We are offering to sell, and seeking offers
to buy, shares of Common Stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this Prospectus, regardless of the time of the delivery of this
Prospectus or of any sale of our Common Stock. In this Prospectus, the
"Company", "We", "Our" and "Us" refer to Electropharmacology, Inc., together
with its consolidated subsidiaries (unless the context otherwise requires).

                                TABLE OF CONTENTS
Page
                                                                                    ----
Prospectus Summary...............................................................     8
Risk Factors.....................................................................    12
Use of Proceeds..................................................................    23
Price Range of Common Stock......................................................    23
Dividend Policy..................................................................    24
Capitalization...................................................................    24
Dilution.........................................................................    25
Selected Financial Data..........................................................    27
Management's Discussion and Analysis of
   Financial Condition and Results of Operations.................................    29
Business.........................................................................    39
Management and Advisors..........................................................    70
Executive Compensation...........................................................    75
Compensation of Directors and Advisors...........................................    76
Employment Agreements............................................................    76
Stock Options....................................................................    78
Limitation of Directors' and Officers' Liability and Indemnification.............    79
Certain Transactions.............................................................    80
Principal Stockholders...........................................................    82
Description of Capital Stock.....................................................    84
Delaware Anti-Takeover Law and Certain Charter Provisions........................    89 
Transfer Agent and Registrar.....................................................    90
Shares Eligible for Future Sale..................................................    90
Plan of Distribution.............................................................    91
Legal Matters....................................................................    92
Changes in and Disagreements with Accountants and Financial Disclosure...........    92
Experts..........................................................................    93
Additional Information...........................................................    93
Index to Financial Statements....................................................   F-1
The Company was incorporated in Delaware in 1994. The Company's
         executive offices are located at 1109 NW 13th Street, Gainesville,
         Florida 32601 and its telephone number is (352) 367-9088.

                                        6
EXPLANATORY NOTE

The form of Prospectus filed as a part of this Registration Statement has two
cover pages, the first of which is with respect to an offering of up to
5,000,000 shares of Common Stock to be sold by the Company and the second of
which, the "Alternate Cover Page", is with respect to an offering of up to
9,462,828 shares of Common Stock that may be sold from time to time by certain
selling stockholders of the Company named in the Prospectus. After the effective
date of this Registration Statement, only this Prospectus bearing the first form
of cover page, appropriately completed, will be distributed by the Company and
only the selling stockholders use the Prospectus with the Alternate Cover Page.
Copies of the form of Prospectus bearing the first form of Cover Page will be
filed with the Securities and Exchange Commission, pursuant to Rule 424(b),
within five days after the effective date of the Registration Statement. Copies
of the form of Prospectus bearing the Alternate form of Cover Page, in the exact
form in which it is to be used after the commencement of the public offering of
the shares to which it relates, will be filed with the Securities and Exchange
Commission, pursuant to Rule 424(b), within five days after the commencement of
the public offering of such shares.

                                        7
SUMMARY

This section is only a summary and does not contain all the information about
our business that may be important to you. You should read the entire
Prospectus, especially the Risk Factors and the Consolidated Financial
Statements, Pro Forma Financial Information and Notes sections, before deciding
to invest in shares of our Common Stock. This summary describes our new business
that emerged as a result of acquiring two other companies, acquiring technology
rights from another company and selling a portion of our old business line. As a
result, the business described in this Prospectus is very different from the
business in which we had previously been engaged.

                               ELECTROPHARMACOLOGY

Our Business: Our business is to develop: (i) drug delivery technologies to
              better deliver pharmaceutical drugs to diseased tissues and (ii)
              drug design technologies to create new drugs aimed at the genes
              and proteins being discovered by scientists as the underlying
              causes of complex diseases. We are focusing on the use of our
              technologies to create products for complex diseases such as
              cancer, chronic tissue damage and inflammation.

Our Concept:  Drug Delivery - Improving the delivery of a drug to diseased
              tissues can reduce side effects and/or allow patients to take
              lower doses of toxic drugs, such as chemotherapeutic drugs for
              cancer or anti-inflammatory drug for arthritis. We are using mild
              electric fields and electromagnetic signals to improve drug
              delivery since these can be applied from outside the body without
              any need for an invasive process like additional surgery or
              injection.

              Drug Design - Our scientists have special expertise in designing
              and chemically synthesizing new drugs that are small molecules
              (like antibotics or chemotherapeutic drugs) as compared to large
              molecules (like the protein drugs made by the biotechnology
              industry). Our design strategy uses new information from
              biomedical research that is revealing the roles of specific genes
              and proteins in complex diseases. Each of our small molecule drugs
              is designed to selectively target a specific gene or a protein in
              order to either treat or detect a disease (or the stage of a
              complex disease).

Our Market:   Complex diseases like cancer, chronic tissue damage (such as
              ulcers, Alzheimer's disease or osteoporosis) or inflammation go
              through multiple stages and involve a complex interplay of
              multiple genes and proteins. As a result, we believe that the
              future of the biopharmaceutical product market will be based on
              delivering the right amount of drug at the right time to diseased
              tissues and using the drug that attacks the right gene or protein
              target for the appropriate stage of a complex disease.

Our Business
Strategy:     We believe that our strength is in rapidly converting new
              technical ideas into product prototypes or new methods of
              treatment or diagnosis. Once we prove the clinical use and define
              the patients for whom our products or methods will have real
              benefit, we intend to form partnerships with larger companies for
              the future development, large scale manufacturing and worldwide
              marketing and sales of the final products. Our drug delivery
              technology can be used with many different drugs and our small
              molecule drug design technology can create drugs to target many
              different proteins and genes. Therefore, our strategy is to form
              partnerships with many companies and achieve broad penetration in
              both the diagnostic and the therapeutic product markets.

                                        8
Recent Business
Changes:      We recently restructured the Company through a series of
              acquisitions, divestitures and recapitalizations and also entered
              into an agreement with affiliates of Elan Corporation, plc.
              ("Elan"), a large international company that is a world leader in
              drug delivery products and technologies:

              First, we acquired two private biotechnology companies, HealthTech
              Development Inc. ("HTD") and Gemini Biotech LP ("Gemini"). To
              effect the acquisitions, we formed a new partnership, Gemini
              Health Technologies LP (the "Partnership"), that will conduct the
              Company's business. The Partnership is owned by a wholly owned
              subsidiary of the Company and by the partners of Gemini. Pursuant
              to the acquisitions, HTD shareholders received 6,172,095 shares of
              our Common Stock and the partners of Gemini received 6,000,000
              units in the Partnership that they will exchange for 6,000,000
              shares of our Common Stock approximately one year from the date of
              the acquisition. After the exchange, we intend to dissolve the
              Partnership and will have changed our name to Gemini Health
              Technologies Inc.

              We sold our medical device product line called SofPulse to a
              subsidiary of ADM Tronics Unlimited, Inc. ("ADMT"). In
              consideration of the sale of the SofPulse device line, we received
              $150,000 in cash and 1,400,000 shares of ADMT common stock, which
              is traded on the Nasdaq Small Cap Market (stock symbol: ADMT).
              ADMT also issued an additional 1,525,000 shares of its common
              stock to pay about $650,000 of our unpaid bills. ADMT also issued
              us a warrant to purchase more shares of ADMT Common Stock if ADMT
              achieves certain sales goals on the SofPulse device line.

              We issued 1,872,000 shares of our Common Stock in exchange for all
              of our outstanding Preferred Shares and a large number of the
              warrants that we had issued over the past several years. As a
              result of all these transactions, our Company will have
              approximately 18,600,000 shares of Common Stock outstanding after
              the Gemini partners exchange their units in the Partnership for
              shares of Common Stock.

              We acquired from Elan a drug delivery technology, called
              iontophoresis, that uses mild electric current to push drugs
              across the skin. The special feature of Elan's iontophoresis
              technology is a flexible patch that can be shaped to fit any size
              or shape of skin surface anywhere on the body. We made an up-front
              payment of $7,500,000 to Elan and received worldwide rights to the
              technology for skin diseases and wound care. We also will pay
              royalties and additional license fees to Elan from the future
              revenues that we generate when we sell products based on the
              technology. Separately, Elan invested $7,500,000 to buy 7,500
              shares of our Company's Preferred Stock and warrants to purchase
              our Common Stock. Elan also purchased $600,000 of our Common Stock
              (777,202 shares) and agreed to purchase an additional $1,400,000
              of our Common Stock before year-end, which we will use to fund the
              development of our drug delivery and drug design products. Elan
              has the right to nominate a director for election to the Board of 
              Directors of our Company.

                                        9
Our Company is incorporated in Delaware and our executive offices
              are located at 1109 NW 13th Street, Gainesville, Florida 32601.
              Phone (352) 367-9088; Facsimile (352) 367-0720.

Common Stock
Offered by Us...................................................5,000,000 shares

The Offering: This Prospectus, with a different cover page, also is being used
              in connection with the offering from time to time by certain of
              our stockholders of up to 9,462,828 outstanding shares of our
              Common Stock.

              The total number of shares of our Common Stock outstanding after
              our offering is expected to be approximately 23,506,000 shares
              (assuming the exchange by the Gemini partners of their partnership
              units for shares.

              Our stock is traded on OTC Bulletin Board ("OTCBB") under the
              symbol "EPHI".

Use of Funds: We plan to use the monies raised by us in this offering to:

              o  advance our drug delivery technologies into human clinical
                 testing;
              o  to grow our library of small molecule drug candidates for our
                 drug design program which is now funded primarily by federal
                 grants and the limited revenues that we generate by providing
                 custom gene and protein synthesis services to researchers and
                 biopharmaceutical companies; and
              o  general working capital.

                 If we do not sell all 5,000,000 shares of Common Stock being 
                 offered by the Company, then we will limit the number of number
                 of product development programs we undertake until we enter 
                 into agreements with corporate partners for these programs.

                                       10
SUMMARY FINANCIAL DATA
Six Months           
                                           Year Ended December 31,                                          Ended June 30,    
                    -----------------------------------------------------------------------        ---------------------------------
                                                                                  Pro Forma                               Pro Forma
                      1993         1994        1995         1996        1997          1997         1997        1998         1998
                      ----         ----        ----         ----        ----          ----         ----        ----         ----
Statement of
Operations Data:

  Total revenue   $   410,373  $ 1,114,228  $ 1,996,663  $ 2,105,762  $ 2,401,249  $    118,018  $1,514,751  $ 435,003   $  416,962

Loss from
  operations       (1,334,185)  (1,946,687)  (2,731,044)  (3,027,392)  (1,602,170)  (13,257,473)   (721,072)  (525,107)  (7,919,017)

Net loss           (1,350,159)  (2,073,883)  (3,069,586)  (2,927,990)  (1,647,917)  (13,338,748)   (719,502)  (560,026)  (7,909,863)

Net loss per
  share, basic and
  diluted (1)           (1.03)       (1.31)       (1.26)       (0.89)       (0.45)        (0.92)      (0.20)     (0.14)       (0.53)

Shares used in the  
  Computation       1,316,528    1,586,303    2,429,880     3,298,849   3,697,611    14,564,287   3,606,388  4,113,328   14,997,403
June 30, 1998
                                                                                                ------------------------------------
                                                                                                  Actual             As Adjusted (1)
                                                                                                  ------             ---------------
Balance Sheet Data:
Cash and cash equivalents                                                                            64,465            4,064,465
Working capital (deficit)                                                                       (1,811,411)            2,188,589
Total assets                                                                                      1,172,034            5,172,034
Accumulated deficit                                                                             (15,865,337)         (15,865,332)
Total shareholders' equity (deficit)                                                              (612,011)            3,387,989
(1) As adjusted to give effect to the recent corporate reorganization (see
    "Business - Recent Corporate Reorganization") and Elan Transactions (see
    "Business - Elan Transactions") sale of 5,000,000 Common Shares by the
    Company hereby (after deducting estimated underwriting discounts and
    commissions and the estimated expenses of the Offering) and the receipt and
    application of the estimated net proceeds therefrom at the proposed public 
    offering price of $0.80 per share. See "Use of Proceeds" and 
    "Capitalization".

                                       11
RISK FACTORS

         Investing in shares of our Common Stock involves numerous risks. You
should not invest in our Common Stock unless you are able to bear a complete
loss of your investment. You should carefully consider the factors described in
this section and other information in this Prospectus before deciding to invest
in shares of our Common Stock. We are uncertain about the future of our business
and, in preparing this Prospectus, have made a number of assumptions and
projections. Many of the factors that will influence our future are beyond our
control. We generally use words like "expect", "believe" and "intend" to
indicate our assumptions and projections that may not prove to be accurate. Any
or a combination of these factors may have a significant adverse effect on our
ability to carry on our business as planned and presented in this Prospectus.
Our assumptions and projections could be wrong for many reasons, including the
primary reasons that are discussed below. As a result, the price of our Common
Stock could be materially and adversely affected from time to time.

Needs for Significant Additional Funds and Uncertainties in Raising Funds

         Discovering, developing, producing, testing and obtaining commercial
         marketing approval from the regulatory agencies for biotechnology and
         pharmaceutical products takes a long time and requires large amounts of
         funds. Although our Company has spent several million dollars in
         developing and acquiring our present technologies, we will still need
         large amounts of money and several years before any of our products are
         marketed. We believe that the funds we hope to raise in this offering,
         federal grant funds, if we receive them, and revenues from selling
         services using our drug design expertise will be enough to fund our
         activities for the next twelve to fifteen months. However we may need
         more funds than we now believe are necessary and we may decide to raise
         more money sooner than necessary in an attempt to accelerate our
         development programs. Some of the major factors that will affect our
         need to raise more money are:

         o        How fast our product development programs proceed in
                  laboratory experiments and in animal and human testings;

         o        Whether we get additional federal grants to fund either the
                  drug delivery projects or the small molecule drug design
                  projects;

         o        Opportunities that we see to expand our service business where
                  we may need to hire additional staff and buy more equipment to
                  satisfy the customer needs and to generate new orders and
                  contracts;

         o        Whether we are able to enter into corporate partnership and
                  licensing agreements with others to progress our product
                  development programs and the terms of these agreements; and

         o        The amount of funds we need to maintain and build our patents
                  and patent applications to protect our intellectual property.

         We intend to raise future funds by borrowing, selling more Common
         Stock, granting licenses or other rights to our products or
         technologies or by entering into other agreements with corporate
         partners or investors. We are not sure that we will be able to raise
         funds on terms that are acceptable

                                       12
or favorable to us. If we are unable to raise funds when needed, we may
         have to give up rights to our products or technologies. Alternatively,
         we may have to slow down or stop developing some of our product
         development projects.

Uncertainty About Technologies and Successful Development of Products

         All of our technologies are at an early stage. Neither we nor any other
         company has successfully developed and sold the types of products we
         plan to develop using our technologies. Therefore, there is no
         certainty that we will be able successfully to develop, manufacture and
         market our products. The major product uncertainties include:

         o        We do not know if our drug delivery technology can be used to
                  create or produce a product that will increase the delivery of
                  any drug that will help patients sufficiently enough to
                  justify product approval and manufacturing;

         o        The field of drug design and creating such drugs to target a
                  protein or gene that controls a complex disease is just
                  emerging; and thus we cannot predict if, how or when a small
                  molecule drug will be commercially successful;

         o        The views of the regulatory agencies, like the U.S. Food and
                  Drug Administration ("FDA") and its counterparts in other
                  major countries, about these new drugs are unclear and
                  changing as new information becomes available. We will need
                  extensive laboratory experiments, preclinical animal model
                  studies and human clinical testing to determine the safety and
                  effectiveness of any new product that we try to develop and
                  market. If a product candidate fails at any of these testing
                  stages, then we will not be able to continue developing the
                  product. We cannot predict if we will be able to satisfy all
                  such requirements;

         o        The testing of a product candidate in humans is carefully
                  regulated by FDA guidelines. The human clinical trials are
                  usually conducted in multiple phases, called Phase I, Phase II
                  and Phase III for pharmaceutical drugs and biotechnology
                  products. For medical devices, the trials are staged such that
                  results from an initial small number of patients is first
                  reviewed before testing of the device is allowed on the large
                  number of patients needed to collect all the necessary data.
                  After finishing all treatments, we will need to follow the
                  patients for several months to several years and collect more
                  data. At the end of all data collection, extensive analysis
                  will be needed to determine the benefit to the patient. Based
                  on the analysis, we will need to submit a formal application
                  to the FDA. Each type of product needs a different form of
                  application that needs to be submitted to the FDA. For a drug,
                  it is called a New Drug Application ("NDA"), for biologicals,
                  it is called a Biologic License Application ("BLA") and for a
                  device, it is called a Pre Market Approval ("PMA")
                  application. Unless our application has sufficient data that
                  documents a clear benefit for the patient, and convinces the
                  FDA staff and an advisory panel of specialists of such
                  benefit, we will need to conduct additional testing before the
                  FDA will consider our product for approval. If the follow-on
                  testing does not give us data to demonstrate safety and
                  effectiveness, we will either have to discontinue the product
                  or start over again for a different medical condition;

         o        Even if we can show that a product is safe and effective and
                  are successful in getting approval to sell the product, there
                  are additional governmental regulations about

                                       13
manufacturing processes that we must meet. We cannot be sure
                  whether we will be able to meet all these regulations and,
                  even if we do, the cost of manufacturing may make a product
                  economically unsuccessful;

         o        In most cases, a physician treats a complex disease with a
                  collection of medications and sometimes two medications that
                  are safe when used independently can cause adverse side
                  effects when used in a patient at the same time. If we develop
                  a product that receives approval but causes such side effects
                  in combination with another product, then the use of our
                  product may be restricted or approval may be withdrawn; and

         o        Marketing a pharmaceutical or biotechnology product is
                  difficult and the ability to promote a product for a disease
                  is also regulated by the FDA and other governmental agencies.
                  Therefore we cannot be sure if we will be able to market
                  successfully a product and generate a profit.

Dependence on Corporate Partners

         Our resources and expertise are limited, especially since our
         technologies we are developing have many possible applications in
         different products for different diseases. Our business strategy is to
         form multiple corporate partnerships with larger companies with the
         resources necessary to complete the development of a product and then
         to manufacture and market it. We expect to be dependent on funding from
         these partners and other license fees or, royalties or profit sharing
         from our partners' sales to continue developing our technologies. The
         major risks of these strategies include:

         o        Many, if not most, small companies look for corporate partners
                  and we will face serious competition from these companies.
                  Also, the potential partners' own in-house research and
                  development group will be competing with us for the same
                  resources.

         o        The decision making process in larger companies to take on and
                  continue the development of a product is often different from
                  those of a small company like ours. We cannot predict if our
                  strategy of initial product testing will satisfy a corporate
                  partner to fund ongoing development of our products. After
                  selecting one or more of our products, the partner's
                  development and marketing strategy is likely to be different
                  from ours and will be influenced by factors that we cannot
                  predict and over which we do not have any control. Since we
                  depend upon the steady progress of our products through the
                  development path, a slower path taken by our partner will have
                  a negative effect on our revenues and potential profits. Even
                  after we engage a partner, if the internal strategy of the
                  partner changes they may abandon our products. Regaining the
                  rights to our product and finding another partner may be
                  difficult and cause significant delays in our ability to
                  generate revenues and profits.

         o        Larger companies will explore multiple technologies and
                  products for the same medical condition. Therefore, they are
                  likely to enter into agreements with our competitors for
                  similar products and medical conditions as our products.
                  Depending on how the other products advance, the partner may
                  slow down or abandon our product and terminate the agreement
                  with us.

                                       14
o        We intend to leverage each of our technologies with different
                  corporate partners for different medical conditions. Managing
                  a good relationship with multiple partners is a difficult
                  task. At this time we do not have a track record in making and
                  managing corporate partnership agreements.

Uncertainty About Patents, Confidential Information, Trade Secrets and Others'
Rights

         Patent protection for our technologies and products will be a critical
factor in our ability to raise funds by selling our Common Stock in the future
or engaging corporate partners to fund product development. Without the
possibility of reasonable patent protection, it will be difficult for a
corporate partner to justify the time and money investment that is necessary to
complete the development of a product. The major risk factors regarding the
types of technologies and products we are developing include:

o        The rules and criteria for receiving an issued patent to claim
         biotechnology products or processes are still developing and unclear.
         We cannot predict our ability to obtain patent issuance from either the
         United States Patent and Trademark Office or its foreign counterparts.
         We are also not sure as to the scope of the claims that would be
         allowed by the different patent offices. Even after a patent issues,
         another party may challenge it and the patent office may either then
         declare it invalid or reduce the scope of the claim that was originally
         granted. One recent change in the United States Patents and Trademark
         Office has changed the life of validity of a patent. Patents issued or
         filed before June, 1995 are valid for 17 years from the issue date.
         However, patent applications filed after June, 1995 will be valid for
         20 years from the date of filing the patent application and thus may
         have a shorter life if it takes longer than three years from the date
         of filing to receive an issuance. In the biotechnology industry,
         sometimes it takes several years of processing before a patent is
         issued based on a patent application.

o        The cost of prosecuting patents can be high, especially in foreign
         countries where each country has its own office and many offices
         require expensive translation from the original patent application that
         we usually file in the English language. We may not have the financial
         resources to pursue patent protection in all major countries where our
         products may be marketed.

o        Even after we receive a patent, we may still need to obtain licenses
         from others whose patents may be of a broader scope. In addition,
         others may challenge the validity of our patents or assert that we are
         infringing on their patent claims. Even if these activities or
         assertions by others may be incorrect, the process for resolving these
         arguments in the court system is long, expensive and unpredictable.
         Similarly, others may violate our patent rights and start producing a
         competing product. To enforce our patent rights against them in a court
         of law will be expensive. Since the rules and criteria regarding patent
         claims in biotechnology are still evolving, we cannot predict the
         outcome of any litigation with respect to our and others' patent
         rights.

o        If we decide or we are forced to obtain a license for another party's
         patent in order to use our technology, we cannot be sure that such
         other party will agree to give us a license on reasonable terms, if at
         all. In this event, we or our corporate partner may have to abandon the
         development or marketing of the product. Since we expect to be
         dependent upon corporate partners for the development and marketing of
         many of our products, the partner's view about another party's patent
         may be different than ours. If the partner decides that another party's
         patent blocks our products then the partner may stop developing or
         marketing the product even though we may not agree with

                                       15
that decision. We will then need to pursue the expensive and time
         consuming process of regaining the rights to our products back from the
         partner and trying to either fund it ourselves or find another
         corporate partner.

         We also rely upon trade secret protection for some of our confidential
         and proprietary information. All of our employees are required to sign
         a confidentiality and non-disclosure agreement prohibiting them from
         disclosing or using our trade secrets or proprietary information.
         However, we cannot guarantee that all employees will abide by the
         agreements, especially after they leave our employment, and such
         agreements are often difficult to enforce.

         As of June 30, 1998, we owned and/or licensed four issued U.S. patents
         and several pending patent applications in the U.S. and some foreign
         countries, including those that we licensed from Elan. Although we have
         pursued and will continue to file and process patent applications and
         have been granted some patents, we cannot be sure that others will not
         develop technologies or products around the scope of our patent claims
         and compete with us. We are aware of a number of pharmaceutical and
         biotechnology companies and many academic researchers working on drug
         delivery and drug design technologies. Many of the companies have
         significantly more cash and other resources than we have. Therefore,
         the risk of competition from many of these companies is substantial.

Intense Competition; Rapid Technological Change; Technological Obsolescence

         The biotechnology and pharmaceutical industry is going through very
         rapid changes as new research and new technical abilities continue to
         create an exploding amount of information, almost on a daily basis.
         Some of this new information may be used by our competitors to create
         products that will compete with our proposed products. In some other
         cases, new information may indicate that one or more of the technical
         approaches on which we are working be unlikely to succeed. Even though
         much of the new information may not definitively prove or disprove the
         potential utility or a likelihood of success, we or our prospective
         corporate partners may have to make decisions based on such
         information. Many of our competitors are in research institutions or
         companies with much greater intellectual and collaboration resources
         than ours. The inventions and product development activities of such
         competitors may make our technology lose its competitive edge or
         obsolete.

Dependence Upon Access to Licensed Technologies and Materials and Information
From Others

         We have licensed the rights to some patents and know-how from third
         parties such as universities and other companies. Some of our product
         development programs and product or technology research programs depend
         on our ability to maintain rights under these licenses. Any license may
         be canceled by the licensor under certain conditions and we cannot
         guarantee that we will continue to be able to maintain all licenses and
         obtain new licenses to other technologies we may need in the future.

         As we try to develop and evaluate our technologies, we will need
         research materials and scientific information that are developed by
         researchers in universities or other companies. We cannot be sure
         whether we will be able to obtain such materials and information in a
         timely manner, if at all.

                                       16
Financial and Operational Uncertainties

         There are many aspects of our business that lead to unusual
uncertainties in our operating results and financial reports and conditions.
Some of the major ones include:

         Limited Operating History Our Company is at an early stage of
         development, especially as the new entity that we formed by combining
         our Company with HTD and Gemini, selling our SofPulse device business
         and entering into the corporate partnership with Elan. All of our
         technologies are at an early stage of development and our management
         team does not have an operating history of working together, especially
         as we engage in developing our technologies into products and potential
         corporate partnerships.

         History of Operating Losses and Accumulated Deficit Our Company,
         including the Gemini and HTD businesses prior to our acquisition,
         incurred operating losses in each year since inception. As of December
         31, 1997, our total loss since inception was approximately $15.3
         million. When we add the losses incurred by HTD and Gemini, the total
         loss as of June 30, 1998 was approximately $16.4 million. We expect
         that we will have additional losses for at least the next several years
         and that the losses will increase as we expand our research and
         development activities. We also expect that our losses will fluctuate
         from quarter to quarter. We cannot predict the amount of losses or the
         fluctuations, but we believe that these may be substantial. Also, since
         we divested of the SofPulse business, we no longer will generate
         revenues from selling and renting SofPulse.

         The revenue from Gemini's service business using our drug design
         expertise is our only current revenue generating business and is
         considerably less at the present time than our 1997 revenue from
         SofPulse business. The growth in revenue from our service business is
         unpredictable. We expect that most of our revenues for the foreseeable
         future will be from payments from corporate partners if we are
         successful in entering into licensing agreements. However, we cannot
         assure that we will be able to form any corporate partnerships that
         create such revenues.

         Profitability and Value of Business Components Uncertain It is unlikely
         that we will generate any profit in the foreseeable future. Even if we
         report profits in some of our quarterly or annual financial reporting
         periods, in many cases these will be one time payments from corporate
         partners. Therefore, you will not be able to judge or predict the
         financial condition of our Company based on these reports. Similarly,
         traditional methods used in producing financial statements and
         determining profits and losses of businesses are not applicable to our
         business.

         The value of the intangible or tangible assets obtained in our
         acquisitions of HTD and Gemini and pursuant to our agreement with Elan
         cannot be determined by traditional accounting methods. In each case,
         we have made an effort to estimate the relative future potential of
         each technology and the current stage of development of the technology.
         In each agreement, we negotiated the number of Common Stock or
         Preferred Stock or warrants that we issued to acquire the technology
         and the related patents, know-how and trade secrets based upon our
         assessment of the values of such technologies.

         In preparing our pro forma financial statements for this Prospectus, we
         have attempted to estimate the length of time and cost to advance each
         of our technologies to the point at which they are ready for a
         licensing agreement that could then lead to a potential commercial
         product. Although we have

                                       17
used our experience and observation in the industry, the results are
         only estimates. We are not sure if the valuation or the allocation of
         the purchase price in the pro forma financial statements is correct
         since we cannot predict the outcome of any technology at this early
         stage of development. Therefore, our presentation of the pro forma
         financial statements may not accurately predict the outcome of our
         business. See "Pro Form Financial Information".

         Our decision to divest the SofPulse device business was based on
         historical revenues and cost of manufacturing, repairing, renting and
         sales and marketing of the SofPulse device. We, however, cannot be sure
         that these historical results predict what the financial impact would
         have been had we continued the business. As a result, we cannot be sure
         if the value we received for the SofPulse business is fair, especially
         since we received the majority of the consideration in the form of ADMT
         Common Stock and warrants. The price of ADMT stock has been volatile.

         Changes in our Company's ownership that have occurred as a result of
         the recent transactions and the Internal Revenue Code of 1986 and its
         amendments will impose limits on our ability to utilize our net
         operating loss carry forwards and research and development credits for
         future federal income tax purposes. See "Management's Discussion and
         Analysis of Financial Condition and Results of Operations."

         Our future operating results may fluctuate significantly from quarter
         to quarter as a result of several factors. The significant ones are:

         o        Demand or changes in the demand for our technologies and
                  products based on such technologies;
         o        The uncertainties of medical technology and product
                  development efforts;
         o        Changes in the priorities and research and development budgets
                  of our future corporate partners;
         o        Variations in payments from future corporate partners, if any,
                  grants and contract revenues and the service business;
         o        The cost, quality and availability of materials and reagents
                  for our research and development programs; and
         o        General factors such as regulatory actions and the need to
                  adopt new technologies in our research and development
                  activities.

         If our revenue in a particular period does not meet expectations, we
         may not be able to adjust significantly our expenses in that period.
         This would have an adverse effect on our operating results. We believe
         that quarterly comparisons of our Company's financial results will not
         necessarily be a meaningful indication of our future performance. Due
         to one or more of these factors, in some future quarter or quarters our
         operating results may be below the expectations of public market
         analysts and investors.

Valuation of Acquired Businesses, Technologies and Licenses, Divested
Product(s), License Grants

         The success of our business and the achievement of our financial
         objectives are unpredictable. Any determination of potential return on
         investment in our Common Stock will be affected by a variety of factors
         including:

                                       18
o        The value we have paid for any of the businesses or licenses
                  that we have acquired;
         o        The consideration we have received for any product or
                  technology licenses that we have granted to a third party
                  relative to the actual realizable value of the product or
                  technology;
         o        The consideration we pay for any future technology or product
                  or business that we acquire; and
         o        The consideration that we receive from a future corporate
                  partner or a third party for different market applications of
                  our technologies or products.

         The determination and financial reporting of these elements is
         difficult because of the early stage of development of our current
         technologies and the technologies we expect to acquire for the
         foreseeable future. Therefore, many of the standard criteria used in
         estimating return on investment are not applicable to our business for
         the foreseeable future.

Dependence on Key Personnel

         We are highly dependent on the principal members of our management and
         scientific staff and our scientific advisory board. The loss of the
         services of any of these persons could significantly impede our ability
         and timing to accomplish our scientific and business objectives. Our
         success is also dependent upon our ability, on an ongoing basis, to
         attract and retain additional qualified scientific, clinical, marketing
         and managerial personnel. We face substantial competition from
         biotechnology, pharmaceutical and health care companies, universities,
         government entities and non-profit organizations for such personnel. We
         cannot be sure that we will retain or attract and assimilate highly
         qualified scientific, technical and managerial personnel from such
         other entities many of which have significantly greater financial
         resources that we may need in the future.

Social and Ethical Issues Related to Gene-Based Products

         We and our corporate partners may seek to develop diagnostic products
         based on small molecule drugs that are designed to detect small changes
         ("mutations" or "polymorphisms") in some disease-controlling genes. The
         prospect of broadly available gene-based diagnostic tests raises issues
         regarding their appropriate utilization and the confidentiality of the
         information provided by such testing. It is possible that
         discrimination by third party payors, based on the results of such
         testing, could lead to the increase of premiums by such payors to
         prohibitive levels, outright cancellation of insurance or unwillingness
         to provide coverage to individuals showing unfavorable gene expression
         profiles. Similarly, employers could discriminate against employees
         with gene expression profiles indicative of the potential for high
         disease-related costs and lost employment time. Finally, government
         authorities could, for social or other purposes, limit or prohibit the
         use of such tests under certain circumstances. These social, ethical
         and financial issues are unpredictable as is their impact on our
         ability to develop successfully the applications of some of our
         technologies.

Uncertainty Related to Product Pricing and Reimbursement; Managed Care

         Our or our corporate partners' ability to commercialize our products
         successfully will depend in part on the extent to which governmental
         authorities (such as the United States Health Care Financing
         Administration), private health insurers and other organizations such
         as health maintenance organizations ("HMOs") agree to reimburse for the
         ultimate products and related treatments. The levels of revenues and
         profitability of pharmaceutical companies may be affected by the
         continuing

                                       19
efforts of governments and third party payors to contain or reduce the
         costs of health care through various means including by limiting prices
         paid for pharmaceuticals. In both the United States and elsewhere, the
         sale of prescription pharmaceuticals and diagnostics are dependent in
         part on the availability of reimbursement to the consumer from third
         party payors, such as government insurance programs (Medicare and
         Medicaid) and private and corporate health insurance plans. Third party
         payors are increasingly challenging the prices charged for
         pharmaceuticals and diagnostics and, in some cases, refusing payment
         for off-label use and other uses of pharmaceuticals and diagnostics
         they deem inappropriate. The cost containment measures that health care
         providers and third party payors are instituting and any proposed
         future health care reform measures, including reductions in government
         reimbursement programs such as Medicare and Medicaid, could affect our
         or our partners' ability to sell our products.

Absence of Manufacturing, Marketing and Sales Experience; Reliance on Third
Parties

         We have made no investment in manufacturing, marketing or product sales
         resources. We do not generally expect to engage directly in the
         manufacturing, marketing or sale of therapeutic or diagnostic products
         developed from our technologies. Instead, we currently intend to
         contract with others to pursue manufacturing and marketing of most
         products based upon or discovered using our technologies. We cannot be
         sure that we will be able to enter into such arrangements on acceptable
         terms, if at all. To the extent we directly engage in development,
         manufacturing and marketing of any of our products, we will require
         substantial additional funds, personnel and production facilities. We
         have no experience in scale-up production, formulation, and
         manufacturing biotechnology, pharmaceutical or other products or in
         conducting testing programs required to obtain FDA and other regulatory
         approvals. We have no assurance that we will successfully develop such
         capabilities.

Product Liability and Availability of Insurance

         Our business will expose us to potential product liability risks that
         are inherent in the development, testing, manufacturing, sales and
         marketing of pharmaceutical and other therapeutic or diagnostic
         products and services developed. Preclinical testing, clinical trials,
         manufacturing, marketing and sale of any of the products based on our
         technologies may expose us to liability claims from the use of such
         products. We currently do not carry product liability insurance for any
         of our products. There can be no assurance we or our corporate partners
         will be able to obtain such insurance, if at all, at a reasonable cost.
         The inability to obtain sufficient insurance coverage at an acceptable
         cost or to otherwise protect against potential product liability claims
         could prevent or inhibit us and our partners from advancing our
         products and technologies towards commercial success.

Control by Management and Insiders

         Upon completion of this offering, our executive officers, directors and
         affiliated individuals and entities together will beneficially own
         approximately 51.3% of the outstanding shares of our Common Stock
         (assuming exchange of the partnership units owned by the Gemini
         partners for shares of our Common Stock). If Elan converts its
         Preferred Stock and exercises its warrants, such percentage will be
         reduced to 39.8% and Elan will own 31.0%. As a result, these
         stockholders, acting together, will be able to control most matters
         requiring approval by the stockholders of our Company, including
         approvals of amendments to our Certificate of Incorporation, mergers
         and acquisitions, a sale of all or substantially all of our assets of
         our Company, going private transactions

                                       20
and other fundamental transactions. In addition, our Certificate of
         Incorporation, or any contemplated amendment or restatement, does not
         provide for cumulative voting with respect to the election of
         directors. Consequently, the present executive officers, directors and
         affiliated individuals and entities, through their stock holdings, will
         be able to control the election of the members of our Board of
         Directors. Some of the principal stockholders of the Company have
         entered into an agreement pursuant to which they agree to vote their
         shares in favor of each other's candidates for the Board of Directors
         (see "Certain Transactions"). Such a concentration of ownership could
         (i) reduce the liquidity of our shares of Common Stock, (ii) have an
         adverse effect on the price of our Common Stock and (iii) delay or
         prevent a change in control of our Company, including transactions in
         which stockholders might otherwise receive a premium for their shares
         of Common Stock over then current market prices.

Limited Prior Public Market for Common Stock; Possible Volatility of Stock Price

         Prior to this offering, there has been only a limited public market for
         our shares of Common Stock. Our shares of Common Stock had been listed
         on the Nasdaq Small Cap from May, 1995 through October, 1997 when they
         were de-listed because we did not meet the listing requirements
         concerning minimum asset and working capital, the minimum value of
         public market float and the trading price for our Common Stock (see
         "Price Range of Common Stock"). Our shares now trade on a limited basis
         on the NASDAQ OTC Bulletin Board ("OTCBB"). We cannot be sure that an
         active public market for our shares of Common Stock will develop or
         that the share price will not decline below the price at which you buy
         our shares in this offering. Therefore, it may be difficult for you to
         sell our shares of Common Stock when you desire in the future.

         The price for the sale of our shares of Common Stock in this offering
         will be decided through negotiations between us and the buyers of our
         shares in this offering. The share price does not necessarily predict
         the share price after this offering. The market prices for
         biotechnology and pharmaceutical company shares have been highly
         volatile. There also are large changes in both the volume and the price
         of a company's shares regardless of the operating performance of the
         company itself when the industry segment as a whole goes through
         changes in market perception. Overall changes in market perception are
         influenced by a number of factors such as (i) announcements of
         technological innovations or new commercial products, (ii) disputes
         about patents and other rights or law suits, (iii) developments in
         corporate partnership agreements, (iv) publicity on actual or potential
         results of products or technologies under development, (v) regulatory
         guideline changes in both the United States and foreign countries and
         (vi) public concern as to the competitive superiority of new
         technologies. In addition to these general changes, the price and
         liquidity of our shares of Common Stock will be affected by quarterly
         fluctuations in our operating results, future sales of large numbers of
         our shares of Common Stock by existing stockholders and comments about
         our Company by securities analysts, if any.

Shares Eligible for Future Sale; Potential Adverse Effect on Stock Price; Option
Grants

         Future sales of shares of our Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. Upon completion of this offering, our Company will have 17,505,480 shares
of Common Stock, assuming no exercise of currently outstanding options or
warrants and no exchange of partnership units or Preferred Shares into shares of
Common Stock. All of these shares will be freely

                                       21
transferable without restriction under the Securities Act of 1933, as amended
(the "Securities Act"), unless they are held by "affiliates" of our Company as
that term is used in the Securities Act and the regulations promulgated
thereunder. See "Description of Capital Stock--Registration Rights," "Shares
Eligible for Future Sale".

Dilution

         If you purchase shares of our Common Stock in the offering contemplated
in this Prospectus, your investment in the shares you purchase will experience
immediate and substantial dilution in the net tangible book compared to the
price you pay to purchase the shares. Even more dilution will occur when holders
of outstanding options and warrants for our Company's Common Stock exercise
their rights. See "Dilution" and "Shares Eligible for Future Sale."

Absence of Cash Dividends

         Our Company has never paid any dividends and does not anticipate paying
dividends in the foreseeable future. See "Dividend Policy."

                                       22
USE OF PROCEEDS

         We estimate that the net proceeds from this offering we receive will be
approximately $4,000,000 at an offering price of approximately $.80 per share
and after deducting estimated offering expenses.

         We intend to use the net proceeds of this offering to fund initial
preclinical and clinical evaluation of our drug delivery technologies for
selected cancer and dermatology products, to produce additional small molecule
drugs, to further grow the service business using our drug design expertise,
and for working capital and general corporate purposes, including payment for
professional services (primarily legal and accounting) received by our Company.

         Our management team will retain broad discretion in the allocation and
reallocation of these net proceeds. In addition, we may decide to use a portion
of the net proceeds to acquire or invest in certain technology and product
opportunities, although we have no current agreements or commitments for any
such activity. The actual amounts and timing of such expenditures for each
purpose will depend on factors such as the progress of our research and
development program in each area, technological advances, determination as to
the commercial feasibility of products or services, the terms of any corporate
partnership agreements that we enter into and other factors, many of which are
beyond our Company's control.

         Pending such uses, we intend to invest the net proceeds of this
offering in short-term, interest bearing, investment grade securities.

                           PRICE RANGE OF COMMON STOCK

         From May 12, 1997 to September 23, 1997, the Company's Common Stock was
traded on the Nasdaq Small Cap Market under the symbol "EPHI." On September 23,
1997, Nasdaq notified our Company that our stock would be delisted from the
NASDAQ SmallCap Market as of the close of business on September 23, 1997 due to
noncompliance with the minimum capital and surplus requirement and minimum value
of the public market float and trading price of our shares. The shares of our
stock is now trading on the NASDAQ OTC Bulletin Board under the symbol "EPHI".
The following table sets forth, for the periods indicated, the range of high and
low bid quotations for our Common Stock as reported by Nasdaq. However, our
Common Stock generally is not actively traded or is traded in low volumes.
Therefore, we can not be sure that market quotations for our Common Stock are
indicative of prices at which actual sales of these shares will occur. These
quotations represent inter-dealer prices, without retail markup, markdown or
commissions, and do not necessarily represent actual transactions. Further, we
cannot be sure that a public trading market for the Company's Common Stock will
continue to exist.

                                       23
High          Low
                                                       ----          ---

         Fiscal year ended December 31, 1996:
         ------------------------------------
              First Quarter                           $7.875        $6.25
              Second Quarter                          $6.75         $5.50
              Third Quarter                           $6.00         $5.50
              Fourth Quarter                          $6.00         $2.00

         Fiscal year ended December 31, 1997:
         ------------------------------------
              First Quarter                           $6.50         $2.00
              Second Quarter                          $3.50         $1.72
              Third Quarter                           $2.00         $0.38
              Fourth Quarter                          $1.19         $0.23

         Fiscal year ended December 31, 1998:
         ------------------------------------
              First Quarter (through March 31)        $0.47         $0.27
              Second Quarter                          $0.80         $0.29

         On November 5, 1998, the closing price of our Common Stock on the OTC
Bulletin Board was $.70 per share. As of such date, there were approximately 81
registered stockholders of record of our Common Stock. To date, we have not
declared or paid any cash dividends on our Common Stock.

                                 DIVIDEND POLICY

         We have never declared or paid any cash dividends on our Common Stock
and we do not anticipate doing so in the foreseeable future. Our plan is to
retain any future earnings to fund the development of our products and
technologies.

                                 CAPITALIZATION

         The following table sets forth the capitalization of our Company as of
June 30, 1998 and as adjusted to reflect the sale of 5,000,000 shares of Common
Stock that we are offering to sell under this Prospectus at the proposed 
offering price of $.80 per share and the application of the estimated net 
proceeds that we expect to receive. See "Use of Proceeds".

                                       24
June 30, 1998
                                                                                ----------------------------------
                                                                                   Actual          As Adjusted (3)
                                                                                   ------          ---------------
Short-term debt, including current portion of long-term liabilities (1)             719,276              143,711
                                                                                -----------          -----------
Long-term debt, net of current portion (1)                                           90,260            1,023,051
                                                                                -----------          -----------
Shareholders' Deficiency

   Convertible Preferred Stock, $.01 par value - 10,000,000 authorized (2)            2,430               75,000

   Common Stock, $.01 par value - 30,000,000 authorized shares;                      41,325              149,992
      4,132,493 shares issued and outstanding

   Additional paid-in capital                                                    15,277,249           26,671,770

   Deferred compensation                                                            (67,678)             (67,678)

   Deficit                                                                      (15,865,337)         (27,158,579)
                                                                                -----------          ----------- 
Total shareholders' deficiency                                                     (612,011)            (329,495)
                                                                                -----------          ----------- 
Total capitalization                                                                197,525              837,267
                                                                                -----------          -----------
(1)  See Note 6 of notes to Financial Statements
(2)  See Note 8 of Notes to Financial Statements
(3)  Assumes merger of HTD,  acquisition of Gemini, divestiture of SofPulse 
     business and investment by Elan. See Notes 1 through 5 to Pro-Forma. In 
     addition, assumes financing of additional $2,000,000 at $.80 per share

                                    DILUTION

         The pro forma net tangible book value of the Company as of June 30,
1998 was $(39,482) or $(0.0019) per share of our Common Stock. Pro forma net
tangible book value per share represents the amount of (A) our Company's total
tangible assets less total liabilities, divided by (B) the total number of our
shares of our Common Stock outstanding after closing the recent corporate
reorganization as of August 24, 1998 assuming Gemini partners exchange their
partnerships units for shares of Common Stock and also assuming the recent
divestiture of the SofPulse business and assuming the recent licensing and
financing by Elan. (See "Business - Recent Corporate Reorganization" and
"Business - Elan Transactions").

         Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in this offering and the net tangible book value per share of Common Stock
immediately after completion of this offering. After giving effect to the sale
by the Company of 2,500,000 shares of Common Stock offered hereby at the public
offering price of $0.80 per share and assuming no other changes in the net
tangible book value after August 24, 1998, the Company's pro forma net tangible
book value as of August 24, 1998 would have been $1,896,864 or $0.1084 per
share. This represents an immediate increase in pro forma net tangible book
value of $2,000,000 or $0.1153 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $103,136

                                       25
or $0.6916 per share to new purchasers of Common Stock in this offering, as
illustrated by the following table:

   Offering price per share                                             $0.8000

       Pro forma net tangible book value per share          $(0.0069)

       Increase per share attributable to new investors       0.1153
                                                            --------
   Pro forma net tangible book value per share after the
       Offering                                                         $0.1084
                                                                        -------
   Dilution per share to new investors                                  $0.6916

         The foregoing computations excludes options and warrants to purchase
2,361,359 Common Shares at various exercise prices ranging from $0.26 to $5.50
per share. To the extent that such options and warrants are exercised, there
will be further dilution to new investors. See "Management - Directors
Compensation", "Stock Option Plan", and Note 9 to Notes to Consolidated
Financial Statements.

                                       26
SELECTED FINANCIAL DATA

         The selected financial data presented below for the years ended
December 31, 1996 and 1997 and the six month periods ended June 30, 1998, and
1997 are derived from the Company's financial statements audited by independent
auditors, which are included elsewhere in this Prospectus. The statement of
operations data for the six months ended June 30, 1998 and the balance sheet
data at June 30, 1998 have been derived from unaudited financial statements;
however, the Company's management believes that such financial statements
include all adjustments, consisting only of normal recurring adjustment, that
the Company considers necessary for a fair presentation of the financial
position and results of operations for these periods. Operating results for the
six months ended June 30, 1998 are not necessarily indicative of the results
that may be expected for the entire year ended December 31, 1998. The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements related thereto appearing elsewhere in this Prospectus.
INCOME STATEMENT DATA
                                                     ---------------------

                                    Six Months
                                  Ended June 30,                                Year Ended December 31,
                             -----------------------    ---------------------------------------------------------------------
                               1998          1997         1997           1996           1995          1994           1993
                               ----          ----         ----           ----           ----          ----           ----
Historical:
-----------
Total revenue                $ 435,003    $1,514,751    $2,401,249     $2,105,762     $1,996,663    $1,114,228    $   410,373

Loss from operations          (525,107)     (721,072)   (1,602,170)    (3,027,392)    (2,731,044)   (1,946,687)    (1,334,185)

Net loss                      (560,026)     (719,502)   (1,647,917)    (2,927,990)    (3,069,586)   (2,073,883)    (1,350,159)

Net loss per share,
  basic and diluted (1)          (0.14)        (0.20)        (0.45)         (0.89)         (1.26)        (1.31)         (1.03)

Weighted average number of
  common shares outstanding,
  basic and diluted          4,113,328     3,606,388     3,697,611      3,298,849      2,429,880     1,586,303      1,316,528

Ratio of earnings to
  fixed charges                   *            *             *              *             *              *              *
* Earnings are inadequate to cover fixed charges.

                Pro forma (assuming the consummation of the Corporate
                Reorganization Transactions occurred on January 1, 1997)
Six Months Ended         Year Ended
                                                                  June 30,            December 31,
                                                              ----------------        ------------
                                                                    1998                  1997
                                                                    ----                  ----
Total Revenue                                $    416,962            $   118,018

                Net Loss                                     $  7,893,573            $13,322,458

                Net loss per share
                       Basic and fully diluted               $  0.54                 $  0.91
27
BALANCE SHEET DATA
                                                      ------------------

                              Six Months
                             Ended June 30,                       Year Ended December 31,
                             --------------       -------------------------------------------------------------
                                  1998            1997           1996          1995          1994          1993
                                 -----            ----           ----          ----          ----          ----
Cash and cash
  equivalents                $     64,465   $    111,496   $    223,523   $ 3,069,748    $   478,903   $   655,111

Working capital (deficit)      (1,181,411)      (895,532)       192,832     2,824,190     (1,189,841)       69,171

Total assets                    1,172,034      1,443,542      2,213,080     4,877,180      1,866,340     1,423,325

Long-term liabilities              90,260             --          3,336        28,033      1,076,159            --

Accumulated deficit           (15,865,337)   (15,305,311)   (10,118,169)   (7,190,179)    (4,120,593)   (2,046,710)

Total shareholders
  "Equity" (deficit)             (612,011)       (74,936)     1,214,375     4,012,387     (1,076,484)      693,580
June 30, 1998
                                                        --------------------------------------------------------------
                                                                              Pro forma (assuming the consummation of
                                                                             the Corporate Reorganization Transactions
                                                           Actual                      on June 30, 1998)
                                                          --------           -----------------------------------------
Working capital                                         $(1,181,411)                        $2,365,713

Total assets                                            $ 1,172,034                         $4,582,864

Long-term debt, redeemable Preferred Stock, and
  capitalized lease obligations (including current
  maturities)                                           $    92,690                         $4,761,000

Stockholders' equity                                    $  (612,011)                        $ (103,136)
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

         The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains certain forward-looking statements
which involve risk and uncertainties. Actual events and results may differ
materially from those anticipated in these forward looking statements as a
result of various factors, including the matters set forth under the caption
"Risk Factors" and elsewhere in this Prospectus.

         Gemini Health Technologies Inc. was created through a series of
transactions with the goal to create a unique biotechnology company focused on
the development of proprietary products with significant commercial potential
worldwide. We also intend to grow through acquisitions of businesses in the
field of biotechnology that would provide near-term revenues.

         We have invested more than fifteen million dollars in conducting
pre-clinical and initial clinical evaluations. Unlike early development stage
biotechnology companies, the Company has running operations as well as academic
collaborations that we believe we have to be a cost-effective means to create
value through the translation of emerging technologies into product prototypes
for defined unmet clinical needs. Our goal is to aggressively pursue corporate
partnerships for the downstream development, large scale manufacturing and
worldwide marketing of our potential products.

         We are exploiting our drug design expertise to offer services to
academic and industrial research laboratories. In addition to providing certain
near-term revenues, these customers are prospective sources for new technologies
and partners for product development. We intend to generate research and
development funding, license fees, royalty payments, manufacturing profits and
equity investments from corporate partners as our primary sources of revenues.

                                       29
We intend to sell approximately 5,000,000 shares to raise approximately
$4,000,000 including the sale of $2,000,000 of the Company's Common Stock to
Elan. The funds will supplement our current grant funds and sales revenues from
services using the Company's drug design expertise. The funds will be used to
advance our core technologies through validation in the initial target areas of
application. We intend to seek additional SBIR grants, including Phase II grants
(common average funding at about $500,000 for each grant), and ATP grants. We
believe that upon a successful implementation of our strategic plan we will be
able to obtain additional capital through a combination of larger government
grants, corporate strategic alliances and a follow on public financing.

I.       ELECTROPHARMACOLOGY, INC.
         -------------------------

Recent Change of Business - Discontinued Business and Recent Acquisition

         From 1990 to August 1998, our Company had been engaged in the business
of developing medical device applications for its proprietary pulsed
electromagnetic signals ("PEMS") technology, including primarily the
manufacturing and marketing of a PEMS device called SofPulse. On August 24,
1996, the Company sold its SofPulse business and completed two acquisitions that
transformed it into a biotechnology development Company (See "Business - Recent
Corporate Reorganization"). On September 30, 1998, EPi entered into an agreement
("Agreement") with subsidiaries of Elan Corporation, plc ("Elan") (NYSE: ELN),
according to which EPi has acquired a license from Elan for certain applications
of Elan's flexible iontophoretic patch technology (See -- "Business - Elan
Transactions"). We intend to pursue the application of iontophoresis and PEMS in
enhancing the delivery of drugs and biologics to diseased tissues and promoting
the regeneration of cells in tissues damaged by trauma or chronic diseases. We
intend to use our drug design expertise acquired through our recent transactions
to create novel small molecule drugs that target proteins and genes which
control complex diseases.

         The first embodiment of the Company's PEMS technology was the SofPulse
device ("SofPulse") that was cleared for commercial marketing in January 1991 by
the United States Food and Drug Administration pursuant to a Section 510(k)
premarket notification. SofPulse broadcasts PEMS in the radio frequency range at
27.1 MHZ and was marketed as an adjunct in the palliative treatment of pain and
edema associated with various medical conditions that involve superficial soft
tissue injury.

         The Company commenced commercially marketing the SofPulse device in
early 1992. The Company's principal sources of revenue from SofPulse devices had
been rental fees charged to nursing homes and hospitals and sales to certain
distributors and cosmetic surgeons. Until the sale in August 1998, the Company
had generated only modest revenue from sales and rentals of the SofPulse, which
had achieved only limited market acceptance. As of May 27, 1998, when the
Company entered into a definitive agreement to sell its SofPulse device business
and most of its inventory, the Company had 98 SofPulse devices under rental
agreements at nursing homes. Since inception, the Company's expenses exceeded
its revenues, resulting in net losses of $3,069,586 and $2,927,990 respectively,
for the years ended December 31, 1996 and 1997. As of June 30, 1998, the Company
had an accumulated deficit of $15,865,337. Losses incurred since inception have
been primarily attributable to costs incurred in connection with the design and
development of the Company's products, research and clinical studies on the
SofPulse, manufacturing, marketing literature and advertisement for the
SofPulse, and the hiring of personnel necessary to support the Company's
operations. The Company continues to have high levels of operating expenses
(including salaries of management and marketing personnel) and will be required
to incur significant expenses in connection with research and clinical studies.

                                       30
During 1997, the Company's management concluded that it could not
create shareholder value by pursuing on its own both the growth of the SofPulse
device business and the PEMS technology business focused upon drug delivery
devices. Accordingly, the Company has implemented a strategy to create value
from each of the two lines of businesses under separate business structures. On
May 27, 1998 the Company entered into asset purchase agreement with ADM Tronics
Unlimited Inc. ("ADMT") pursuant to which ADMT, a publicly traded Company
engaged in the development and manufacturing of medical electronic devices
acquired on August 24, 1998 most of the Company's SofPulse device units and
certain other assets specifically related to the business of SofPulse device
manufacturing and marketing (see --Business - Recent Corporate Reorganization).
On June 11, 1998 and June 18, 1998, the Company entered into definitive
agreements to acquire HealthTech Development Inc. ("HTD") and Gemini Biotech,
Ltd. ("Gemini"), respectively, two privately held companies engaged in the
design and development of small molecule drugs. As a result of the consummation
of these acquisitions on August 24, 1998, the Company has combined its PEMS
technology development business with a broad portfolio of biotechnologies,
collaborative affiliations with major medical institutions and relationships
with internationally recognized scientists (See "Business - Recent Corporate
Reorganization", "Business - Drug Design" and "Business - Core Technologies").
See also "HTD Financial Statements" and "Gemini Financial Statements" beginning
at pages F-37 and F-55, respectively, for additional information about the HTD
and Gemini acquisitions.

         Under the terms of an Agreement with Elan executed after the corporate
reorganization, the Company received from a subsidiary of Elan a world-wide
license to Elan's non-systemic, flexible iontophoretic patch technology for
non-cosmetic dermatology and wound care applications. The agreement also
envisions the development of a flexible patch version of PEMS technology as well
as a combination patch incorporating iontophoresis and PEMS. The Company has the
world-wide rights to therapeutic applications of the improved PEMS product as
well as combinations of PEMS and iontophoresis in non-cosmetic dermatology and
wound care applications. The Company has made an up-front payment to Elan of
$7,500,000 for the acquisition and transfer of the technology and will pay
prescribed royalties and license fees to Elan based on the Company's future
revenues from the commercialization of the technology by the Company or its
licensees, if any.

         Under the Agreement, another subsidiary of Elan has invested $7,500,000
to acquire shares of the Company's 10% Convertible Preferred Stock and warrants
to purchase up to one million shares of the Company's Common Stock at $2.50 per
share. The 10% Convertible Preferred Stock has a conversion price of $1.20 per
share, subject to certain adjustments for dilution, 10% per year dividends paid
semi-annually in cash or in kind, at the Company's option, and mandatory
redemption after a seven year period, unless the Company has insufficient funds.
In such case, Elan must elect to extend the redemption date to a date acceptable
to the Company or accept Common Stock in lieu of redemption. See "Description of
Capital Stock - Series A Convertible Preferred Stock. The Elan subsidiary also
agreed to invest, upon request by the Company during a 60-day period after
closing of the $7,500,000 investment, $2,000,000 to acquire shares of the
Company's Common Stock at a price equal to the per share price at which the
Company sells up to an additional $2,000,000 of the Company's Common Stock to
other investors or if

                                       31
no sale is consummated, at the average closing price of the Company's Common
Stock for the 20 consecutive trading days prior to the acquisition, and, in any
event, at a maximum price of $1.375 per share. The Company has agreed to provide
Elan with registration rights for the Common Stock beneficially owned by Elan.
Elan is also entitled to nominate one director to serve on the Company's Board
of Directors.

         The proceeds from the sale of Common Stock offered by this Prospectus
will be used by the Company to pursue the development of the technologies
acquired from HTD and Gemini in large therapeutic markets such as cancer and
inflammation, and for development of the drug delivery technologies in tissue
repair/regeneration (see "Use of Proceeds"). However, there can be no assurance
that the Company will be able to obtain sufficient funds to pursue all of its
intended product development programs (see "Risk Factors").

Corporate Reorganization - Six months ended June 30, 1997 and 1998

         On a pro forma basis, after giving effect to the HTD merger, the Gemini
acquisition, the divestiture of the SofPulse Business, as if all the events had
occurred as of January 1, 1997, the Company's net loss for the six months ended
June 30, 1997 and 1998 would have been $8,219,502 million and ($7,909,863),
respectively. The increase over the Company's actual net loss of ($719,502) and
($560,026) for such periods is primarily attributable to one-time write-offs of
purchased research and development for HTD, Gemini and Elan totaling $11.5
million, which was partially offset by $416,962 of Gemini's revenues from
research grants and sale of oligonucleotides. The Company expects that the
historical expense additions are generally indicative of the increase in the
Company's operating expenses that, going forward, will result from (i) the
expected additional research and development expenses related to the small
molecule drugs for cancer and inflammation, (ii) increased cost of growing the
small molecule and related special service business, and (iii) research and
development programs planned for the drug delivery technologies. In addition,
the Company has no assurance that any additional grant funds will be received or
that there will be any significant increase in revenue from the small molecule
service business and the Company does not expect significant savings from the
elimination of duplicative expenses. There also can be no assurance that future
expenses will be consistent with the 1997 expenses for either the technology
development business of the Company or the businesses of HTD and Gemini.

Results of Operations -Corporate Reorganization

Year ended December 31, 1996 and 1997

         On a pro forma basis, after giving effect to the HTD merger the Gemini
acquisition, and the divestiture of the SofPulse Business as if all the events
had occurred as of January 1, 1996, the Company's net loss for the year ended
December 31, 1997 would have been $13,338,748 million. The increase over the
Company's actual net loss of $1,647,917 million for such periods is primarily
attributable to one-time write-offs of purchased research and development for
HTD, Gemini and Elan totaling $11.5 million offset by $416,962 of grant revenues
and sale of oligonucleotides in 1997. The Company expects that the historical
expense additions are generally indicative of the increase in the Company's
operating expenses that, going

                                       32
forward, will result from (i) the expected additional research and development
expenses related to the small molecule drugs for cancer and inflammation, (ii)
increased cost of growing the small molecule and related special service
business, and (iii) research and development programs planned for the drug
delivery technologies. In addition, the Company has no assurance that any
additional grant funds will be received or that there will be any significant
increase in revenue from the small molecule service business and the Company
does not expect significant savings from the elimination of duplicative
expenses. There also can be no assurance that future expenses will be consistent
with the 1997 expenses for either the technology development business of the
Company or the businesses of HTD and Gemini.

Results of Operations

Six months 1998 vs. 1997
------------------------

         The Company's revenue for the six months ended June 30, 1998 was
$435,003, compared to $1,514,751 for the six months ended June 30, 1997, or a
decrease of $1,079,748. This 71.3% decrease was primarily attributable to a
$868,608, or 70.7%, decrease in rental revenues in the six months ended June 30,
1998, as compared to the same period in 1997. The Company's rental revenues were
materially adversely affected as a consequence of the issuance on July 18, 1997
by the Health Care Financing Administration ("HCFA") of a national policy of
non-reimbursement by Medicare for all forms of electrotherapy for wound healing.
HCFA was enjoined from implementing this national policy under a ruling by a
U.S. District Court in Massachusetts on November 18, 1997; however, monthly
rental revenues declined substantially. Rental revenues in May 1998 were
$68,418, as compared to $259,437 in May 1997. At May 27, 1998, the effective
date of the transfer of the SofPulse rental and sales revenue to a wholly owned
subsidiary of ADMT, there were 98 units under rental contracts or monthly fixed
fee arrangements, as compared to 391 units at May 1, 1997. (See "Business Recent
Corporate Reorganization"). In addition, the Company had no rental or sale
revenues in June 1998. Revenue from the sales of units also decreased from
$143,000 in the six months ended June 30, 1997 to $42,000 in the comparable
period in 1998. During the six months ended June 30, 1998, the Company sold 12
used SofPulse devices as compared to 29 new and used devices in the first six
months of 1997 of which 10 were sold to National Patient Care Systems ("NPCS")
to fulfill NPCS' obligation to purchase specific minimum monthly quotas pursuant
to a strategic alliance agreement.

         Cost of revenue for the six months ended June 30, 1998 was $138,599,
compared to $202,649 for the six months ended June 30, 1997, a decrease of
$64,050. This 31.6% decrease reflects the decreased number of SofPulse devices
manufactured and sold during the six months ended June 30, 1998, as compared to
the same period in the prior year.

         Selling, general and administrative expenses were $783,537 for the six
months ended June 30, 1998, compared to $1,850,001 for the six months ended June
30, 1997, a decrease of $1,066,464, or 57.7%. This cost decrease reflects a
reduction in consulting expenses in connection with termination agreements as
well as a reduction in the salaries and related benefits associated with
personnel reductions in the sales and marketing, clinical support services and
manufacturing departments. As a consequence of the Company's deteriorating cash
position and its unsuccessful efforts to consummate a financing in late 1996 and
early 1997, the Company underwent a reduction in personnel from 27 to 10
employees by October 1997.

                                       33
Research and development expenses decreased to $37,974 for the six
months ended June 30, 1998, compared to $183,173 for the six months ended June
30, 1997, a decrease of $145,199, or 79.3%. This decrease in expense is
primarily attributable to the reduction in basic scientific research involving
PEMS technologies due to the lack of funds available for such research.

         Interest and other income (expense) for the six months ended June 30,
1998, decreased to $(34,919), compared to $1,570 for the six months ended June
30, 1997, primarily due to a $31,067 increase in interest expense. With the
exception of obligations under capital equipment leases, the Company had
outstanding at June 30, 1997, one note payable in the amount of $182,327 to
finance the Company's directors and officers' liability policy. On June 30,
1998, due to its cash flow deficit, the Company had debt outstanding to
directors of the Company in the aggregate amount of $73,926 representing
advances and foregone salary, a note payable to the Company's outside law firm
secured by 55 SofPulse devices in the principal amount of $672,751 for legal
services rendered during 1997 and a note payable in the amount of $136,786 to
finance the Company's directors and officers' insurance policy.

         Interest income for the six months ended June 30, 1998 decreased to
$2,595 compared to $7,152 for the six months ended June 30, 1997 due to the
decrease in funds of the Company available for short term investment in the six
months ended June 30, 1998.

         The above resulted in a net loss of $(560,026) for the six months ended
June 30, 1998, compared to a net loss of $(719,502) for the six months ended
June 30, 1997.

1997 vs. 1996
-------------

         The Company's revenue for 1997 was $2,401,249 compared to $2,105,762
for 1996, or an increase of $295,487. This 14.0% increase was primarily
attributable to a $290,945, or 71.0% increase in SofPulse sales during 1997 as
compared to 1996. Rental revenues in 1997 as compared to 1996 remained
relatively comparable, in part, due to a significant increase in rental revenues
during the first four months of 1997, although 1997 rental revenues were
impacted by three events. In the first four months of the year, monthly rental
revenues increased by 33% to approximately $268,000 in April 1997 as a result of
the reorganization of the Company's sales force in 1996, the expansion of the
Company's domestic geographic coverage and its contract with four additional
representative organizations. Monthly rental revenues during the months of May,
June and July decreased to $130,000 due to the strategic alliance agreement with
NPCS which provided for monthly payments in the amount pf $130,000. On July 18,
1997, after the HCFA announcement denying Medicare reimbursement for the use of
all electrical stimulation, including pulsed electromagnetic fields, in treating
wounds., the NPCA strategic alliance agreement was terminated. As a result of
the HCFA announcement, during the last five months of 1997 monthly rental
revenues declined from approximately $112,000 in August 1997 to approximately
$56,000 in December 1997. At December 31, 1997, there were 101 SofPulse units
under rental contracts or monthly fixed fee arrangements, as compared to 278
units at the end of 1996.

         Revenue from the sales of SofPulse units increased from $409,818 in
1996 to $700,763 in 1997. The increase in sales revenue in the first half of
1997 was primarily attributable to purchases by NPCS, in part to fulfill NPCS'
obligations to purchase specific minimum monthly quotas pursuant to its
strategic alliance agreement. Subsequent to the HCFA announcement and the
termination of the NPCS agreement in July 1997, the Company shifted its
marketing strategy from renting the SofPulse to selling used SofPulse devices

                                       34
to nursing homes and distributors at significantly reduced prices. Accordingly,
for the year ended December 31, 1997, the Company sold 79 SofPulse devices as
compared to 30 devices in 1996.

         Cost of revenue in 1997 increased $235,505 to $611,702, compared to
$376,197 in 1996. This 62.6% increase reflects the increased number of SofPulse
devices manufactured and sold over the prior year, as well as a $99,518 write
down of the book value of the SofPulse devices for obsolescence and impairment.

         Selling, general and administrative expenses were $3,177,031 in 1997,
as compared to $3,941,235 in 1996, a decrease of $764,204, or 19.4%. This cost
decrease reflects an approximate $688,000 reduction in consulting expenses
related to PEMS research and clinical studies, as well as a decrease of
approximately $285,000 in salaries and related benefits associated with
personnel reductions in the sales and marketing, clinical support services and
manufacturing departments during 1997. In a further attempt to contain costs
after revenues declined subsequent to the HCFA ruling, the Company underwent a
second reduction in personnel to 10 full-time employees in October 1997. In
September 1997, as part of its efforts to enter into a strategic alliance with
another biotechnology Company, the Company signed a merger agreement with
Eurobiotech Group, Inc., a European development stage biotechnology Company,
which agreement was terminated on December 31, 1997 due to the inability of
Eurobiotech Group, Inc. to meet certain conditions precedent to closing,
including the production of audited financial statements.

         Research and development expense in 1997 decreased to $214,686 from
$815,722 in 1996, a decrease of $601,036, or 73.7%. This decrease in expense is
primarily attributable to the reduction in basic scientific research involving
PRF and PEMS technologies due to the lack of funds available for such research.

         Interest expense increased to $25,135 from $8,933 in 1996. With the
exception of obligations under capital equipment leases, the Company had no debt
outstanding at December 31, 1996; whereas on December 31, 1997, due to its cash
flow problems, the Company had debt outstanding to officers and a former officer
of the Company in the aggregate amount of $73,926 representing advances and
foregone salary, a note payable to the Company's outside law firm secured by 55
SofPulse devices in the amount of $672,751 for legal services rendered during
1997, and notes payable in the amount of $131,428 to finance the Company's
directors and officers' and liability insurance policies.

         Interest income in 1997 decreased to $9,894 as compared to $108,335 in
1996 due to the lack of funds of the Company available for short-term investment
due to its cash flow problems in 1997.

1996 vs. 1995
-------------

         The Company's revenue for 1996 was $2,149,011 compared to $1,996,663
for 1995, or an increase of $152,348. This 7.6% increase was primarily
attributable to increased SofPulse rental revenue during the last half of 1996.
Revenue growth during the first half of 1996 was adversely affected by the
reorganization of the Company's sales organization. That reorganization has been
completed and the Company began to experience improvement from those changes
beginning in October 1996. The Company then expanded its domestic geographic
coverage and contracted with four additional independent representative
organizations. As a result, during the second half of 1996, monthly rental
revenue increased from $112,000 in June 1996 to $202,000 in December 1996, an
increase of $90,000, or 80.4%. By the end of 1996, there were 278 units under
rental contracts, compared to 168 units at the end of 1995.

                                       35
Revenue from the sale of units decreased 33.1% from $612,846 in 1995 to
$409,818 in 1996 as a result of the Company's increased emphasis on expanding
the rental base of its SofPulse device.

         Cost of revenue in 1996 increased $152,042 to $376,197, compared to
$224,155 in 1995. This 67.8% increase reflected additional depreciation
associated with the expanded SofPulse rental base.

         Selling general and administrative expenses were $3,941,235 in 1996,
compared to $2,813,389 in 1995, an increase of $1,127,846, or 40.1%. This cost
increase reflected the salaries and related benefits for additional personnel to
support the Company's operations. In the first half of 1996, the Company
redirected its focus from research and development to sales and marketing. Three
full-time physical therapists, a product manager, a national sales director and
two regional sales directors joined the Company, adding to the Company's payroll
expenses. Later in 1996, Joseph Mooibroek joined the Company as its new Chairman
of the Board, President and Chief Executive Officer. (Mr. Mooibroek subsequently
resigned on April 1, 1997. See "Executive Compensation - Employment Contracts,
Terminations of Employment and Change of Control Agreements"). Mr. Mooibroek
received as compensation during fiscal 1996 an aggregate of $224,404 in cash
compensation, 32,903 shares of Common Stock valued on the date of grant at
$94,596, and 592,086 options to purchase shares of Common Stock of the Company.

         Research and development expenses decreased to $815,722 in 1996,
compared to $1,690,163 in 1995, a decrease of $874,441, or 51.7%. This decrease
was primarily attributable to the completion in early 1996 of the Company's
initial clinical trials in connection with the Company's intended submission of
an application seeking approval of SofPulse for certain indications by the FDA,
as well as the reduction of basic scientific research involving PRF and PEMS
technologies.

         Interest expense in 1996 decreased to $8,933 from $463,172 in 1995.
This $454,239 or 98.1% decrease resulted from eliminating substantially all
outstanding debt after the Company completed its initial public stock offering
in May 1995 and changed its capital structure by issuing Preferred Stock and
converting $1,000,000 of debt to Common Stock in November 1995. With the
exception of obligations under capital equipment leases, the Company had no debt
outstanding at December 31, 1996.

         Interest income in 1996 decreased to $65,086, compared to $124,630 in
1995, a decrease of $59,544, or 47.8%. This decrease resulted from the lack of
funds of the Company available for short term investment.

         As a consequence of the Company's deteriorating cash position and its
unsuccessful efforts to consummate a financing in late 1996 and early 1997. The
Company underwent a reduction in personnel from 27 to 10 employees by October,
1997. In order to minimize the adverse effect such reduction in personnel may
have on the Company's ability to generate revenue from marketing and sales
activities, the Company reallocated research and development personnel to
provide marketing support. The Company also focused its sales efforts mostly in
geographic areas where the Company had achieved reasonable market presence.

                                       36
Liquidity and Capital Resources

         The Company's cash requirements have been and will continue to be
significant. Since its inception, the Company has satisfied its operating
requirements primarily through the issuance of equity and debt securities and
loans from stockholders. At December 31, 1997, the Company had a working capital
deficit of $(899,573) and a deficiency in capital of $74,938. At June 30, 1998,
the Company had a working capital deficit of $1,181,411 and a deficiency in
capital of $612,011.

         Net cash provided by operating activities in 1997 was $99,339 as
compared to net cash used in operating activities of $2,630,218 in 1996. Net
cash was used primarily to fund the losses from operations. Net cash used in
1997 investing activities was $29,186, which was used primarily to pursue and
maintain the Company's patents. At December 31, 1997, the Company did not have
any material commitments for capital expenditures. Net cash used in financing
activities was $186,222 for 1997 as compared to $166,317 of cash provided by
these activities in 1996. Financing activities in 1997 included payments of
capital lease obligations and payments on a note payable to a former officer and
director of the Company. At December 31, 1997, the Company had cash of $111,496.

         Net cash used in operating activities for the six months ended June 30,
1998 was $60,712, as compared to net cash provided by operating activities of
$199,728 for the six months ended June 30, 1997. Net cash was used primarily to
fund the losses from operations. Net cash used in financing activities was
$2,641 for the six months ended June 30, 1998, as compared to $120,393 for the
six months ended June 30, 1997. At June 30, 1998, the Company had cash of
$62,465.

         At December 31, 1997, the Company had a net operating loss ("NOL")
carryforward of $10,719,000 available to offset future taxable income, if any,
through the year 2012. During 1993 and 1995, changes in ownership of greater
than 50% occurred as a result of the Company issuing equity securities.
Accordingly, a substantial limitation will be imposed upon the future
utilization of approximately $2,450,000 of its net operating loss carryforwards.

         The Company expects that its cash needs will continue to increase in
the future periods, primarily because it will incur additional expenses related
to the development of small molecule drugs and the iontophoresis flexible patch
technology licensed from Elan, in addition to its efforts to develop novel
medical applications for its core PEMS technology. Accordingly, the Company will
need to raise substantial additional funds to continue the development and
commercialization of its technologies and products. The future cash needs of the
Company will depend significantly on many factors that relate to the development
of drug delivery and small molecule drug products, including but not limited to,
continued scientific progress in the research and development programs, the
results of research and development; preclinical studies and clinical trials;
acquisition of products and technologies, if any; relationships with corporate
partners, if any; competing technological and market developments; the time and
costs involved in obtaining regulatory approvals; the costs involved in filing,
prosecuting and enforcing patent claims; the time and costs of manufacturing
scale-up and commercialization activities and other factors. (See "Risk
Factors").

                                       37
Under the present circumstances, the Company's ability to continue as a
going concern depends on its ability to restructure, improve its operations, and
ultimately, to obtain additional financing. 

         The Company is exploring alternative sources of additional financing.
Other than the proposed sale of $2,000,000 of the Company's Common Stock to Elan
(See -- "Business - Elan Transactions"), no definitive sources of additional
financing have been identified at this time, nor can there be any assurance that
additional financing will be obtained on favorable terms. The Company's ability
to obtain additional financing through issuance of its Common Stock was
negatively affected when Nasdaq notified the Company on September 23, 1997 that
the Company's stock would be delisted from the Nasdaq SmallCap Market as of the
close of business on September 23, 1997 due to noncompliance with the minimum
capital, surplus and public float requirements. The Company is now quoted on the
OTC Bulletin Board, but there can be no assurance, that a public trading market
for the Company's Common Stock will continue to exist.

         The Company cannot predict whether the operating and financing
strategies described above will be successful. If the Company is unable to
restructure and improve its operations and is unable to ultimately obtain
additional financing, it may not be able to continue as a going concern. (See
"Risk Factors").

Impact of the Year 2000

         The Securities and Exchange Commission, in Staff Legal Bulletin No. 5
(CF/IM), has stated that public operating companies should consider whether they
will be affected by any material expenditures, problems or uncertainties
associated with the Year 2000 issue, which affects many existing computer
systems that use only two digits to identify a year in the date field. The
Company believes that the matters raised by Staff Legal Bulletin No. 5 are not
applicable in any material way to its own computer systems and the Company
intends to confirm that any computer systems that the Company may purchase or
lease in the future will have addressed the Year 2000 issue.

         The Company is currently determining the extent to which it may be
impacted by third parties' failure to remedy their own Year 2000 issues. The
Company is having, and will continue to have, formal communications with all of
its significant customers, payers, suppliers, and other third parties to
determine the extent, if any, to which the Company's systems could be impacted
by any third party Year 2000 issues and related remedies. The Company presently
believes that the Year 2000 issue will not pose significant operational problems
for the Company. However, Year 2000 issues could adversely impact the Company if
systems operated by its customers or vendors are not Year 2000 compliant.

Inflation

         The amounts presented in the financial statements do not provide for
the effect of inflation on the Company's operations or its financial position.
Amounts shown for property, plant and equipment and for

                                       38
costs and expenses reflect historical cost and do not necessarily represent
replacement cost or charges to operations based on replacement cost. The loss
would be higher than reported if the effects of inflation were reflected by
charging operations with amounts that represent replacement costs or by using
other inflation adjustments.

                                    Business

The following Business section contains forward-looking statements which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.

Summary

         Our company (Electropharmacology, Inc. or the "Company") is developing
new medical applications for two proprietary core technologies - drug delivery
and drug design - for complex diseases such as cancer and chronic degeneration
of tissues (for example, arthritis, ulcer and inflammation). Our drug delivery
technologies are designed to improve the effects of drugs by selectively
delivering them to diseased tissues without requiring any invasive approach to
achieve such delivery. We are using our special expertise in design and chemical
synthesis to create a new family of small molecule drugs that target selected
genes or proteins whose roles in different stages of complex diseases are being
unraveled through advances in biomedical research.

         Our two drug delivery technologies listed below take advantage of the
ability of mild electrical currents to travel across and through the skin and of
radio frequency electromagnetic signals to be broadcast through superficial soft
tissues:

         o        We acquired a worldwide license to a flexible iontophoresis
                  patch technology developed by Elan, a world leader in the
                  development of drug delivery products, to increase the local
                  delivery of drugs across the skin by the application of a mild
                  electrical current. This technology has promising applications
                  in improving the effects of drugs in a wide range of skin
                  disorders and wounds.

         o        During the past six years, we developed and demonstrated the
                  use of broadcasting pulses of electromagnetic signals ("PEMS")
                  to increase the local blood flow in superficial tissues. This
                  technology holds significant potential in increasing the
                  delivery of diagnostic agents or therapeutic drugs, taken by
                  injection or orally, carried by the bloodstream to superficial
                  organs (such as the breast, brain and prostate).

         Our drug delivery product development programs will focus on clinical
studies of iontophoresis for dermatology drugs (such as for psoriasis) and PEMS
for agents to treat or image breast or brain cancers. We expect that these
studies will also help us quantify the extent of improvement in the delivery of
topical drugs by iontophoresis and injectable drugs by PEMS. We intend to use
this information to form licensing and joint development agreements with
companies developing biopharmaceutical drugs. In our partnership with Elan,

                                       39
we intend to combine iontophoresis with PEMS in a flexible patch system. This
novel product will be used to enhance the delivery and the activity of drugs in
wound care and the healing of tissues such as arthritis-damaged cartilage.

         For long-term applications of our drug delivery technologies, our
scientists are researching the molecular changes associated with the various
clinical effects reported with PEMS and electrical fields. The results are
expected to lead to applications of PEMS and iontophoresis in "drug
enhancement", which is increasing the sensitivity of treated tissues to drugs.
Drug enhancement should be synergistic with the initial applications of PEMS and
iontophoresis in improving the delivery of drugs.

         Our drug design technology focuses on creating a library of proprietary
small molecule drugs targeted at proteins encoded by genes implicated in complex
diseases such as cancer, inflammation and chronic degenerative diseases of
tissues. We have licensed a family of small molecule drugs and related design
technology from Aronex Pharmaceutical ("Aronex"), a biotechnology company in
Texas, that is developing novel formulations of drugs to treat cancer and
infection. Our drug design program has been funded in part by three Small
Business Innovations Research ("SBIR") grants. We also have used our drug design
expertise to generate revenues by providing contract services to produce
specialized molecular reagents for academic researchers and biopharmaceutical
companies. These revenues have provided additional resources to grow our small
molecule drug library.

         We have two primary objectives in our drug design program:

         o        Continue to grow our small molecule drug library and
                  collaborations with researchers that identify protein or gene
                  targets for these drugs through additional grants or other
                  funding; and upon identifying potential targets, form
                  licensing and co-development agreements with corporate
                  partners to screen our library for various clinical market
                  applications in different territories of the world.

         o        Grow our service business to leverage the growing needs in
                  gene sequencing and other genetic research, novel genetic
                  diagnostics and new drug discovery and evaluation programs.

         Our initial focus in drug design is on two small molecule drugs from
our library that target proteins implicated in malignant cancers and
inflammation. We intend to expand our small molecule drug library to target
clinically relevant proteins or genes for which we can establish high throughput
screening methods that can determine the potential clinical value of drugs. Our
corporate partnerships will focus on larger companies so that we can exploit the
market potential for our small molecule drugs in degenerative diseases (such as
arthritis, Alzheimer's disease and osteoporosis), inflammation, metabolic
diseases (such as obesity and diabetes) and chronic infection-associated
complications. We will focus on growing our service business by capitalizing on
the following trends: (i) the rapid growth in gene sequencing needs in the Human
Genome Project; (ii) product development programs for new chips and microarrays
in the growing gene diagnostics industry; and

                                       40
(iii) the increasing need for molecular reagents in research on genetic
mechanisms of complex diseases. We may expand our service business to include
analyses of genetically engineered animals, especially mice, that are emerging
as models to study the genetics of human diseases as well as to predict the
safety and efficacy of pharmaceutical products ("pharmacogenomics"). We intend
to use the growing revenues from these services to fund the growth of our small
molecule drug library and acquire know-how to be used by our scientists to
identify new clinical market applications of our drugs.

Recent Corporate Reorganization

         We substantially restructured our business on August 18, 1998 by
closing the following transactions:

         o        We contributed all of the assets and liabilities (other than
                  those assets and liabilities related to our previous business
                  of manufacturing and distributing the SofPulse device for its
                  currently approved medical uses (the "SofPulse Business")) of
                  our company to a newly created wholly-owned subsidiary, EPi
                  HealthTech Inc., a Delaware corporation ("EPi Sub"), in
                  exchange for 100 shares of EPi Sub common stock.

         o        We merged HTD into EPi Sub. HTD was a privately held
                  biotechnology company engaged in the commercialization of
                  emerging medical technologies. We issued an aggregate of
                  6,172,095 shares of Common Stock of our Company to the
                  shareholders of HTD. The number of shares was calculated to be
                  approximately equal to the number of our shares of Common
                  Stock outstanding (6,333,385 shares) on the date of closing,
                  including the 1,872,000 shares that we issued to some of our
                  shareholders in exchange for their warrants, as described
                  below. We also gave the HTD shareholders the right to earn up
                  to an additional 1,650,000 shares of Common Stock in the
                  future if the business previously conducted by HTD achieves
                  certain milestones. The total number of our shares outstanding
                  after this acquisition was 12,505,480.

         o        We acquired Gemini through a complex transaction. Gemini is a
                  privately held biotechnology company with special expertise in
                  small molecule drug design. Gemini had been organized as a
                  Texas limited partnership with Gemini Biotech, Inc. ("GBI"), a
                  Delaware corporation, serving as the general partner. All
                  shares of GBI were owned by Dr. Krishna and Ms. Shashikala
                  Jayaraman. EPi Sub contributed all of its assets and
                  liabilities (both the ones it received from us as described
                  above and the assets and liabilities of HTD acquired as
                  described above) to Gemini Health Technologies L.P., a
                  newly-formed Delaware limited partnership (the "Partnership").
                  EPi Sub received 12,505,480 partnership units of the
                  Partnership. This number of partnership units equaled the
                  total number of our outstanding shares of our Common Stock
                  after issuing the 6,172,095 shares to the shareholders of HTD.
                  Simultaneously, the Jayaramans contributed all of their
                  partnership units of Gemini and all GBI stock to the
                  Partnership. The Jayaramans received 6,000,000 partnership
                  units in the Partnership. We also gave the Jayaramans the
                  right to earn up to 2,050,000 additional partnership units in
                  the

                                       41
future if the business conducted by Gemini achieves certain
                  milestones. These partnership units are exchangeable, subject
                  to certain restrictions, for shares of our Common Stock on a
                  one-for-one basis (subject to adjustments in the case of some
                  material events concerning either our company and/or the
                  Partnership).

         o        We issued 1,872,000 new shares of Common Stock of our Company
                  to the holders of most of our outstanding warrants and all of
                  our outstanding preferred stock in exchange for these warrants
                  and preferred stock.

         o        We sold all of our assets and liabilities relating to the
                  SofPulse Business (which were not transferred to EPi Sub) to
                  AA Northvale Medical Associates, a wholly-owned subsidiary of
                  ADM Tronics Unlimited, Inc. ("ADMT"), a publicly traded Nasdaq
                  Small Cap company. ADMT develops and markets therapeutic
                  medical devices that utilize electrical and ultrasonic energy.
                  ADMT paid our company $150,000 in cash, issued 1,400,000
                  shares of ADMT common stock directly to us and issued an
                  additional 1,525,000 shares of ADMT common stock to pay
                  approximately $650,000 of our past due payables. ADMT also
                  granted us a warrant to purchase additional shares of ADMT
                  common stock if their revenue from the SofPulse business
                  during the next twelve months reaches specified levels. ADMT
                  has agreed to register their shares issued to us and we have
                  the right to sell these shares with some restrictions on the
                  volume we sell during any month.

         The effect of the corporate reorganization is that all of the
businesses previously conducted by our Company (other than the SofPulse
Business), HTD and Gemini are now being conducted by the Partnership and Gemini.
EPi Sub is the general partner of the Partnership and the Jayaramans are the
limited partners of the Partnership. Gemini will remain a Texas partnership
focused on Gemini's small molecule drug business. The Partnership will be the
general partner of Gemini and GBI will remain as the limited partner. The
Jayaramans are expected to exchange all of their partnership units in the
Partnership for shares of our Company Common Stock on or about year from the
close of these reorganization transactions. At that time the Partnership and
Gemini will be liquidated, EPi Sub will be dissolved and all the businesses will
be consolidated into our Company which by then will be named Gemini Health
Technologies Inc.

         Each of HTD and Gemini brought to our Company significant intellectual
property assets that we expect to use in the development of new small molecule
drugs. HTD is primarily developing two technologies - one for drugs designed to
treat the spread of cancer without toxic side effects and the other to create
proprietary genetic databases to identify novel protein and gene targets for our
future small molecule drugs for complex diseases such as cancer, arthritis and
heart disease. Gemini is a leader in the design and chemical synthesis of
therapeutic drugs and diagnostic agents created using "nucleobases", the
building blocks of genes. Gemini has a library of proprietary and exclusively
licensed small molecule drugs for the treatment of cancer and rheumatoid
arthritis. The assets being acquired from Gemini also include an inventory of
research reagents for product development and resale, laboratory equipment and
other fixed assets.

Recent Elan Transactions

         Soon after the closing of our corporate reorganization, on September
30, 1998 we entered into agreements with two different subsidiaries of Elan
Corporation, plc ("Elan"). Elan is an international leader

                                       42
in the development of novel drug delivery technologies for pharmaceutical and
biotechnology drugs. Elan is publicly traded on the New York Stock Exchange
(NYSE: ELN). We acquired from Elan Pharma International Limited a worldwide
license to a novel flexible iontophoresis patch technology. Elan scientists have
been engaged in developing product prototypes to increase drug delivery by the
application of a mild electrical current - a method called iontophoresis that
has been recognized for three decades. One outcome of Elan's efforts over the
past decade has been the development of a flexible patch for iontophoresis. The
patch system is uniquely suitable for the topical application of dermatology
drugs locally at sites of skin disorders regardless of the location, shape or
size of the diseased skin. We acquired a license to use this flexible patch
technology for non-cosmetic skin diseases and wound care. Elan also agreed to
collaborate with us to develop a flexible patch system for our PEMS technology
and a patch system that combines our PEMS and their iontophoresis technologies.
We made a payment of $7,500,000 for the acquisition and transfer of the Elan
technology and will make future payments of prescribed license fees and
royalties payable from the revenues from product sales and/or sublicensing to
future corporate partners. Separately, Elan International Services ("EIS")
invested $7,500,000 to buy preferred stock and warrants in our Company. The
preferred stock consists of 7,500 shares of our 10% convertible preferred stock
that are convertible into our Common Stock at a conversion price of $1.20 per
share and the warrants can be exercised to purchase 1,000,000 shares of our
Common Stock at an exercise price of $2.50 per share for a term of seven years.
EIS also agreed to invest an additional $2,000,000 to buy our Common Stock at a
share price to Elan calculated as one of the following: (i) the average price
for twenty trading days prior to the date of sale of our shares to Elan or (ii)
the price paid by other investors in the offering contemplated in this
Prospectus, up to a maximum price to be paid by Elan of $1.375 per share. On
October 30, 1998 we issued 777,202 shares of our common stock to Elan at $.772
per share for a total of $600,000, which represented our first drawdown on
Elan's $2,000,000 commitment. Elan has the right to nominate one member to our
Company's Board of Directors.

         We are a development stage company and all of our technologies are
under development and not commercially marketed. Our company was originally
incorporated under the laws of the State of California in August 1990 under the
name Magnetic Resonance Therapeutics, Inc. We reorganized through a merger with
and into Electropharmacology, Inc., a Delaware corporation, in February 1995.
Our executive offices are located at 1109 NW 13th Street, Gainesville, Florida
32601 and our telephone number is (352) 367-9088.

Industry Overview

         As the population ages, the provision of care for patients who suffer
from complex diseases in a cost-effective manner is becoming a growing challenge
worldwide. With the evolution of managed care, health care providers are
searching for new drugs and more effective methods to deliver the drugs that do
not require hospital facilities or skilled staff. More effective drugs with
predictable therapeutic outcomes (as well as side effects) and without complex
shipment/storage requirements are expected to increase patient compliance and
reduce the cost of patient care related to monitoring for unknown clinical
outcomes. The availability of superior and controlled delivery technologies is
expected to allow ambulatory patients to receive long-term treatment without the
need to be hospitalized for chronic intravenous delivery of drugs. The ability
to deliver a drug to the disease site is expected to increase the efficacy and
reduce toxicity to unaffected organs and thus reduce the overall cost of patient
care by using less drug and avoiding patient monitoring/management for side
effects.

         Based on the needs of patients with complex diseases, the emerging
trend in the managed care system is "disease management" to achieve acceptable
clinical outcomes at reasonable costs since a total cure for most
chronic/complex diseases is unlikely. For example, the treatment of a young
diabetic patient

                                       43
with an acute wound will be different from treating a chronic ulcer in a seventy
year old diabetic patient. Similarly, a young patient with malignant prostate
cancer will require a different treatment scheme than an eighty year old
individual with benign prostate hypertrophy. In the near-term, the ability to
improve the delivery of available drugs to disease sites is expected to improve
patient outcomes at lower costs. The design of new drugs based on the rapidly
emerging knowledge about the genetics and biochemistry of complex diseases are
expected to have significant long-term impact on cost-effective patient care.

         Drug Delivery. A number of biotechnology as well as traditional
pharmaceutical drugs can be made more effective and less toxic if they are
targeted to the tissues affected by the disease being treated. Standard
injection or oral administration usually leads to a sharp rise in blood level
followed by the clearance from the blood stream within a few hours for most
pharmaceutical drugs (that are small molecules) or a couple of days for most
biotechnology drugs (that are large protein molecules). The amount of the drug
delivered to the diseased tissue during any time period is a function of its
concentration in blood multiplied by the total amount of blood flowing through
the tissue while the substance is in the blood stream. As the substance is
cleared from the blood stream over time, the rate of deposition of the substance
into the tissue also drops. A drug that clears rapidly from the blood stream
(commonly, the traditional small molecule pharmaceutical drugs) must be taken in
large quantities in order for sufficient drug to be delivered to the diseased
tissues within the time period that the drug is in the blood stream. Such high
levels in the blood stream may be toxic to other tissues that are disease-free.
A drug that persists in for a long time (the large molecule biotechnology
protein drugs) may be injected in smaller amounts. However, these large molecule
drugs are usually inefficient in their ability to diffuse through the walls of
the blood vessels and be deposited in the tissues. Additionally, disease-free
tissues are exposed for longer periods of time to such drugs and may experience
toxic effects. Controlled slow release capsules, mist inhalers, slowly
biodegradable implants, skin patches and programmable pumps have been used to
extend their duration of small pharmaceutical drugs in the blood stream and
avoid the need for high dose.

         In recent years, drug delivery technologies have moved beyond the
traditional extended or controlled release pills and metered dose inhalers. Drug
delivery is being increasingly used to allow the right dose of an active
pharmaceutical ingredient to be delivered at the right time - and more
increasingly, at the right target tissue site. Some analysts estimate that there
are more than 200 products in the pipeline of the drug delivery industry. The
approaches to achieve better delivery include biodegradable implants, injectable
microparticles, pumps, aerosols and electric fields. Traditional drugs have also
been chemically linked to large biotechnology proteins and then injected into
patients in order to increase the duration of these small molecules in the blood
stream and the delivery to a target tissue recognized by the protein (for
example, antibody-chemotherapeutic drug conjugates). The principal routes of
administration for the delivery/administration of products are oral, the
bloodstream, the respiratory system (nasal and lungs) and the skin. Different
drug delivery technologies are being developed to address the specific needs
arising from the nature of the drugs and the preferred routes of delivery for
the drug to reach the diseased tissue.

         The value of drug delivery technologies arises from increasing the
effectiveness of drugs, reducing the toxicity to disease-free tissues and
reducing the cost of drugs by lowering the dosage administered to the patient.
As a result, there is likely to be increased patient compliance and improved
patient outcome. An efficient drug delivery technology is especially beneficial
to the highly potent (and frequently, more toxic) drugs and the high value
biotechnology products that are large molecules, are expensive to manufacture
and are inefficiently delivered into tissue sites.

                                       44
Many of the drug delivery technologies that are either in use or under
development are invasive. These involve an injection (in the bloodstream or a
tissue) or implantation (under the skin or in the affected tissue) of the drug
formulated in the delivery vehicle. Also, almost all drug delivery technologies
(injection, implantation, inhalation and ingestion) require that the drug is
mixed, chemically combined or incorporated into the delivery vehicle and that
the delivery vehicle is non-toxic to the site of application and/or all human
tissues and organs. These requirements may limit the applicability of many drug
delivery technologies, especially for approved formulations of drugs or new
drugs that are sensitive to many of the substances used to control drug
delivery.

         Iontophoresis is based on the application of a mild electrical current
to facilitate the transport of drugs across the charge gradient through the
layers of skin. It is a non-invasive means that takes advantage of the
electrical charge of a drug molecule and the largest available delivery surface
(the skin) of the body. PEMS broadcast increases local blood flow in tissues. It
is a non-invasive means that is potentially applicable to facilitate the
delivery of any systemic drug (a drug carried by the bloodstream) following an
injection or an oral administration, to a superficial organ (such as breast,
brain, prostate and joints) into which the PEMS can penetrate. Both of these
modalities have been used in various human applications and have not shown
demonstrable adverse effects. Recent advances in engineering have led to the
ability to design novel non-invasive products based on these modalities to
target specific organs in a human body.

         Drug Design. Traditionally, pharmaceutical products have been
discovered through the screening of thousands of compounds, either from existing
chemical libraries (such as aspirin) or compounds produced in a fermentation
broth (such as penicillin). The advent of genetic engineering founded the
biotechnology industry where naturally occurring biological molecules
(primarily, protein drugs and most recently, the gene therapy) are produced by
monoclonal antibody and recombinant DNA technologies. While the traditional
pharmaceutical approach is a random and inefficient process, the biotechnology
products are large molecules that are expensive to produce, store/ship and
administer. Emerging knowledge about genes, the proteins encoded by these genes
and the genetic elements that regulate the activities ("expression") of genes in
normal and disease states of cells has created the opportunity to "design" novel
small molecule drugs.

         Genes, Proteins and Diseases. Most normal functions carried out by a
         cell are dependent on a well controlled production and action of
         various proteins that either perform a structural function (for
         example, the cell membrane and the organelles such as the nucleus and
         mitochondria inside the cell) or a catalytic function (such as enzymes
         that synthesize vitamins or reproduce the genetic material of the
         cell). The blueprint for the production of proteins is encoded in the
         genetic material, DNA, that constitute the chromosomes of a cell. In
         addition to containing the information needed to encode the proteins
         (the "coding sequences"), the genetic material of all cells contains
         genetic sequences (the "regulatory sequences") that regulate the
         activity of the coding sequences. Each coding sequence is read
         ("transcribed") by various enzymes to create an instructional template
         ("messenger RNA") that represents a different form of nucleic acid and
         that is used by the protein synthesis machinery of the cell to assemble
         the correct amino acids into the functional polymer, a protein, the
         workhorse of a cell's activities. Regulatory sequences customarily
         interact with certain proteins and regulate the activity of coding
         sequences and thus affect the levels of the proteins encoded by such
         coding sequence in a cell. Information related to the proteins and
         genes and their involvement in maintaining the healthy state of a cell
         or organ or in causing or exacerbating a disease process provides new
         tools for effective and accurate diagnosis and safe and efficacious
         therapy.

                                       45
Gene Mutation and Activity (expression). A defect (a genetic mutation)
         in a coding sequence can alter the encoded protein resulting in an
         alteration of the function of the protein. A defect in a regulatory
         sequence can alter the activity of the coding sequence it regulates. A
         defect in a coding sequence that encodes a protein which interacts with
         a regulatory sequence can also affect the activity of the coding
         sequence regulated by the regulatory sequence. These minor
         perturbations in genes or proteins that perform critical functions can
         lead to the malfunctioning of a cell, which is the basis of a disease.
         Even without a genetic mutation, various substances (such as chemicals,
         pollutants, diet) or conditions (such as infection, aging, degenerative
         diseases, hormonal changes) can alter the physiology of a cell and
         cause changes in the activities of genes (and thus the levels of
         proteins encoded by them) or proteins.

         Genetics and Biochemistry of Complex Diseases. Unlike acute diseases
         (such as an acute infection or bone fracture caused by an accident),
         complex diseases (such as cancer, chronic infection, autoimmune
         diseases, chronic wounds in diabetic patients) may result from and/or
         involve a multitude of genes or proteins. Often a mutation in a single
         gene or a change in the activity of a gene or a protein encoded by the
         gene can initiate a cascade of events that, in turn, affect other genes
         and proteins and lead to the progression or exacerbation of a disease
         condition. In many cases, the disease is not diagnosed until the
         cascade has already been in progress (such as in metastatic cancer,
         arthritis) well beyond the initial alteration. Also, a drug or a
         treatment method that can counteract the initial alteration may have
         significant unwanted or adverse side effects since the initial gene or
         protein may be required for certain normal "housekeeping" activities of
         the unaffected healthy cells (such as in the case of many autoimmune
         diseases, chronic wounds and aging-related diseases that cause tissue
         degeneration). Biomedical research and the knowledge developed through
         the use of biotechnology products (that are mostly naturally occurring
         proteins) are leading to a better understanding of the various stages
         of complex diseases and the roles of various proteins or genes encoding
         such proteins in the different stages.

         Small molecule drugs that are designed based on the knowledge of the
activities of the protein or gene targets implicated in complex diseases have
the advantages of traditional pharmaceuticals (easy to produce, store/ship and
administer/deliver) as well as of biotechnology products (specific, predictable
action that mimics natural cellular processes). In addition, these designed
drugs do not have the disadvantages of either the traditional pharmaceuticals as
relates to the unpredictable safety and efficacy profile or the biotechnology
products as relates to expensive manufacturing and difficult storage/shipment.
Small molecule drugs can be designed to specifically target the individual gene
or protein responsible for each of the different stages in the progression of
complex diseases and thus revolutionize patient care.

         The success of the small molecule drug design approach is dependent on
correctly identifying the protein/gene target(s), validating the role of the
target (the mechanism of action of the target) in the specific stage of a
complex disease and designing compounds that effectively and predictably affect
the action or the production of the target. Nucleobases (the building blocks of
the genetic material) and amino acids (the building blocks of proteins) are
naturally occurring small molecules. These can be chemically synthesized
inexpensively and also can be modified or used to build small polymers with
novel biological activities that affect the function of a protein or the
encoding gene or the regulation of a gene's activity caused by the binding of
proteins to genes within a cell.

                                       46
The Strategy

         We intend to exploit our non-invasive drug delivery technologies to
improve the clinical effectiveness of biopharmaceutical drugs being marketed or
developed by other companies. Our proprietary small molecule drugs are intended
to be developed, manufactured and marketed through partnerships with larger
pharmaceutical and biotechnology companies.

         Drug Delivery. Our drug delivery technologies will be used as a
"value-added" complement to drugs and biotechnology products by increasing their
delivery to targeted organs (such as breast, brain, prostate, skin and joints).
The commercial benefits arising from reduced drug dosage, increased efficacy
and/or reduced toxicity to disease-free organs are intended to be leveraged into
corporate partnerships to provide licensing and royalty revenues and research
and development payments. Our initial drug delivery focus will be on improving
the delivery of cancer drugs by PEMSRF and of selected dermatology drugs by
iontophoresis. In addition to advancing the drug delivery technologies towards
initial products, our clinical studies are expected to generate information to
support the application of the technologies to other drugs.

         We licensed from Elan a flexible iontophoretic technology to enhance
the delivery of topical drugs across the skin under a mild electric current. The
principle of iontophoresis has been available for more than two decades but a
product that can be conveniently applied to various locations on the body and
for the diversity of drugs for dermatologic applications had not been designed.
The flexible iontophoretic patch developed by Elan effectively solves these past
limitations. The initial prototype patch is called the "Topiderm system", which
consists of an electrode pad, made of a conductive ink printed on a flexible
substrate made of a soft paper tissue that is inexpensive, easy to apply and
comfortable to wear at various locations. The pad may be premedicated or the
user may spread a gel containing a drug substance onto the surface and
subsequently press the pad covering all or a portion of the skin surface to be
treated. The pad can be mass produced at a low cost in any desired shape and
size for increased comfort and patient compliance. Topiderm is powered by a
reusable, battery-powered control unit that weighs less than one ounce and can
be reused several times. Topiderm is designed to address the needs of
prescription dermatology drugs for topical applications in wound healing,
inflammation (such as psoriasis or dermatitis), acne and infection.

         Since 1991, our scientific team and their collaborators have been
engaged in developing a technology based on the principle of using pulsed
electromagnetic signals in the radio frequency range ("PEMSRF") that can be
non-invasively delivered by broadcast to superficial organs and tissues.
Superficial tissues include breast, brain, prostate and joints. Studies
conducted for our company at the Miami Heart Institute to examine the effect of
PEMSRF in patients with chronic wounds showed a rapid increase in local blood
flow in the tissue where the PEMSRF was being applied. This increase in blood
flow should deliver a larger amount of a drug in the blood stream to the treated
organ. As a result, this modality can complement essentially all other drug
delivery formulations (injected or ingested) since no change in the mode of
administration of the drug will be required. There are an estimated fifty
marketed drugs developed by the biotechnology industry that must be given by
injection, usually several times per day or week for a wide range of
applications, including contrast agents for diagnostic imaging (of cancerous and
other lesions) and therapeutic drugs. For some drugs, such as the high potency
yet toxic chemotherapeutic drugs, effective delivery to the target tissue by
increasing blood flow following an injection may transform a currently unusable
compound to a highly beneficial drug. In addition, a more effective delivery may
enable one to lower the dosage of an anti-inflammatory drug being used to treat
arthritic joints or expensive biotechnology drugs to regenerate damaged tissues.
However, we can not be sure that the expected benefits from our drug delivery
technologies will lead to commercially successful products (see "Risk Factors").

                                       47
Our primary research strategy is to use the tools of molecular
biotechnology to identify the mechanisms of action of electrical fields
delivered by iontophoresis or induced by PEMSRF in the cells in the treated
tissues. The results are expected to provide new insights into the mechanisms
underlying the therapeutic effects (blood flow increase and tissue regeneration)
that have been reported in the scientific literature. In collaboration with
Elan, we intend to design and evaluate novel proprietary products that deliver
iontophoretic electric fields, PEMSRF energy and/or a combination that will
cause predictable tissue response. The products are intended to be used to
develop novel clinical applications of our non-invasive drug delivery
technologies by exploiting the two primary modes of action:

o         drug delivery enhancement in targeted organs; and

o         enhancement of sensitivity of cells to other drugs.

         Drug Design. Our initial drug design focus is on two small molecule
drugs that target proteins implicated in malignant cancers. Our drug design
technology will be used to grow our library of proprietary small molecule drugs
that are designed to target proteins and/or genes that are being implicated in
complex diseases as the genetic and biochemical knowledge of disease processes
advance. We intend to broadly apply our proprietary small molecule drug library
and design expertise to autoimmune diseases (such as inflammation, asthma and
rheumatoid arthritis) and degenerative diseases (such as ulcer, Alzheimer's
disease, osteoporosis and arthritis). We intend to seek corporate partnerships
for specific drugs or for specific gene/protein targets whereby manufacturing
and marketing rights will be granted to the partners in exchange for license
fees, milestone payments, royalties and research and development funding to our
company. We offer a service business based on contract synthesis of small
molecules for academic researchers and corporate clients. We intend to grow this
business as a source of revenue in the near-term.

         Our current strategy is to focus on designing and synthesizing small
molecules made from the building blocks of natural biological molecules. We are
a leader in the design and synthesis of nucleobases (the building blocks of the
genetic material) and their analogs and polymers. We have a growing proprietary
library of nucleobase-derived molecules that have been selected based on their
expected biological activity. Historically, these molecules have been primarily
used to create diagnostic products, called "gene probes", based on their
specific binding ("hybridization") to the genetic material of living organisms.
However, it is now widely recognized that nucleobase-derived molecules can bind
to proteins that regulate gene activity by interacting with specific regions of
the genetic material of cells since the nucleobase-derived molecules can be
designed to mimic the desired genetic materials. In addition, nucleobases also
serve as the "energy currency" that are utilized in a large number of
biochemical processes that are critical to a cell's growth and metabolism. We
are also expanding our expertise in the design and synthesis of small molecules
based on amino acids (building blocks of proteins) and their analogs that may be
designed to affect the activity of protein targets.

         We are integrating our expertise in the design of novel small molecule
drugs with the knowledge of proteins and/or the genes encoding them that are
implicated in the control of critical cell functions implicated in complex
diseases. Our goal is to design and develop drugs with predictable targeting
specificity at specific proteins or genes and thus achieve higher potency and
lower toxicity than the currently available drugs. Based on the knowledge of the
structure and the function of a protein or gene target, small molecules may be
designed that would directly compete with ("mimicry" effect), inactivate
("antagonistic" effect), or predictably change the structure ("allosteric"
effect) of a target. As a result, it may be possible to render a

                                       48
protein or gene target more sensitive to the effect of an existing drug. This
may allow one to use a lower dosage of a drug that would otherwise be
unacceptably toxic. Most importantly, there is new realization that the genetic
diversity among humans frequently results in minor alterations in the structure
of a protein or gene target - a phenomenon called "genetic polymorphism". We
believe that the ability of nucleobase-derived small molecules to alter the
structure of a protein or gene target can be exploited in solving the lack of
effectiveness of certain drugs in patient populations resulting from small
genetic differences (polymorphism) between subpopulations.

         Our strategy is to focus on the targets listed in the table below to
apply our drug design technology in order to create therapeutic drugs for the
diseases in which the targets are implicated:

                TARGET                                        DISEASE
                ------                                        -------

I.  Transport/Cell Membrane Proteins

    > p37 protein family                      Cancer (breast, prostate, melanoma
                                                 and ovary)

    > Amino acid transporters                 Cancer (liver and possibly others)

    > Pump (matrix degrading) protein(s)      Cancer (obstetric and gynecologic)

II.  Cell Controlling Factors

    > Tumor necrosis factor(s)                Cancer, Inflammation, Sepsis

    > Transcription factor(s)                 Cancer, Inflammation

III.  Enzymes

    > Amidotransferases                       Childhood leukemia, Infection

    > Lysine biosynthesis                     Neonatal sepsis, Allergy

         We have selected these targets based on the following:

o         the targets are documented by scientific evidence to be important in
          cancer and other complex diseases; and/or

o         small molecule drugs, especially those designed by our scientists, are
          expected to bind to and change the activity of these targets; and

o         our scientists have access to high throughput screening necessary to
          select a specific small molecule drug as a development candidate from
          our drug library.

                                       49
Collaboration. Our senior scientific staff and scientific advisors
possess significant experience in the design and synthesis of nucleobases and
molecules derived from them. Our scientists collaborate with leading
investigators at major academic institutions, including Baylor College of
Medicine and the MD Anderson Cancer Center in Houston, Texas; the Biotechnology
Program at the University of Florida in Gainesville, Florida; and the
Biotechnology Laboratory at the Northwestern University in Chicago, Illinois.
The Company also designs and synthesizes peptides, which are small polymers made
from amino acids (the building blocks of proteins). We establish collaborative
relationships with leading biotechnology scientists in academic institutions in
order to obtain the emerging knowledge on the proteins or genes that are
involved in various stages of complex diseases. This knowledge of the mechanisms
of action of these proteins and genes is used by our scientists to design novel
small molecules (nucleobases-derived or peptides) that can affect the activities
of the target protein or gene. We have licensed as well as designed and
synthesized small molecules that target the proteins implicated in cancer
metastasis and arthritis. We intend to grow our small molecule drug library
through additional in-house design and synthesis as well as through licensing
agreements.

         We are establishing collaborations with companies engaged in the
emerging field of bioinformatics to create genetic databases on novel genes as
future targets for proprietary small molecule drug design. Nutrition is now
recognized as an important factor in the onset, progression and treatment
outcome in patients with chronic diseases, including cancer, heart diseases,
diabetes and chronic degenerative disorders (arthritis, osteoporosis and
Alzheimer's disease). Accordingly, our initial focus is on databases relating to
quantitative changes that are caused by specific nutrients in the expression of
disease-linked genes. These databases are also expected to facilitate the
identification and selection of "nutraceuticals" (nutrients and pharmaceuticals)
from natural products. We intend to form corporate partnerships on our small
molecule drugs or nutraceuticals for use in improving the effects of other drugs
or reducing disease incidence in people who are at higher genetic risk of
predisposition to diseases.

         Management and Corporate. We believe that we have assembled an
experienced business team that provides cost-effective business direction and
strategic planning, as well as the financial and legal resources of a public
company, in order to increase the focus and efficiency of operating units
focused on product development programs for specific markets. Our initial
strategic focus will be to use our corporate structure and transaction expertise
to create value through the acquisition of businesses with near-term revenues
from the services that leverage and extend our expertise in drug design. We
believe that there is an opportunity in the research community and the
biopharamceutical industry for custom synthesis of small molecules as reagents
for drugs and diagnostics development. Most researchers and many companies now
outsource such activities in order to have access to the latest technologies and
more rapid service that an established entity committed to such business can
provide. There are a large number of small boutique businesses engaged in this
business segment that are under growing pressure to lower their costs and yet
improve the quality of their services. We intend to pursue a strategic
consolidation of selected small operations with complementary geographic and
customer market focus under our public corporate umbrella and create a business
operation that can grow revenue and profitability while providing high quality
specialized services in the field of molecular and genetic research. We also
intend to seek strategic acquisition opportunities for new products and
technologies.

Core Technologies

         Our two proprietary technology platforms are:

                                       50
o        Drug Delivery - non-invasive enhancement of topical and 
                  injectable drugs; and

         o        Drug Design - the rational design and synthesis of small
                  molecule drugs.

         Non-Invasive Drug Delivery. Our drug delivery technologies are based on
the application of mild electric current and pulses of electromagnetic energy
that can be non-invasively applied to superficial tissues and either cause
increased delivery of drugs to the target tissues or increase the sensitivity of
the target tissues to other drugs.

                  Iontophoresis-Topiderm. We licensed from Elan a flexible
iontophoresis patch technology that enables the application of a mild electric
current from a fabric-like material in a controlled manner to achieve a more
effective transfer of a wide variety of drugs across skin. It has been reported
in the scientific literature that iontophoresis of ionic drugs (drug molecules
that carry an electrical charge) provides between a 20 - 60 fold increase in
penetration over traditional topical application. We intend to focus on the use
of the licensed technology to treat surface tissues, including dermatology and
wound healing. The most significant advantages of iontophoresis in our area of
focus are

         o        the elimination of systemic toxicity by limiting the release
                  of only a small quantity of the drug into the bloodstream,

         o        the delivery of a relatively high concentration of the drug at
                  the tissue site where the drug will potentially achieve the
                  maximum benefit,

         o        the ability to apply the technology to any drug with an
                  electrical charge (or a drug that can be easily formulated or
                  modified to create an electrical charge),

         o        the ability to achieve a rapid start and stop the delivery of
                  the drug by turning the electrical current on and off,
                  respectively, and

         o        uniform delivery of a drug over a skin surface area regardless
                  of the size or the contour.

         Dermatologists are well aware of the shortcomings of current methods of
topical application and have begun to study and adopt advanced drug delivery
technologies. Studies have shown that iontophoresis may become an important new,
safe and effective technique for enhancing drug delivery in such diverse
applications as local neuralgia and anesthesia, antiviral and anti-inflammatory
therapies, and acne treatment. The Topiderm flexible iontophoretic patch system
which we licensed from Elan is applicable in an entire family of unique products
that we hope will be distinguished as the leading iontophoretic delivery system
for the dermatology market. The key advantages of this technology are:

         Efficacy:
         o        improved penetration of dermatological products into the skin,

         o        rapid delivery onset and cessation, and

         o        uniformity of penetration over the entire skin area being
                  treated;

         Availability:
         o        treatment pad can comfortably adapt and fit to any contour of
                  the skin regardless of the anatomical location on the body,
                  and

         o        special electrode technology protects sensitive areas;

         Disposability:
         o        safe, skin compatible materials, and

                                       51
o        no cleaning or maintenance requirement.

The development of the basic iontophoretic technology into the Topiderm product
prototype is essentially complete and accordingly, we believe that clinical
studies for the intended clinical applications may be initiated rapidly.

         PEMS - SofPulse. We have developed a technology related to broadcasting
pulses of electromagnetic signals in the radio frequency (PEMSRF) range to
augment blood flow in superficial soft tissues. PEMSRF is a unique noninvasive
approach with no known adverse effect in humans as the pulsing of energy fields
are designed to avoid tissue heating and induce electric fields (Electric field
or E-field) through the treated tissue without damaging cell structure. The
increase in blood flow at the tissue treated by the application of PEMSRF should
enhance the delivery of therapeutic or imaging agents for cancers to superficial
organs such as breast, prostate and brain. Accordingly, PEMSRF is expected to
increase the effectiveness of large molecule biotechnology drugs
(antibody-based, gene-based and other protein products) that have limited tissue
penetration. PEMSRF also is expected to reduce the side effects of most drugs by
reducing the total dosage that needs to be injected in order to deliver
sufficient drug to the diseased tissue. Accordingly, PEMSRF may be used to
enhance the delivery of anti-inflammatory drugs to arthritic joint cartilage and
anti-infective or growth-promoting products to wounds and other skin lesions in
the dermatology market. PEMSRF may be used in combination with other drug
delivery approaches such as "transdermal patches" and "controlled release
implants". We own three issued U.S. patents and other pending applications in
various countries with respect to PEMSRF. Our PEMSRF is distinct from three
other similar technologies: low frequency pulsed electromagnetic fields
("PEMF"), direct Electrical Stimulation ("E-Stim") and pulsed radio frequency
("PRF") diathermy. PEMF (ca. 50 Hz frequency) has been used since 1977 to
facilitate healing of nonunion bone fractures (fractures which refuse to heal)
and is administered through coils attached to (or implanted in) the patient in
close proximity to the site of the fracture. Over the past 20 years, clinical
research in the field of PEMF has demonstrated that these fields promote the
healing of human and other mammalian bone tissue under selected conditions.
E-Stim (in the form of galvanic currents at about 1 milliamp per square
centimeter surface area) has been used since the 1960s to achieve therapeutic
effects (muscle, nerve and other soft tissue injuries) and is administered by
placing electrodes in direct contact with the tissue by the use of conductive
gels and garments. PRF (ca. 27.12 MHZ radio frequency range) has been used over
the past 30 years to achieve varying degrees of tissue heating ("diathermy")
depending on the frequency or the amplitude and the total dosage.

         Our PEMSRF is delivered as controlled pulses of high energy (27.12 MHZ
radio frequency) at a low average power and short duty cycles (the total
duration of signal delivery during a course of administration) relative to
traditional PRF-based diathermy. This frequency falls in the range of 13 MHZ to
27.12 MHZ that is approved by the Federal Communications Commission as the radio
frequency band for medical applications. During the past twenty years, several
research reports have been published claiming the ability of PEMSRF to modulate
cells in a nonthermal manner (without heating) presumably through the induction
of an E-field throughout the tissue being treated with broadcast electromagnetic
signals. We developed and marketed SofPulse, a medical device that broadcast
PEMSRF, and over the past six years obtained clinical information in a wide
range of patients that demonstrates the safety of this modality. Available
clinical information also has shown the alleviation of soft tissue edema,
especially around chronic wounds, that appear to be the consequence of the
ability of PEMSRF to increase local blood flow. We believe that the safety
information will enable us to expedite clinical studies on the ability of PEMSRF
to increase and measure the extent of such increase in the delivery of
biotechnology and pharmaceutical drugs to superficial organs such as breast,
brain, prostate and major joints. We also intend to leverage the fact that our
PEMSRF

                                       52
technology does not require any changes in the formulation or the mode of
administration of a drug. This feature is expected to simplify formation of
corporate partnerships to apply PEMSRF in enhancing the delivery of the
partners' drugs. PEMSRF may also complement some of the other drug delivery
approaches such as the "transdermal" and biodegradable implant-based local
release. An increase in local blood flow that can be achieved on an as needed
basis by broadcasting PEMSRF at a tissue may be used to control the amount of
drugs being delivered by these alternate technologies to the tissue.

         Rational Design of Small Molecule Drugs. Our small molecule drugs may
be designed to have predetermined features with exquisite specificity and
potency for protein or gene targets that are implicated in the onset or
progression of a wide variety of diseases. The specific binding of these small
molecule drugs may be used to cause a change in the activity of the protein or
gene target and thereby achieve a therapeutic activity. Alternatively, the
binding may be used in sensitive and rapid diagnosis of diseases in which these
targets are implicated.

         We specialize in the design and synthesis of novel modifications of
nucleobases (nucleosides and nucleotides). Our nucleoside design technology is
used to create novel small polymers, "oligonucleotides", made from a combination
of chemical variants of the four monomer units that naturally occur in the
genetic material. The structural diversity and functional attributes of
nucleobases and oligonucleotides far exceed those achievable with traditional
pharmaceuticals. Nucleobase-derived small molecules are uniquely suitable for
the following:

         o        proteins that replicate the genetic material during the
                  reproduction of organisms and thus serve as targets for the
                  design of anti-infective or anti-proliferative small molecule
                  drugs;

         o        proteins that regulate gene activity ("expression") and thus
                  serve as targets for the design of drugs to manipulate cell
                  function in tissue regeneration;

         o        proteins that function as catalysts (donors) or substrates
                  (recipients) in energy transfer reactions and thus serve as
                  targets for drugs that alter the growth, metabolism and/or
                  regeneration of cells; or

         o        genes that undergo changes in structure (mutation or
                  amplification) or activity (expression) and thus serve as
                  targets for molecular diagnostics or gene-regulating drugs.

         Our drug design technology capitalizes on the above properties to
create proprietary small molecule drugs made of nucleobases and
nucleobase-derived small polymers. We have a growing library of therapeutic
nucleobase molecules that have been designed to achieve therapeutic effects in
cancer and complex chronic diseases. We also are expanding our small molecule
drug design technology in the area of drugs derived from amino acids, the
building bocks of proteins, and chemical modifications of amino acids.

         The molecules currently comprising our proprietary small molecule drug
library fall in three categories:

         o        "Mimics" - bind to or resemble the active site of a target
                  protein or gene that is implicated in regulating the activity
                  of the target;

         o        "AlloEnhancers" - bind to a site other than the active site of
                  a target protein and alter the active site in a manner that
                  renders the target protein sensitive to other drugs; and

                                       53
o        "Phosphorygonists" - affect the transfer of phosphate groups
                  implicated in energy transfer reactions and thus alter the
                  biological activity of the target protein molecules.

         Our initial targets for our drug design technology are gene and protein
targets with known involvement in cancer and inflammation (such as rheumatoid
arthritis). We are implementing an integrated three-step approach for the design
of our proprietary small molecule drugs:

         o        The identification of a Target - a protein or a gene that
                  mediates or regulates a cellular process in the onset or
                  progression of a complex disease;

         o        Rational design of Small Molecule Drugs - Nucleobase - or
                  amino acid-derived small molecules designed to affect the
                  action/production of the target; and

         o        The identification of a Lead Drug - the most potent, specific
                  and non-toxic small molecule drug selected by screening in a
                  clinically predictive laboratory test and/or an animal model.

         Our initial targets for our drug design technology have been selected
based on the results of research by leading investigators in academic
institutions who are collaborating with our scientists. We integrate our small
molecule drug design programs with the research programs of our collaborators on
the mechanisms of action of the protein targets (or the genes that encode the
protein targets) in the onset or the progression of the respective complex
diseases. We have exclusively licensed a group of novel chemical modifications
of nucleobases for therapeutic drug design. The inventor of these compounds, Dr.
Ganapathi Revankar, is an international expert in nucleoside chemistry. Under
Dr. Revankar's supervision, we are developing additional proprietary compounds
that target two cell controlling protein factors - "Tumor Necrosis Factor-alpha"
and "Transcription Factor NFkB". We have retained, as one of its scientific
advisors, Dr. Bharat Aggarwal of the Baylor College of Medicine in Houston,
Texas, who is considered to be an international leader in cell-controlling
protein factors, called cytokines, that are implicated in cancer and
inflammation. Effective small molecule drugs that target cytokines have
potential applications in cancer and inflammatory diseases such as rheumatoid
arthritis. We have acquired licenses and has filed patent applications for
design and screening methods relating to small molecule drugs for specific
protein or gene targets with known clinical applications and novel molecular
compositions (See "Business - Intellectual Property, Patents and Proprietary
Information").

         We also are a leader in the field of designing chemical modifications
of nucleosides that can be used to create gene probes that combine ("hybridize")
with target genes in a manner that would cause predictable structural changes
such that even minor alterations in these genes may be effectively detected. One
class of proprietary modifications is designed for gene probes for "chip-based"
and "microarray-based" DNA diagnostics that monitor several genes simultaneously
and detect single changes ("point mutations") in genes. Our expertise combines
the experience of Dr. Krishna Jayaraman, president of our Gemini Biotechnology
division, and Dr. Michael Hogan of Baylor College of Medicine, a scientific
advisor to our company. We have been steadily growing our activity in special
chemistry required to design gene probes (oligonucleotides) that can be used to
produce microarrays and chips with high gene probe density that are being
developed by other companies. These micro arrays and chips are also expected to
be used to assess the safety and efficacy of pharmaceutical or biotechnology
drugs (pharmacogenomics) and select lead drugs based on detailed molecular
effects on cells that contain disease-linked protein or gene targets.

                                       54
Product Development Programs

         Our initial product development programs focus on the following:

         o        Clinical studies for drug delivery technologies:

                  Iontophoresis for Dermatology Drugs. The first product
                  prototype of our iontophoretic patch licensed from Elan is the
                  Topiderm system. At this time, the Topiderm is ready to be
                  produced cost-effectively for us by Elan in sample quantities
                  for the purposes of clinical trials. We intend to optimize
                  preferred conditions for the Topiderm to promote the
                  penetration of steroidal and non-steroidal substances used in
                  dermatology by using a clinically predictive in vitro system.
                  The test system allows quantitative comparison of the change
                  in iontophoretic delivery of drugs. Based on the results of
                  the optimization studies to be conducted, we will initiate a
                  clinical study for an approved prescription dermatology drug
                  that shows limited efficacy due to poor penetration. We will
                  use end points accepted by the clinical community in order to
                  assess the benefits of the iontophoretic delivery in improving
                  the efficacy of the test drug. The clinical study will also be
                  used to obtain quantitative drug penetration data in humans
                  that is expected to validate the in vitro test system. We
                  expect to use this system subsequently to establish the
                  conditions for Topiderm use in follow-on clinical applications
                  and additional drugs in wound care with our corporate
                  partners.

                  PEMSRF for Cancer Imaging and Treatment Drugs. We intend to
                  use the SofPulseTM device, our initial product using our
                  PEMSRF technology, that delivers PEMSRF operating at a carrier
                  frequency of 27.12 MHZ with a pulse width of 65 microseconds
                  and provides up to 36 different combinations of incident
                  magnetic fields and pulses per second. SofPulseTM was cleared
                  for commercial marketing by the United States Food and Drug
                  Administration ("FDA") in 1991. This initial product is used
                  as an adjunct for the palliation of post-operative edema and
                  pain in superficial soft tissues. The use of this device
                  following surgeries and in sub-acute care (chronic wounds and
                  tissue injuries) in over 300,000 administrations in thousands
                  of patients has demonstrated human safety of our PEMSRF. We
                  intend to conduct clinical development of PEMSRF under one or
                  more Investigational Device Exemptions ("IDE"s) filed with the
                  FDA. Using the SofPulseTM, we have identified initial signal
                  specifications and conditions to achieve rapid and sustainable
                  increase in local blood flow in tissues by PEMSRF. The change
                  in blood flow can be ceased within several minutes after the
                  administration is stopped. The results of two pilot clinical
                  studies conducted at Miami Heart Institute on patients with
                  chronic wounds have provided us with information about the
                  duration of treatment and the level of increase in blood flow.
                  This information will be used by us to optimize the settings
                  (energy levels) and the duration of PEMSRF treatment in
                  achieving increased delivery of cancer imaging and/or
                  treatment drugs to breast or brain. We are selecting drugs
                  that are either approved or in clinical development and that
                  are expected to benefit from what we believe will be a
                  significant increase in drug delivery to the targeted tissue
                  resulting from a one to six hour administration of PEMSRF.

         o        Laboratory and animal evaluation of proprietary small molecule
                  drug design:

                                       55
Transport Protein-Targeted Drugs to Treat Cancer Metastasis.
                  We are designing proprietary molecules that are targeted at
                  and thus expected to interfere with the function of a
                  metastatic cell-associated molecule ("MCAM") - the p37
                  transport protein. This protein was first identified as one of
                  a group of proteins targeted by the immune system in cancer
                  patients who went into remission following experimental cancer
                  cell vaccine treatment. Similar to the case with the now well
                  recognized "multiple drug resistance" protein (found in
                  cancers that do not respond to a number of chemotherapeutic
                  agents), the p37 protein belongs to a protein family encoded
                  by genes involved in nutrient transport in certain rare
                  strains of Mycoplasma. The MCAM p37 target is found on
                  metastatic cancer cells. Our laboratory research also
                  indicates that the addition of this protein to cancer cells
                  that do not metastasize causes the cells to behave similarly
                  to cells from metastatic cancers. Our small molecule drugs
                  designed for the p37 protein target are not required to kill
                  cancer cells but prevent the ability of cancer cells harboring
                  p37 to metastasize. Our objective is to create the first
                  family of drugs that will be able to treat cancer without the
                  toxic effects associated with all other forms of cancer
                  treatment that are designed to kill both cancerous cells and
                  healthy, normal cells. In addition, these drugs would not be
                  expected to induce resistance in the cancer cells. The design
                  and development of this family of therapeutic compounds are
                  based on a technology owned by us. Initial applications of the
                  p37-targeted small molecule drug candidates in breast cancer
                  and melanoma have been chosen based on (i) the results of
                  published clinical studies and basic research conducted at
                  University of California, Los Angeles and McGill University
                  and (ii) the results of our current research program in
                  collaboration with scientists at the University of Florida and
                  the Michigan State University. Our product development program
                  focuses on the creation and evaluation of small molecule drugs
                  that mimic various portions of the p37 protein target in a
                  laboratory test system that is designed to screen such drugs
                  for their ability to interfere with metastatic (or invasive)
                  behavior of tumor cells. The results will be used to select
                  the most potent drugs for evaluation in one or more clinically
                  predictive animal model systems, which will be followed by
                  initiating a clinical study under an IND or its foreign
                  equivalent. Our product development program also is screening
                  human tumors in order to select the type of tumor where the
                  presence of p37 target is common and, accordingly, will be
                  likely to respond to a p37-targeted small molecule drug. Based
                  on the results of these studies, we may market the detection
                  method as a prognostic test to diagnostic pathology
                  laboratories engaged in the business of sophisticated analysis
                  of cancer biopsies.

                  Protein Factor-Targeted Phosphazoles for Cancer and
                  Inflammation. We have evaluated a family of nucleobase
                  analogs, called Phosphazoles, that are targeted at Tumor
                  Necrosis Factor-alpha and the Transcription Factor-NFkB. The
                  inventor of these licensed compounds, Dr. Revankar (an
                  executive of our company), is an international leader in the
                  design and synthesis of novel nucleobases. Dr. Revankar is
                  collaborating with Dr. Aggarwal, Chief of Cytokine Research at
                  the MD Anderson Cancer Center ("MDACC") in Houston, Texas, who
                  is an international expert in Tumor Necrosis Factors and has
                  been involved in studying this protein target since the late
                  1970s. Preliminary laboratory studies conducted at the MDACC,
                  have led to the identification of certain members of the
                  Phosphazole group of small molecule drugs based on high
                  potency and low toxicity as compared to other small molecule
                  drugs evaluated against these protein targets. A number of
                  Phosphazole small molecule drugs have also been screened at
                  the National Cancer Institute ("NCI") for anti cancer activity
                  and three have been referred to its Biological Evaluation
                  Committee. Based on the 

                                       56
results of the studies at the MDACC and NCI, we intend to
                  perform additional laboratory studies and evaluate the lead
                  drug candidate in one or more clinically predictive animal
                  models prior to conducting a controlled Phase I/II clinical
                  study planned for 1999.

         o        Product engineering to design two proprietary new drug 
                  delivery systems:

                  Flexible PEMSrf and PEMS-Iontophoresis Combination Systems. We
                  and our corporate partner, Elan, have considerable know-how
                  relating to electromagnetic signal engineering and
                  iontophoresis product engineering. In a collaborative program,
                  prototypes of a flexible PEMSRF pad and a combination
                  iontophoresis-PEMSRF pad are being developed by the
                  engineering research and development group at Elan based on
                  design specifications that are currently available to our
                  company. These prototypes are expected to be modified based on
                  the results of the initial drug delivery product evaluation
                  activities discussed above.

Product and Technology Research Programs

         We are engaged in research programs designed to improve upon our
current product candidates and explore new applications of our core technologies
through collaboration with leading investigators in academic institutions. We
were the recipient of three Phase I Small Business Innovations Research ("SBIR")
grants from the National Institutes of Health in 1998. All three programs are
nearing completion and we expect to submit Phase II applications to continue
these collaborative discovery activities and engage new scientists.

         Drug Design.  The focus of our drug design product research includes:

         o        New Drugs and Drug Screening. Our scientists are collaborating
                  with our scientific advisors to design, synthesize and
                  evaluate a growing library of proprietary nucleobase analogs
                  to target cell controlling protein factors such as Tumor
                  Necrosis factors and Transcription Factors. We also are
                  designing novel small molecule drugs, designated as NHTB, that
                  are analogs of amino acids and are designed to block the
                  function of a transport protein target that is involved in the
                  uptake of certain amino acid nutrients by cells. We have
                  proprietary know-how to change differentially the level of
                  this transport protein target in cancer cells as compared to
                  their normal counterparts, especially in the liver. The
                  initial drugs are therefore being pursued for ultra-sensitive
                  imaging of liver cancer. We believe that the NHTB drugs may
                  also be used in imaging other tumors and that derivatives of
                  NHTB may be designed to kill cancer cells through nutritional
                  manipulation. We are expanding our capabilities for drug
                  design in the area of enzymes (biological catalysts that alter
                  the activities of various protein targets). Our initial focus
                  is on a group of enzymes called "amidotransferases" that are
                  implicated in certain cancer cell metabolism and bacterial
                  reproduction. Dr. Sheldon Schuster, a member of our scientific
                  and medical advisory board, is an internationally recognized
                  expert in the study of this enzyme family and is collaborating
                  with our scientists to establish effective screening
                  approaches in order to select a lead drug for each of two
                  conditions - childhood leukemia that is refractory to
                  chemotherapy and new antibiotic-resistant infections (such as
                  new forms of tuberculosis).

                                       57
We believe that our growing expertise in the area of
                  validating the mechanisms of action of protein or gene targets
                  in complex diseases and creating high throughput screening for
                  molecules that are active against such targets can be
                  leveraged to form partnerships with pharmaceutical and
                  biotechnology companies who possess larger libraries of
                  chemical compounds. Similarly, we believe our growing library
                  of small molecule drugs that are able to bind to various
                  families of biologically active proteins or genes can be used
                  to establish partnerships with companies engaged primarily in
                  the business of selecting targets for complex diseases.

         o        Protein Targets for Diagnostic Pathology. We exclusively
                  licensed from Vanderbilt University another MCAM, called the
                  "pump protein", that is an enzyme produced and secreted at
                  high levels by cancer cells with metastatic potential. We
                  recently obtained, in the name of Vanderbilt, a U.S. patent
                  related to the use of this MCAM. We have certain antibody
                  reagents and gene probes directed against the pump protein and
                  the transport proteins described above as a group of MCAMs
                  that are potential targets for diagnosing the more "malignant"
                  types of tumors from others. We intend to evaluate rapidly the
                  utility of these MCAMs in diagnostic and prognostic testing
                  (either by gene probes or by antibody testing) of cancer
                  through collaborations with diagnostic pathology laboratories
                  engaged in specialized cancer diagnostic testing. We believe
                  that one or more of these markers may complement the current
                  panels of specialized genetic and immunologic testing
                  conducted on tumor biopsies and used by the pathologists to
                  arrive at a definitive diagnosis.

         o        Disease-Specific Genetic Databases - New Target
                  Identification. We are developing proprietary genetic tests
                  and databases related to the effects of specific dietary
                  ingredients on chronic diseases such as cancer, heart diseases
                  and obesity. Since most chronic diseases involve simultaneous
                  changes in the levels of activity ("expression") of multiple
                  genes, we, unlike most of our competitors, are developing
                  "quantitative (QuEST) databases" for gene families for each
                  major chronic disease. The continued development of this
                  technology is being initially funded by a SBIR grant to our
                  company and other grants to Dr. James Kaput, Vice President of
                  Molecular Biology and Scientific Planning, and served as the
                  chief scientist of our GeneQuEST program. Dr. Kaput joined our
                  scientific management team on October 12, 1998. The QuEST
                  databases will have a novel focus, the influence of specific
                  dietary ingredients, since nutrition is now recognized as a
                  major factor in both the incidence and the progression of most
                  chronic diseases. Our first prototype database will use a
                  library of nearly 5,000 tissue specimens produced in a mouse
                  model to study the effects of specific sterols implicated in
                  enhancing the onset of certain forms of cancer. We also are
                  building an initial pilot database in humans relating to the
                  effects of cholesterol-related dietary ingredients on the risk
                  of breast cancer in collaboration with the Preventive
                  Nutrition Department of the Northwestern University School of
                  Medicine. Our contemplated specialized phenotyping service
                  business on genetically engineered mouse strains is also
                  expected to expand the databases relating to genes involved in
                  diseases (see - "Business - Small Molecule Service Business").

                  These databases are intended to provide us with novel targets
                  for our drug design and proprietary methodologies related to
                  gene expression analysis in cells involved in complex
                  diseases. We intend to enter into agreements with developers
                  of pharmaceuticals and specialty food products to predict or
                  monitor safety/efficacy of such products 

                                       58
("pharmacogenomics") and to screen for novel nutrients
                  (nutraceuticals or functional foods) that may reduce the risk
                  or enable better treatment of complex diseases such as cancer,
                  chronic wounds and osteoporosis. The databases may also be
                  useful in monitoring population at high genetic risk for
                  specific diseases.

         Drug Delivery.  The focus on our drug delivery product research 
           includes:

         o        Drug Enhancement by PEMSRF and/or Iontophoretic Currents. It
                  has been indicated the scientific literature that the
                  application of an electrical field by placing electrodes or
                  the induction of an electric field by broadcasting
                  electromagnetic signals causes changes at the cellular level.
                  We intend to focus our in-house research program on
                  researching the molecular effects of PEMSRF-induced and
                  iontophoretic electric fields in order to develop new
                  information regarding the effects of these fields on cells and
                  tissues. We intend to use this information to extend clinical
                  applications of PEMSRF-induced and iontophoretic electric
                  fields, individually or in combination, by increasing the
                  effectiveness of drugs through altering cell physiology in
                  target tissues. Our current research program is aimed at
                  evaluating PEMSRF and iontophoretic E-fields with respect
                  their ability to alter biochemical processes and gene
                  activities of cells in order to either render diseased cells
                  more responsive to pharmaceutical agents or achieve
                  therapeutic effects by direct effects on disease-regulating
                  biochemical steps. One mechanism by which the increased
                  response (sensitivity) may be achieved is presumed to be
                  through changes in the membrane of cells caused by the E-field
                  that in turn changes the flow of ions or nutrients into and
                  out of the cell. The resulting products are expected to
                  augment the effects of biotechnology drugs, such as growth
                  factors, and pharmaceuticals for the treatment of degenerative
                  diseases of tissues such as skin, bone, nerve tissues and
                  joint cartilage. Our research program will specifically focus
                  on designing PEMSRF signals that enhance gene expressions and
                  cellular functions implicated in tissue regeneration.

Small Molecule Service Business

         We use our small molecule drug expertise to design, produce and sell
custom gene probes and synthetic peptides to biotechnology companies and
research centers, with a special focus on the developers of new chip-based and
microarray-based DNA diagnostics and disease genetics research, respectively.
The demand for these products has significantly increased during the past five
years to support PCR (polymerase chain reaction) tests, human genome sequencing
and biopharmaceutical research and development programs for screening and
evaluation of novel drugs and diagnostics. We currently design and supply
oligonucleotide gene probes with custom chemical modifications to both
commercial companies and academic medical centers for use in diagnostic products
and in Human Genome Project research programs, respectively. We intend to
develop and market our design and synthesis expertise to meet additional demand
for gene probes that is expected during the next five to ten years in the
chip-based and microarray-based DNA diagnostics industry.

         Dr. Krishna Jayaraman, Vice Chairman of our company and an
internationally recognized expert in the field of gene probe design, is
collaborating with Dr. Michael Hogan, Professor of Molecular Physiology and
Biophysics at the Baylor College of Medicine of Houston, Texas, who is one of
the leaders in the field of microarray based DNA diagnostics and a member of our
scientific and medical advisory board. This collaborative program is partially
funded by a SBIR grant from the NIH and is focused on developing 

                                       59
novel small nucleobase polymer molecules that will specifically address the
needs of the microarray-based diagnostics. We believe that the resulting
technology will enable us to rapidly grow our specialized service business by
expanding our customer base and by creating new probes that we hope will
establish us as a leading supplier of DNA probes for microarray-based
diagnostics.

         We intend to establish a new specialized "genetic phenotyping" service
that will address a new and growing biomedical research and development market
need involving the use of genetically engineered animals, especially mice. Three
of the nation's leading pathologists and veterinary pathologists have agreed to
work with us to establish a state of the art capability to perform sophisticated
morphologic analyses to define the phenotypic expression in genetically
engineered animal models, which will complement our current capability to
perform gene expression analysis in tissue specimens. The use of genetically
engineered animals, particularly mice, has grown rapidly during the past few
years as a result of the vast amounts of genetic information produced from the
Human Genome Project. Scientists can now create defects in selected target genes
or insert candidate genes associated with a disease in mice and produce
offsprings that carry a known gene defect ("knockout") or a new gene
("transgenic"). These mice serve as models for studying known human diseases as
well as predicting safety, efficacy and side effects of drugs for such diseases.
In order to obtain clinically valuable information, research scientists need
both pathology analysis that delineates tissue structure-function defects and
gene expression analysis in the tissue cells that provide detailed molecular
information with respect to the effects on the target gene or its protein
product. We intend to expand our services to include specialized phenotypic
analyses of transgenic and knock-out animal models ("specialized genetic
pathology") and gene activity analyses on tissues of such animals and specimens
from animal model studies on pharmacologic evaluation of drugs
("pharmacogenomics"). We believe that these services will produce revenues and
also create an opportunity for our scientists to create valuable genetic
phenotyping databases that will significantly enhance the value of our
phenotyping services and have potential application in drug design as well as
safety/efficacy evaluation.

Potential Markets for Company's Products

         Drug Delivery. The segment of the drug delivery market that is being
targeted as a field of application for our non-invasive drug delivery
technologies was estimated to be about $11.5 billion in 1996 and growing at an
annual rate of about 20%. An attractive aspect of the emerging drug delivery
technologies is that their commercial value can be demonstrated by improving the
utility of available approved products and regulatory approval for commercial
marketing for such value enhancement application is expected to be less time
consuming than the development of a new drug. A number of technologies are being
developed and evaluated by different companies for various clinical indications.
The potential for noninvasively achieving increased local blood flow by PEMSRF
to organs such as breast and brain may have significant advantage over other
methods in delivering cancer drugs, especially the highly toxic chemotherapeutic
agents or the biotechnology products that are large molecules with limited
tissue delivery. Additional applications of PEMSRF include the delivery of
anti-inflammatory drugs for the treatment of arthritis and tissue repair drugs
in wound care and osteoporosis. The market for iontophoresis for prescription
dermatology drugs includes severe acne, psoriasis, dermatitis, aging-associated
wrinkling, pigmentation disorders, baldness and localized infections (viral,
bacterial and fungal). The prescription dermatology drug market is estimated to
be more than $3 billion annually.

         Small Molecule Drugs. The small molecule drugs being initially designed
by our scientists target biochemical pathways inside of cancer cells or on
enzyme molecules released by cancer cells for growth and spread. Our drug
delivery technology based on PEMSRF is expected to improve the delivery of
cancer 

                                       60
imaging and treatment drugs. The global market for cancer drugs exceeds
$4 billion annually and over $5 billion is spent annually for cancer diagnosis.
Approximately 1.4 million new cases of cancer are diagnosed each year. In
addition, millions of cancer patients who underwent remission following
traditional treatments during the past three to five years will relapse with a
higher mortality rate. Cancer is the second leading cause of death in the U.S.,
and approximately one of every three Americans will get cancer. The National
Cancer Advisory Board reports that more than 8 million people in the U.S. have
cancer. The most difficult aspect of effectively treating cancer is the
treatment of cancer spread ("metastasis") since it requires high and toxic
dosages of chemotherapy or available biotechnology drugs and cannot be treated
by radiation or surgery.

         In addition to cancer, the proteins and genes that are expected to be
targeted by our small molecule drugs are implicated in inflammation (such as
arthritis), other chronic diseases (such as Alzheimer's and osteoporosis) and
certain infections (such as warts and acne) with potential combined markets of
several billion dollars. The flexible iontophoretic patch technology is expected
to improve the efficacy for our anti-infective small molecule drugs.

         The evolving molecular medicine market includes not only novel
diagnostic and treatment products but also the use of molecular information to
prevent the incidence and to improve treatment outcomes of chronic diseases.
Molecular diagnostic tests have claimed a progressively growing percentage of
the total diagnostic business (currently estimated at $36 billion annually) and
some analysts estimate that the total market for molecular testing in disease
diagnosis will exceed $5 billion by the year 2002. Our small molecule service
business targets the gene probe market that is estimated by analysts to be more
than $1 billion annually in the U.S. alone and growing at about 20% per year. In
addition, our new technology to create modified probes that enhance the
sensitivity and specificity of DNA diagnostics is expected to target the new
products based on microarray products that monitor hundreds of genes
simultaneously. This new market is expected to exceed $2 billion by the year
2003. Additional specialized services that use our small molecule-based services
relating to genetically engineered animal models may exceed $250 million per
year based on the estimated 200,000(+) such strains that are expected to be
analyzed at $1,000 to $2,000 for each strain.

         The Future Markets.  Potential long-term markets for our core 
technologies include:

     o     application of our PEMSRF electromagnetic signals or iontophoretic
           electric fields in tissue repair and
     o     genetic databases related to the nutritionally regulated genes.

         Analysts estimate that the market for products used in the repair and
regeneration of skin and cartilage from wounds, inflammatory diseases and
arthritis exceeds $5 billion annually, based on the number of procedures
performed to repair tissue damages from trauma and degenerative diseases. The
potential market size for products or treatment modalities for peripheral nerve
damages and degenerative brain diseases (such as Alzheimer's disease) is also in
the multibillion dollar range. Genetic databases being developed by the gene
sequencing companies ("functional genomics" and "pharmacogenomics") are being
used by pharmaceutical and biotechnology companies to screen new drug candidates
and create diagnostic gene probes. Within the past few years, the licensing and
other revenues paid to "genomics" companies for the use of these databases have
exceeded $200 million. Our QuEST databases complement the current databases and
are expected to be used by the companies developing therapeutic products to
further refine the selection of drug candidates for chronic diseases such as
heart diseases, osteoporosis, cancer

                                       61
and diabetes. In addition, the use of our QuEST databases and gene activity
profile analysis are expected to be applicable to more than five million
Americans who are projected to be members in various diet/nutrition, wellness
and anti-aging programs by the year 2001. Finally, we expect that our database
of genetic phenotyping of genetically engineered animals will be used by
companies developing genetic diagnostic and therapeutic products.

         Competition in the markets being targeted by our products is intense.
In addition to all the major pharmaceutical and biotechnology companies, several
commercial companies such as Vertex Pharmaceuticals, Millennium Pharmaceutical,
Lynx Therapeutics and Gene Logic Inc. are engaged in the design or the
identification of gene targets for novel small molecule drugs based on gene
discoveries; Collagenex Pharmaceuticals, Medarx Inc. and others are creating
products to treat cancer metstasis; Iomed Inc., Sano and Nanosystems (now
subsidiaries of Elan), Alkermes and others are pursuing novel drug delivery
technologies. These and many other companies, as well as numerous academic and
not-for-profit research centers, are pursuing clinical indications and product
candidates that are substantially similar to those we are developing. Numerous
commercial, academic and not-for-profit research centers also have developed and
are developing various types of genetic databases.

Patents, Intellectual Property and Proprietary Information

         We have exclusive licenses to and/or ownership of certain patents and
pending patent applications relating to our core technologies. We actively seek,
when appropriate, protection of our products and proprietary information by
means of United States and foreign patents, trademarks and contractual
arrangements. In addition, we rely upon trade secrets and contractual agreements
to protect certain of our proprietary information and products.

         As of June 30, 1998, we owned three issued U.S. patents relating to the
PEMSRF technology and products, an exclusive license to one issued U.S. patent
related to a cancer cell-associated enzyme, an exclusive license to a pending
patent application relating to a family of nucleobase compounds and owned
certain other pending applications relating to cancer cell targets, nucleobase
compounds, genetic database development methodology for nutritionally regulated
genes, and controlled release delivery matrix for certain drugs and biologicals.

         Drug Delivery Intellectual Property. We have licensed from Elan certain
rights to several pending patent applications relating to the flexible
iontophoretic patch technology. We also own the following three issued U.S.
patents related to its PEMSRF technology:

         o        #5,370,680 dated December 6, 1994 entitled "Athermapeutic
                  Apparatus Employing Electromagnetic Fields";

         o        #5,584,863 dated December 17, 1996 entitled; and "Pulsed Radio
                  Frequency Electrotherapeutic System"; and

         o        #5,723,001 dated March 3, 1998 entitled "Apparatus and Method
                  for Treating Human Body Tissue with Electromagnetic
                  Radiation".

         We also have one corresponding case issued in Canada and a pending
application designating a number of foreign countries. We intend to file
additional applications in the U.S. and foreign countries based

                                       62
on the results of the contemplated clinical and molecular studies and claim
certain applications of therapeutically active PEMSRF, methods of delivering the
same and uses therefor.

         We are the assignee of U.S. patent application number 08/381,769
(filing date February 1, 1995) entitled "Calcium Phosphate Precipitate
Formulations and Uses Therefor" related to controlled delivery of biological and
drug substances with potential use in tissue regeneration.

         Drug Design and Targets Intellectual Property. We have exclusively
licensed from Aronex Pharmaceutical a U.S. patent application corresponding to a
provisional application number 60/023907 (filing date August 14, 1996) entitled
"Phosphazole Compounds" and all corresponding patent applications thereto. This
application relates to nucleobase modifications and the inventor of this
application is now an employee of our company.

         We have exclusively licensed a U.S. patent #5,726,015 dated March 10,
1998 entitled "Method to Determine Metastatic Potential of Tumor Cells" and
related know-how from Vanderbilt University as a potential target for our cancer
product development program.

         We are in final stages of filing two additional U.S. patent
applications that are assigned to our company relating to nucleobase
modifications for "DNA diagnostic" and "protein-targeting therapeutic"
applications. We also are in final stages of filing two additional U.S. patent
applications that are assigned to our company, one of which relates to the
"design and uses of compounds related to a metastatic cancer cell-associated
molecule implicated in invasivity or spread of cancers" and the other relates to
"a method of identifying diet-regulated disease-linked genes, databases and uses
therefor".

         There can be no assurance that any patents will issue from any of our
pending patent applications or, even if patents issue or have issued, that the
claims thereof will provide us with any significant protection against
competitive products or otherwise be valuable commercially. Our patent
applications in foreign countries are either not filed yet with respect to
certain inventions and are not being prosecuted in all major foreign countries
in other instances. There can be no assurance that we or our corporate partners
will have the financial resources to file and prosecute patent applications in
all major foreign countries. See "Risk Factors - Uncertainty about Patents,
Confidential Information, Trade Secrets and Others' Rights."

         With respect to proprietary know-how that is not patentable and for
processes for which patents are difficult to enforce, we have chosen to rely on
trade secret protection and confidentiality agreements to protect our interests.
We believe that several elements of our product development and research involve
proprietary know-how, technology or data which are not covered by patents or
patent applications. Some of this data will be the subject of patent
applications whereas other data will be maintained as proprietary trade secret
information. We have taken security measures to protect our proprietary know-how
and technologies and confidential data and continue to explore further methods
of protection. While we require all employees, consultants and collaborators to
enter into confidentiality agreements, there can be no assurance that
proprietary information will not be disclosed, that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets, or that we can
meaningfully protect our trade secrets. In the case of a strategic partnership
or other collaborative arrangement which requires the sharing of data, our
policy is to make available to our partner only such data as are relevant to the
partnership or arrangement, under controlled circumstances, and only during the
contractual term of the strategic partnership or collaborative arrangement, and
subject to a duty of

                                       63
confidentiality on the part of our partner or collaborator. There can be no
assurance, however, that such measures will adequately protect our data.

Manufacturing

         We will rely, at least in part, on third party manufacturers to produce
our drugs or other products for preclinical and clinical studies and also for
commercial production of most of our products that are approved for marketing.
We have not yet established a quality assurance program, including a set of
standard operating procedures, intended to ensure that third party manufacturers
under contract produce our compounds in accordance with the FDA's current Good
Manufacturing Practices ("cGMP") and other applicable regulations.
See "Business - Government Regulation."

         We believe that all of our existing product candidates can be produced
using available methods, primarily through standard techniques of pharmaceutical
synthesis. We currently do not have the capacity to manufacture our potential
products, are dependent on third party manufacturers or collaborative partners
for such production for preclinical research and clinical trial purposes and
expect to be dependent on such manufacturers or collaborative partners for some
or all commercial production of any of our products that are approved for
marketing. We believe that we will be able to continue to negotiate arrangements
on commercially reasonable terms and that it will not be necessary for us to
develop internal production capability in order to develop our products
successfully. In the event that we are unable to obtain contract manufacturing,
or obtain such manufacturing on commercially reasonable terms, we may not be
able to commercialize our products as planned. Our objective is to maintain
flexibility in deciding whether to develop internal manufacturing capabilities
for certain of our potential products. We have only a limited expertise in the
manufacture of class III medical devices and no experience in manufacturing
pharmaceutical or biotechnology products or in conducting manufacturing testing
programs required to obtain FDA and other regulatory approvals. We can not
assure that we will develop such capabilities successfully.

         Since our potential products are at an early stage of development, we
will need to improve or modify our existing processes and capabilities to
produce any product for clinical trials or commercial marketing. We cannot
quantify the time or expense that may ultimately be required to improve or
modify our existing process technologies, but it is possible that such time or
expense could be substantial.

         The production of our products is expected to be based in part on
technology that we believe will be proprietary. We may license this technology
to contract manufacturers to enable them to manufacture compounds for our
product development programs. We can not assure that such manufacturers will
abide by any limitations or confidentiality restrictions in licenses with us. In
addition, any such manufacturer may develop process technology related to the
manufacture of our products that such manufacturer owns either independently or
jointly with us. This would increase our reliance on such manufacturer or
require us to obtain a license from such manufacturer in order to have our
products manufactured. We can not be sure that any such license would be
available on terms acceptable to us, if at all.

         Some of our corporate partners are expected to have certain
manufacturing rights with respect to our products under development, and there
can be no assurance that such corporate partners' rights will not impede our
ability to conduct the development programs and commercialize any resulting
products in accordance with the schedules and in the manner currently
contemplated by us. See "Risk Factors - Dependence on Corporate Partners."

                                       64
Competition

         We are engaged in pharmaceutical fields characterized by extensive
research efforts, rapid technological progress and intense competition. There
are many public and private companies, including pharmaceutical companies,
chemical companies and biotechnology companies, engaged in developing products
for the human therapeutic applications targeted by us. Further, we believe that
interest in the application of drug design and related technologies may continue
and may accelerate as the technologies become more widely understood. We are
aware of efforts by others to develop products in each of the areas in which we
have products in development. In order for us to compete successfully in these
areas, we must demonstrate improved safety, efficacy, ease of manufacturing and
market acceptance over our competitors, who have received regulatory approval
and are currently marketing. Furthermore, academic institutions, governmental
agencies and other public and private research organizations are conducting
research to develop technologies and products that may compete with those under
development by us. In addition, other technologies are, or may in the future
become, the basis for competing products. We can not be certain that our
competitors will not succeed in developing technologies and products that are
more effective than the ones we are developing or that would render our
technology and products obsolete or noncompetitive. We also can not be sure that
our products in development will be able to compete effectively with products
which are currently on the market. See "Risk Factors -- Uncertainty About
Technologies and Successful Development of Products."

         Many of our competitors have substantially greater financial, technical
and human resources than we do. In addition, many of our competitors have
significantly greater experience than our staff in conducting preclinical
testing and human clinical trials of new pharmaceutical products, and in
obtaining FDA and other regulatory approvals of products. Accordingly, certain
of our competitors may succeed in obtaining regulatory approval for products
more rapidly than we would. If we obtain regulatory approval and commence
commercial sales of our products, we will also compete with respect to
manufacturing efficiency and sales and marketing capabilities, areas in which we
currently have no experience. See "Risk Factors -- Intense Competition; Rapid
Technological Change; Technology Obsolescence."

Product Pricing and Reimbursement

         Our ability, with or without corporate partners, to commercialize our
products successfully will depend in part on the extent to which appropriate
reimbursement levels for the cost of such products and related treatment are
obtained from government authorities, private health insurers and other
organizations, such as health maintenance organizations ("HMOs"). Third party
payors and government authorities are continuing efforts to contain or reduce
the cost of health care. For example, in certain foreign markets, pricing and/or
profitability of prescription pharmaceuticals are subject to government control.
There can be no assurance that similar controls will not be implemented in the
United States. Also, the trend toward managed health care in the United States
and the concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of health care services and products, may
result in lower prices for our products. The cost containment measures that
health care providers and third party payors are instituting and any proposed or
future health care reform measures, including any reductions in Government
reimbursement programs such as Medicaid and Medicare, could affect our or our
partners' ability to sell our products.

         The success of our products in the United States and other significant
markets will depend, in part, upon the extent to which a consumer will be able
to obtain reimbursement for the cost of such products from

                                       65
government health administration authorities, third-party payors and other
organizations. Significant uncertainty exists as to the reimbursement status of
newly approved therapeutic products. Even if a product is approved for
marketing, there can be no assurance that adequate reimbursement will be
available. We are unable to predict what additional legislation or regulation
relating to the health care industry or third-party coverage and reimbursement
may be enacted in the future or what effect the legislation or regulation would
have on our business.

Sales and Marketing

         We divested our sales and marketing force for SofPulseTM, the medical
device that was divested as a part of our recent restructuring ( "-- Recent
Corporate Reorganization"). We do not plan to build our own sales and marketing
team in the near future. We intend to focus on direct contacts into the academic
research community to market our special services using our drug design
expertise during the foreseeable future. We may establish alliances with
distributors to market our services and research reagents that we produce. In
the long-term, our goal would be to use our corporate partners' sales forces to
market our products.

Facilities

         The Company maintains leased administrative manufacturing and research
office space at two facilities. The Company's principal executive offices, which
consists of approximately 1,800 square feet of useable space, are located at
1109 NW 13th Street, Gainesville, Florida. This facility is leased to the
Company until September 1999. Its research and manufacturing facility, Gemini
Biotech division, which consists of approximately 4,000 square feet of useable
space, is located at 3608 Research Forest Drive, The Woodlands, Texas. These
facilities are leased to the Company until February 1999. The Company believes
its existing facilities are adequate and suitable for its present needs and that
additional space will be available as needed.

Employees

         As of October 30, 1998, the Company had 17 full-time employees, 6 of
whom hold doctorate degrees while others hold advanced business or technical
degrees. Of the Company's 17 full-time employees on that date, 5 were engaged in
research and development, 5 in laboratory support services, and 7 in marketing
and general administration. The Company's future success depends in significant
part upon the continued service of its key technical and senior management
personnel and its continuing ability to attract and retain highly qualified
technical and managerial personnel. None of the Company's employees are
represented by a labor union and the Company considers its relations with its
employees to be good. See "Risk Factors -- Attraction of and Dependence on Key
Personnel."

Legal Proceedings

         In February 1993, Diapulse Corporation of America, Inc. ("Diapulse")
filed a citizen's petition requesting that the FDA revoke the substantial
equivalence finding for the SofPulse and prevent the Company from making certain
labeling claims. The Company believes, based upon the advice of regulatory

                                       66
counsel, that Diapulse's petition is without merit. The Company has responded to
the petition. The Company, however, in response to comments received by the
Company from the FDA, has made revisions in its promotional materials to obviate
any claim that such material is inconsistent with FDA regulations. The Company
has received an opinion [date] of regulatory counsel stating that Diapulse's
petition is lacking in merit and that it is highly unlikely that the FDA will
grant the petition. Nevertheless, in the event that the FDA were to grant the
petition, the Company's business and prospects would be materially adversely
affected. In October 1993, Diapulse submitted additional information to the FDA
in support of its petition and the Company responded. As of the date hereof, the
FDA has not notified the Company as to any action with respect to the
aforementioned petition.

         In August 1994, Diapulse filed a lawsuit in the Supreme Court of the
State of New York, Nassau County ("The Court"), captioned Diapulse Corporation
of America V. Magnetic Resonance Therapeutics, Inc. et al., alleging that the
defendants, Magnetic Resonance Therapeutics, Inc., a legal predecessor to the
Company, Bio-Sales, Inc., the Company, and certain of the Company's present and
former directors and officers, including Joshua Barnum ("Barnum"), David Mills
("Mills"), Arthur Pilla ("Pilla"), David Saloff ("Saloff"), and David Winter
("Winer"), engaged in deceptive acts and practices, false advertising and unfair
competition in the marketing of a medical device. The complaint also alleges
that Barnum and Mills breached confidentiality and noncompetition agreements
with Diapulse and that the Company, Barnum and Pilla aided in the alleged
tortious breach of the agreements. Diapulse seeks unspecified compensatory
damages, disgorgement of profits realized by the defendants as a result of their
alleged acts, treble damages, punitive damages and reasonable attorneys' fees.
Diapulse also seeks unspecified injunctive relief prohibiting the defendants
from engaging in the alleged acts and ordering the defendants to take remedial
action to rectify the effects on consumers and Diapulse caused by the
defendants' alleged acts. The defendants jointly moved to dismiss the complaint
on jurisdictional and substantive grounds. The Court dismissed Winer from the
case based on lack of personal jurisdiction. The Court also dismissed certain
claims, as to the remaining individual defendants, including deceptive acts and
practices, false advertising and unfair competition. As to the claims remaining
against the individual defendants, certain of such claims may be indemnified by
the Company. As to the Company, the Court denied the motion to dismiss. The
Company answered the complaint, denied all material allegations, asserted
various affirmative defenses and counterclaimed against Diapulse and Jesse Ross,
individually. The counterclaims allege causes of action against Diapulse and
Jesse Ross for federal unfair competition and tortious interference of existing
and contractual business relations. In addition, the Company has asserted claims
against Diapulse for deceptive acts and unfair trade practices, and trade
disparagement. In its counterclaims, the Company seeks compensatory and punitive
damages in an amount to be proved at trial. This lawsuit is in a preliminary
stage and its outcome is uncertain. Although the Company believes that it has
meritorious defenses that it will vigorously pursue, there can be no assurance
that the outcome of such action will be resolved favorably to the Company or
that such litigation will not have an adverse effect on the Company's liquidity,
financial condition and results of operations.

         On August 28, 1997, Michelle O'Connell, formerly employed by Kinetech
Medical, Inc. ("Kinetech") as the Company's sales representative, filed a
complaint entitled O'Connell v. Kinetech Medical, Inc. and Electropharmacology,
Inc. in the County Court in Dallas County, Texas. The complaint alleged that
Kinetech and the Company were jointly and severally liable for an unspecified
amount of commissions earned by O'Connell from Kinetech, but unpaid, and
asserted a cause of action quantum meruit against the Company. O'Connell
dismissed the complaint against the Company in May 1998 and Kinetech immediately
filed a cross-complaint against the Company for breach of the agreement between
the Company and Kinetech for failing to pay commissions owed in excess of
$30,000. In August 1998, Kinetech joined National Patient Care Systems, Inc. as
an additional defendant for its share of the commissions owed. The

                                       67
Company answered the cross-complaint and asserted several affirmative defenses.
The case has not yet been set for trial and no discovery between the Company and
Kinetech has taken place.

         On July 14, 1998, Jack Baxter ("Baxter"), a former employee of the
Company, filed a complaint entitled Baxter v. Electropharmacology, Inc. in the
Circuit Court in Broward County, Florida. The complaint alleges the failure by
the Company to make payments of $20,000 due to Baxter under an agreement
pursuant to which Baxter and the Company had agreed to the terms of the
termination of their employer-employee relationship,. The Company answered the
complaint and asserted several affirmative defenses. The case has not yet been
set for trial and no discovery between the Company and Baxter has taken place.

Government and Environmental Regulation

         The Company's development, manufacture and potential sale of its
diagnostic and therapeutic products are subject to extensive regulation by
United States and foreign governmental authorities. In particular,
pharmaceutical products are subject to rigorous preclinical and clinical testing
and to other approval requirements by the FDA in the United States under the
Food, Drug and Cosmetic Act and by comparable agencies in most foreign
countries.

         As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animals to identify potential safety
problems. For certain diseases, animal models exist that are believed to be
predictive of human efficacy. For such diseases, a product candidate is tested
in an animal model. The results of the studies are submitted to the FDA as a
part of an Investigational New Drug application ("IND") for drugs or biologicals
or an Investigational Device Exemption ("IDE") for a therapeutic device, which
is filed to comply with FDA regulations prior to commencement of human clinical
testing. For other diseases for which no appropriately predictive animal model
exists, no such results can be filed. For certain of the Company's product
candidates, no appropriately predictive model exists. As a result, no in vivo
evidence of efficacy would be available until such compounds progress to human
clinical trials.

         Clinical trials for a drug or a biological are typically conducted in
three sequential phases, although the phases may overlap. In Phase I, which
frequently begins with the initial introduction of the drug into healthy human
subjects prior to introduction into patients, the compound will be tested for
safety, dosage tolerance, absorption, bioavailability, biodistribution,
metabolism, excretion, clinical pharmacology and, if possible, for early
information on effectiveness. Phase II typically involves studies in a small
sample of the intended patient population to assess the efficacy of the drug for
a specific indication, to determine dose tolerance and the optimal dose range
and to gather additional information relating to safety and potential adverse
effects. Phase III trials are undertaken to further evaluate clinical safety and
efficacy in an expanded patient population at geographically dispersed study
sites, to determine the overall risk-benefit ratio of the drug and to provide an
adequate basis for physician labeling. For a therapeutic device, the clinical
trials are customarily done in multiple stages, initiating with a limited number
of patients and subject to confirmation of safety and preliminary indication of
efficacy, a larger number of patients are enrolled in order to lead to the
collection of sufficient data required for safety and efficacy analysis. Each
trial for each product is conducted in accordance with certain standards under
protocols that detail the objectives of the study, the parameters to be used to
monitor safety and the efficacy criteria to be evaluated. Each protocol must be
submitted to the FDA as part of the IND or IDE, as the case may be. Further,
each clinical study must be evaluated by an independent Institutional Review
Board ("IRB") at the institution at which the study will

                                       68
be conducted. The IRB will consider, among other things, ethical factors, the
safety of human subjects and the possible liability of the institution.

         Data from preclinical testing and clinical trials are submitted to the
FDA in a New Drug Application ("NDA") for drugs, a Product License Application
("PLA") or a Biologic License Application ("BLA") for a biologic, and a Pre
Market Approval ("PMA") for a device for marketing approval. The process of
completing clinical testing and obtaining FDA approval for a new product is
likely to take a number of years and require the expenditure of substantial
resources. Preparing an NDA, PLA, BLA or a PMA involves considerable data
collection, verification, analysis and expense, and there can be no assurance
that approval will be granted on a timely basis, if at all. The approval process
is affected by a number of factors, including the severity of the disease, the
availability of alternative treatments and the risks and benefits demonstrated
in clinical trials. The FDA may deny an approval if applicable regulatory
criteria are not satisfied or may require additional testing or information.
Among the conditions for marketing approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to the FDA's cGMP regulations, which must be followed at all times. In complying
with standards set forth in these regulations, manufacturers must continue to
expend time, monies and effort in the area of production and quality control to
ensure full technical compliance. Manufacturing establishments, both foreign and
domestic, also are subject to inspections by or under the authority of the FDA
and by or under the authority of other federal, state or local agencies.

         Even after initial FDA approval has been obtained, further studies,
including post-marketing studies, may be required to provide additional data on
safety and will be required to gain approval for the use of a product as a
treatment for clinical indications other than those for which the product was
initially tested. Also, the FDA will require post-marketing reporting to monitor
the side effects of the drug. Results of post-marketing programs may limit or
expand further marketing of the products. Further, if there are any
modifications to the product, including changes in indication, manufacturing
process, labeling or manufacturing facilities, a supplement to the NDA, PLA, BLA
or a PMA may be required to be submitted to the FDA.

         The Orphan Drug Act provides incentives to drug manufacturers to
develop and manufacture drugs for the treatment of diseases or conditions that
affect fewer than 200,000 individuals in the United States. Orphan drug status
can also be sought for diseases or conditions that affect more than 200,000
individuals in the United States if the sponsor does not realistically
anticipate its product becoming profitable from sales in the United States.
Under the Orphan Drug Act, a manufacturer of a designated orphan product can
seek tax benefits, and the holder of the first FDA approval of a designated
orphan product will be granted a seven-year period of marketing exclusivity for
that product for the orphan indication. While the marketing exclusivity of an
orphan drug would prevent other sponsors from obtaining approval of the same
compound for the same indication, it would not prevent other types of drugs from
being approved for the same use. The Company has not sought Orphan Drug status
for any of its contemplated products.

         Under the Drug Price Competition and Patent Term Restoration Act of
1984, a sponsor may be granted marketing exclusivity for a period of time
following FDA approval of certain drug applications if FDA approval is received
before the expiration of the patent's original term. This marketing exclusivity
would prevent a third party from obtaining FDA approval for a similar or
identical drug through an Abbreviated New Drug Application ("ANDA"), which is
the application form typically used by manufacturers seeking approval of a
generic drug. The statute also allows a patent owner to extend the term of the
patent for a period equal to one-half the period of time elapsed between the
filing of an IND and the

                                       69
filing of the corresponding NDA plus the period of time between the filing of
the NDA and FDA approval. The Company intends to seek the benefits of this
statute, but there can be no assurance that the Company will be able to obtain
any such benefits.

         Whether or not FDA approval has been obtained, approval of a product by
regulatory authorities in foreign countries must be obtained prior to the
commencement of commercial sales of the product in such countries. Historically,
the requirements governing the conduct of clinical trials and product approvals,
and the time required for approval, have varied widely from country to country.

         In addition to the statutes and regulations described above, the
Company is also subject to 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 present and potential future
federal, state and local regulations. See "Risk Factors -- Extensive Government
Regulation."

                             MANAGEMENT AND ADVISORS

Directors, Executive Officers, Promoters and Control Persons

         The following individuals serve as the Company's executive officers and
directors. The officers are elected by the Directors and serve until earlier of
their resignation or removal by the Board of Directors.
Arup Sen, Ph.D.                         47           Chairman of the Board, Chief Executive Officer, President
                                                     and Secretary

Krishna Jayaraman, Ph.D.                48           Vice Chairman and Director; President and Chief Executive
                                                     Officer of Gemini Biotech Division

Richard K. Kneipper, Esq.               51           Vice Chairman and Director

Ganapathi Revankar, Ph.D.               62           Executive Vice President of Gemini Biotech Division

David Saloff                            46           Executive Vice President - Marketing; Chief Financial
                                                     Officer; Director

James Kaput, Ph.D.                      44           Vice President of Gemini Biotech Division

Murray Feldman                          63           Director

Bernard Carrico, Jr.                    52           Director
Arup Sen, Ph.D., Chairman of the Board of Directors and Chief Executive
Officer. Dr. Sen has been Chairman, Chief Executive Officer and President of the
Company since April 1997 and prior thereto was Executive Vice President since
November, 1996. He co-founded HealthTech Development Inc. (HTD), a biotechnology
commercialization company, in December 1993 and served as its Chairman and Chief

                                       70
Executive Officer until November, 1996 and thereafter was Chairman until HTD's
merger with the Company in August, 1998 (see "Business - Recent Corporate
Reorganization" and "Certain Transactions"). From April, 1995 until November,
1996 he also served as Vice Chairman of HealthTech Diagnostics Corporation, a
specialty clinical testing laboratory with multiple locations throughout the
U.S. Dr. Sen was President of Dallas Biomedical, Inc., a medical technology
venture capital fund in Dallas, Texas, from July 1992 until August, 1993.
Between January, 1983 until July 1992, Dr. Sen was a senior executive at two
biotechnology companies (International Genetic Engineering, Inc. (Ingene), Xoma
Corporation which acquired Ingene), and at Sterling Winthrop (a pharmaceutical
company that was a subsidiary of Eastman Kodak). At these companies, he had the
responsibility for managing medical technology research and development,
intellectual property, private and public financing. At Ingene and Xoma, he
established strategic alliances with medical companies worldwide (including,
Biomet Inc., The Green Cross Corporation of Japan, Eastman Kodak and Dow
Chemical). Dr. Sen received a Ph.D. in biochemistry in 1974 from Princeton
University and served on the staff at the National Cancer Institute and the
Research Institute of Scripps Clinic until 1983. He is an inventor in more than
20 U.S. and foreign patents related to the diagnosis and treatment of cancer,
osteoporosis, atherosclerosis, immune diseases and AIDS. Dr. Sen serves on the
board of directors of Aquagene, Inc., a development stage biotechnology Company
developing transgenic fish for human pharmaceutical production, and Bio-Florida,
the Florida state chapter of the Bio Industry Organization, and is a courtesy
professor at University of Florida, Gainesville Biotechnology Program.

         Krishna Jayaraman, Ph.D., Vice Chairman and Director; CEO - Gemini
Biotech Division. Dr. Jayaraman is the founder and has been President of Gemini
Biotech, Ltd., its general partner, Gemini Biotech, Inc. and its predecessor,
Delargen Corporation, since 1996. Since 1992 and until its merger to form Aronex
Pharmaceutical in 1995, Dr. Jayaraman managed and was one of the principals in
the scientific leadership at Triplex Pharmaceutical Corporation of The
Woodlands, Texas where he was responsible for a product development program with
a multi-year contract for more than $30 million with the industry giant Hoechst
Pharma ceutical. Dr. Jayaraman has over 15 years of experience in managing
multidisciplinary technology development teams prior to which he had established
himself as a leading scientist in the field of design and engineering of genetic
and protein biotechnology products. He was a Senior Scientist of Protein
Engineering and the Manager of DNA Core facility in the Life Sciences Research
at Eastman Kodak. He founded Gemini Biotech to capitalize his technical,
management and business development expertise and rapidly established Gemini as
a provider of custom synthetic gene probes to the leading developers of novel
DNA diagnostics. He also negotiated an exclusive license and recruited the key
inventor of a library of anti-cancer and anti-inflammatory compounds from Aronex
Pharmaceutical, which had acquired Triplex. Dr. Jayaraman received a Ph.D. in
Biochemistry in 1978 from the Indian Institute of Science, Bangalore, an
internationally recognized institution in India. Dr. Jayaraman holds an Adjunct
Professorship at Baylor College of Medicine, has authored over 50 publications
and is an inventor in 6 U.S. patents.

         Richard K. Kneipper, J.D., Vice Chairman and Director. Mr. Kneipper is
co-founder and has served as President and Chief Executive Officer of HealthTech
Development Inc. since 1996. He co-founded in 1995 and served as the Chairman of
the Board of HealthTech Diagnostics Corporation, a specialty clinical testing
laboratory with multiple locations throughout the U.S., where he led its mergers
and acquisitions, private financing and a sale of substantially all assets to a
public Company in January, 1997. Mr. Kneipper was with the New York City law
firm of Chadbourne & Parke from 1968 to 1981 and a senior partner at the
internationally recognized law firm of Jones, Day, Reavis & Pogue from 1982
until 1996, when he elected to become Of Counsel in order to devote a
significant portion of his time to various business activities. He has over 30
years experience as a corporate and securities lawyer specializing in mergers,
acquisitions, tender offers, private and public financings, transactions
involving financial institutions, corporate governance,

                                       71
proxy contests and other major corporate transactions. He received his J.D.
degree from Cornell University in 1968. At Jones, Day, Reavis & Pogue, Mr.
Kneipper served in various management capacities, including as a Member of
Advisory Committee, Chairman of the Financial Institutions Section, Chairman of
the Management and Special Development Group, and Coordinator of Dallas Office
Corporate Group.

         Ganapathi R. Revankar, Ph.D., Executive Vice President, Gemini Biotech
Division. Dr. Revankar has been executive vice president of Gemini Biotech, Ltd.
("Gemini") since 1997. From 1992 until joining Gemini, he was Vice President at
Triplex Pharmaceutical and its successor, Aronex Pharmaceutical at The
Woodlands, Texas (a public biotechnology Company that develops novel
formulations of anti-infective and cancer drugs). Dr. Revankar held senior
management positions and directed technical operations at the Nucleic Acids
Research Institute of ICN Pharmaceutical Corporation of Irvine, California (an
industry leader in nucleic acid products and technologies). He has nearly 20
years of experience in rational drug design and drug development that provides
the Company with a unique perspective on commercial drug development. Dr.
Revankar is an internationally recognized expert in the chemistry of
nucleobases, the building blocks of the genetic material. He received a Ph.D.
degree in Organic Chemistry in 1966 from Karnatak University, a leading
institution in India. He has published over 200 articles and is an [inventor]
[recipient] of 20 patents issued by the U.S. Patents and Trademark Office in the
field of drug design based on chemical synthesis of analogs of genetic material.
He is an Adjunct Professor at Baylor College of Medicine in Houston, Texas.

         David Saloff, Executive Vice President - Marketing; Chief Financial
Officer and Director. Mr. Saloff became Executive Vice President - Marketing
upon the completion of the Recent Corporate Reorganization. He founded the
Company under the name Magnetic Resonance Therapeutics, Inc. in 1990 and served
as its Chairman and Chief Executive Officer until August 1996 when he became
Vice Chairman, and Executive Vice President of Corporate Development. Since
April, 1997, he has served as Chief Financial Officer. Mr. Saloff led
Electropharmacology, Inc. through several rounds of private financing and an
initial public offering in May, 1995. Mr. Saloff was responsible for the design
of SofPulseTM device based on PEMSRF technology and its clearance for commercial
marketing from the FDA. He brings more than ten years sales and marketing
background in a wide range of medical products and services. He had previously
completed a turnaround and the sale of Akros Manufacturing, a small company
engaged in manufacturing and marketing therapy beds, to Cybex Inc. (formerly
Lumex Inc.), an American Stock Exchange Company. He received a Bachelors Degree
in Business Administration in 1974 from Adelphi University and is the recipient
of one U.S. patent.

         James A. Kaput, Ph.D. Vice President Molecular Biology & Scientific
Planning, Gemini Biotech Division. Dr. Kaput joined the Company on October 12,
1998. Prior thereto, since January 1997, he had been Director of the
Biotechnology Laboratory at Northwestern University and Research Associate
Professor in the Robert H. Lurie Cancer Center at Northwestern University
Medical School. From September 1995, he has been honorary Program Director of
Molecular Genetics in Nutrition at The Sapients Institute, a not-for-profit
research institute in Houston, Texas. Dr. Kaput had been a faculty and staff
member at the University of Illinois at Urbana-Champaign from 1985 through July,
1995. He has conducted basic molecular and biochemical research in cell biology
and in nutritional biochemistry. During the past decade, he developed a research
program called "molecular genetics in nutrition" that combines methods and
strategies from biochemistry, molecular biology, genetics, and nutrition. In
1997, he co-founded and served as Chief Scientific Officer of GeneQuEST Inc., (a
subsidiary of HealthTech Development Inc., which was merged into the Company in
August 1998 (see "Business - Recent Corporate Reorganization" and "Certain
Transactions") with the mission to participate in the commercialization of
molecular genetic methods in nutrition research. He is currently continuing his
research collaborations with various research groups at 

                                       72
Northwestern University. Dr. Kaput received a Ph.D. in biochemistry and cell and
molecular biology in 1980 from Colorado State University and completed his
postdoctoral training in molecular cell biology at the Rockefeller University
with Professor Gunter Blobel, a member of the National Academy of Sciences.

         Murray Feldman, Director. Mr. Feldman has been a Director of the
Company since September 1996 and is a major investor in the Company. From June
1982 to present, Mr. Feldman has served as President of Murray Financial
Associates, Inc., a Company primarily engaged in originating, selling, and
servicing residential mortgages. Mr. Feldman is the uncle of Mr. David Saloff,
the Executive Vice President of Marketing for the Company.

         Bernard V. Carrico, Jr., Director. Mr. Carrico has been a Director of
the Company since August 1998. Mr. Carrico has a broad-based background in
operations, finance and marketing in retail, consumer products, real estate and
financial service industries. Since March 1998, he has been a co-founder,
President and Chief Executive Officer of the Argo Funding Company, LLC, a
private investment firm. From 1995 to August, 1997, he co-founded Heartland
Capital Appreciation Fund, LP with Ms. Alice Walton and served as the President
and Chief Executive Officer of this $52 million investment fund. Prior thereto,
Mr. Carrico served as First Vice President of Drexel Burnham Lambert in Dallas,
President, Chief Operating Officer of Western Capital Corporation (Dallas,
Texas) and Chief Operating Officer of Christiana Company (NYSE), and as Chief
Financial Officer of Texas Federal Financial Corporation of Dallas (NASDAQ). Mr.
Carrico received a B.S. from St. Joseph's College, Indiana and an M.B.A. from
Wayne State University, Detroit, Michigan.

Scientific and Medical Advisory Board

         The Company has assembled a distinguished panel of scientists to serve
on its Scientific and Medical Advisory Board in order to provide the Company
with guidance and advice on various scientific, clinical and intellectual
property matters. The advisors meet as a group as well as individually with
Company staff on a project-by-project basis in specific areas of expertise.

         Michael E. Hogan, Ph.D. Dr. Hogan is Professor of Molecular Physiology
and Biophysics at the Baylor College of Medicine, Houston, Texas. Professor
Hogan is a leading international expert in nucleic acid chemistry and is an
inventor of a novel DNA triple helix. He also is recognized as an expert in the
area of DNA probe technologies that apply to chip-based and micro-array
diagnostics, a discipline that is expected to revolutionize the field of DNA
diagnostics. He was the Scientific Founder of Triplex Pharmaceuticals
Corporation. He recently founded Genometrix Inc., a nationally recognized
biotechnology Company engaged in the development of novel Chipbased DNA
diagnostics. Dr. Hogan has been on the Scientific Advisory Board of Gemini since
its inception. He served on the faculty of Princeton University until joining
Baylor College of Medicine. Dr. Hogan has published extensively in the area of
nucleic acid biophysics and nucleic acid chemistry, especially as they apply to
the pharmaceutical and diagnostic applications. He has authored numerous
publications in national and international journals and is an inventor on
multiple U.S. and foreign patents.

         Sheldon Marc Schuster, Ph.D. Dr. Schuster is Director of the
Biotechnology Program of the University of Florida College of Medicine,
Gainesville, Florida; Associate Director for Research of the University of
Florida Cancer Center; and Professor of Biochemistry and Molecular Biology,
Adjunct Professor of Medicine and Adjunct Professor of Chemistry at University
of Florida. Dr. Schuster is a

                                       73
nationally recognized authority on enzyme biochemistry, and is the recipient of
eight patents in the U.S. He is a member of the Board and Chief Scientist of
AquaGene, Inc. (Alachua, Florida); a member of the Scientific Advisory Board of
Ixion Biotechnology, Inc. (Alachua, Florida); a member of the Editorial Board of
Stedman's Medical Dictionary (Baltimore, Maryland); a member of the Board of
BioWeb, Inc. (Alachua, Florida); and a consultant for BioNebraska, Inc.
(Lincoln, Nebraska). In 1988 Dr. Schuster was a Visiting Professor in the
Department of Biological Sciences at Stanford University. From 1981 to 1988, he
had various positions with the University of Nebraska Lincoln, including
Director of its Gene Synthesis Facility and its Peptide Synthesis Facility.
Prior thereto he had acted in various research capacities at the University of
Wisconsin, the University of Arizona and the Syntex Research Institute of
Hormone Biology. Dr. Schuster received a Ph.D. from the University of Arizona in
1974.

         Bharat B. Aggarwal, Ph.D. Dr. Aggarwal is Professor of Medicine and
Chief of the Cytokine Research Section at M.D. Anderson Cancer Center, Houston.
Professor Aggarwal is an expert on Cytokine research and has authored over 245
publications and is an inventor in multiple U.S. and foreign patents. Prior to
joining the M.D. Anderson Cancer Center, Dr. Aggarwal was Group Leader of
Protein Chemistry, Molecular Biology and Molecular Immunology at Genentech Inc.,
the world's premier biotechnology Company. He was the first to clone the gene
for Tumor Necrosis factor-alpha and led the early evaluation of this critical
biological response modifier in the diagnosis and treatment of cancer on behalf
of Genentech. Dr. Aggarwal serves or has served on the Editorial Boards of the
Journal of Biological Chemistry, the Journal of Infection and Cytokine Research,
the Journal of Applied Biochemistry and Biotechnology and as the associate
editor of the Journal of Immunology. He is a scientific reviewer of over 20
premier journals including such prestigious journals as Science, Cell and the
Proceedings of the National Academy of Sciences. He is a member of the National
Institutes of Health study sections reviewing NIH-funded grants and has served
on several site visit committees. He has edited six books and has contributed
several chapters on cytokines, the key protein targets implicated in cancer,
inflammation and autoimmune diseases. His general area of research had focused
for the past fifteen years on the investigation of novel growth factors and
growth inhibitors produced by the cells of the immune system and by tumor cells.

         Martin L. McGregor, Ph.D., J.D., Consulting Director - Intellectual
Property and Technology Licensing. He is the founder and partner of McGregor &
Adler, P.C. in Houston, Texas and serves as Of Counsel to Winstead Sechrest &
Minick P.C. in Dallas, Texas. Mr. McGregor has over 19 years experience as a
lawyer on intellectual property matters, particularly in the chemical and
biotechnology industry. Prior to founding his current law firm in 1996, he was a
lawyer specializing in biotechnology patent prosecution and litigation with
Gardere & Wynne LLP, one of the largest law firms in Texas, and at Baker & Botts
LLP, a large nationally recognized law firm. He also is an Adjunct Faculty
Member for Patent and Regulatory Issues for Chemists at the University of Texas
at Arlington, a member of the Biotechnology Institute Board of the U.S. Patent
and Trademark Office, a member of the Editorial Board of "Biotechnology Law
Reports" and a member of the Board of BioTexas.

         George C. Fareed, M.D. Dr. Fareed is Chief of Medicine and Chairman of
Infection Control Committee of Pioneers Memorial Hospital, Brawley, California,
and is affiliated with El Centro Regional Medical Center, El Centro, California.
He also is Director of the Special Infection (HIV) Clinic in Brawley, California
and Medical Director of the AIDS Research Alliance, West Hollywood, California.
Dr. Fareed practices in general/family medicine and sports medicine (he also is
Team Physician to the U.S. Davis Cup Tennis Team). He co-founded International
Genetic Engineering Inc. (Ingene) in 1981 and served in various positions with
Ingene Inc. and its successor Xoma Corp., including Director of Scientific
Planning, Director of Cancer Biotherapy and Director of New Product Development.
Dr. Fareed was Associate Professor at

                                       74
the UCLA School of Medicine, Visiting Professor at the University of Nice,
France and Assistant Professor at Harvard Medical School. He also is an inventor
in three U.S. patents. Dr. Fareed received his M.D. degree from the Harvard
Medical School and completed his internship at the Peter Bent Brigham Hospital,
Boston, Massachusetts.

         Brian M. Kinney, M.D. Dr. Kinney is Chairman of New Technology
Committee of the American Society of Plastic and Reconstructive Surgery and is
engaged in private practice in California. He serves as an adjunct faculty
member in the Department of Surgery at the University of Southern California
School of Medicine. He also is an advisor for various medical companies engaged
in the development of new technologies applicable to soft tissue surgery. Dr.
Kinney has authored numerous publications and serves on a number of national and
international committees. He received an M.D. degree from Tulane University,
completed his internship and residency at the University of California, Los
Angeles and then completed his residency and board certification in plastic
surgery at University of California, Los Angeles. Dr. Kinney also completed a
research fellowship on muscle and bone regeneration at the University of
California, Los Angeles.

                             EXECUTIVE COMPENSATION

         The following table sets forth certain information regarding
compensation paid during each of the Company's last three fiscal years to the
Company's President and Chief Executive Officer and the Company's other
executive officers employed by the Company (the "Named Executives").

                           Summary Compensation Table
Long-term Compensation
                                                                ------------------------
                                      Annual Compensation          Awards     Payout
                                ------------------------------  ----------  ---------

                                                                            Securities
                                                  Other Annual  Restricted  Underlying           All Other
Name and                 Fiscal                   Compensation  Stock       Options/    Ltip    Compensation
Principal Position       Year  Salary($)  Bonus($)   ($)        Awards($)   Sars(#)   Payout($)      ($)
------------------       ----  ---------  -------- -----------  ----------  --------- --------- ------------
Arup Sen (1)             1997   123,604      --       6,000(2)   152,446(3)   25,000       --           --
  Chairman, President    1996    25,962              23,967(4)    31,162(5)   75,000       --           --
  & Chief Executive      1995
  Officer
David Saloff             1997   137,219      --      10,000           --          --       --           --
  Vice Chairman &        1996   143,297      --       8,500           --     100,000       --           --
  Executive Vice         1995   126,000      --       6,000           --          --       --           --
  Vice President
Joseph Mooibroek (1)     1997    53,109             132,269(6)                25,000(7)
  Former Chairman,       1996   112,644      --      70,396(8)    94,596(5)  592,086(9)    --           --
  President, Chief       1995        --      --          --           --          --       --           --
  Executive Officer
----------
(1)      Dr. Arup Sen was appointed Chairman, President, Chief Executive Officer
         and Secretary on April 1, 1997. Mr. Mooibroek served as President and
         Chief Executive Officer from August 5, 1996 until he resigned from such
         positions on April 1,1997. As of April 12, 1997, Mr. Mooibroek entered

                                       75
into a severance agreement with the Company. (See "Management and
         Advisors"--Employment Contracts, Terminations of Employment and Change
         of Control Agreements").

(2)      Includes a $6,000 car allowance.

(3)      Represents the value on the various dates of grant of 116,047 shares of
         Common Stock received by Dr. Sen in lieu of cash compensation.

(4)      Includes a $833 car allowance, $13,838 of deferred compensation for the
         payment of taxes and, in lieu of cash compensation, 1,688 shares of
         Common Stock valued at $8,696 at December 31, 1996.

(5)      Represents the value at the date of grant of 10,838 and 32,903 shares
         of Common Stock received by Dr. Sen and Mr. Mooibroek, respectively,
         for reimbursement of relocation expenses.

(6)      Includes a $3,000 car allowance and $129,269 in severance payments and
         interest on note payable for such severance payments, $8,569 of which
         remained outstanding at year end.

(7)      Represents a ten-year warrant to purchase Common Stock at $2.25 per
         share.

(8)      Includes a $5,000 car allowance and $36,788 as reimbursement for the
         payment of taxes. Also includes $28,608 of deferred compensation. In
         lieu of cash compensation, Mr. Mooibroek elected to receive 5,555
         shares of Common Stock valued at $28,608 at December 31, 1996.

(9)      384,450 of these options were canceled on April 12, 1997 in connection
         with Mr. Mooibroek's severance agreement. The remaining 207,236 options
         became fully vested.

                     COMPENSATION OF DIRECTORS AND ADVISORS

         Pursuant to the Company's Non-Employee Directors' Equity Compensation
Plan, the Company pays each non-employee director $2,500 per fiscal quarter in
Common Stock priced at the closing on the last business day of trading in such
quarter, payable after January 1 of the following year. For 1997, each
non-employee director also received a stock option of 2,500 shares of Common
Stock, which option was granted on the last trading day of the year, immediately
vested and has a term of four years. At the time that a non-employee director
joins the Board of Directors, the director is granted a stock option of 15,000
shares of Common Stock, which option is granted upon the directors attendance at
the first meeting of the Board of Directors, vests immediately with respect to
20% of the underlying shares and with respect to the remaining shares vests an
additional 20% of the shares upon each anniversary year thereafter.

         Directors who are also employees of the Company do not receive
compensation for their participation as members of the Board of Directors of the
Company.

                                   EMPLOYMENT

                                       76
On August 25, 1998, the Board of Directors issued a memorandum to Arup
Sen, outlining in general the terms of employment of Dr. Sen as Chief Executive
Officer of EPi, effective as of September 1, 1998. The memorandum provides for
an initial base salary of $130,000, which has increased to $150,000, and may
further increase up to $200,000 in a series of stepped increments upon the
achievement of specified milestones. The memorandum also provides that the
Company will grant to Dr. Sen a ten- year option to purchase 500,000 shares at
the stock price at close of trading on the date of grant (August 25, 1998),
150,000 of which have vested based on the achievement of specific milestones set
by the Board of Directors, with the remainder to vest upon the achievement of
other such milestones. Stock and cash bonuses are to be at the sole discretion
of the Board of Directors. In the event that Dr. Sen's employment is terminated
without "cause" before three years, Dr. Sen is entitled to a severance of six
months' base salary subject to his mitigation of such payment by seeking other
employment. All his stock options will vest immediately and will remain
exercisable for the original term of the option in the event his employment is
terminated due to an acquisition by or merger with a third party not recommended
and/or approved by Dr. Sen, or without "cause".

         For a description of the employment agreement entered into between the
Company and Krishna Jayaraman, the President and Chief Executive Officer of the
Gemini Biotech Division of the Company and a director of the Company, on August
19, 1998 see "--Certain Transactions."

         On August 25, 1998, the Board of Directors issued a memorandum to David
Saloff, outlining in general the terms of employment of Mr. Saloff as Executive
Vice President- Sales and Marketing of the Company, effective as of September 1,
1998. The memorandum provides for an initial base salary of $80,000, which may
increase up to $110,000 upon certain events, including the achievement of
certaion increase annual revenue to be calculated by annualizing the prior six
months' revenues. The memorandum also provides that Mr. Saloff will be entitled
to an override on sales revenue at specified percentages of the annualized run
rate calculated on the previous month's revenues. Once Mr. Saloff's aggregate
annual compensation equals or exceeds $200,000, then the Company and Mr. Saloff
will negotiate a new mutually agreeable compensation arrangement. The memorandum
also provides that the Company will grant to Mr. Saloff on August 25, 1998, a
ten- year option to purchase 200,000 shares at the stock price at close of
trading on the date of grant with 20% of the shares covered thereby vesting upon
the first anniversary date, and an additional 20% each succeeding anniversary
date, with vesting to accelerate based on meeting certain sales revenue growth
targets and other events related to PEMS technologies and products. Stock and
cash bonuses are to be at the sole discretion of the Board of Directors. In the
event that Mr. Saloff's employment is terminated without "cause" before 18
months, Mr. Saloff is entitled to a severance of the prior six months'
compensation. The severance payment is subject to his mitigation of such payment
by seeking other employment unless Mr. Saloff has not been given notice of
termination at least three months prior to the end of the 18 month period and
Dr. Sen is no longer serving as the Company's Chief Executive Officer at such
time. All of his stock options will vest immediately and will remain exercisable
for the original term of the

                                       77
option in the event his employment is terminated due to an acqusition by or
merger with a third party not recommended and/or approved by Mr. Saloff, or
without "cause".

         Mr. Mooibroek resigned from his position as Chairman, President and
Chief Executive Officer on April 1, 1997. As of April 12, 1997 the Company and
Mr. Mooibroek entered into a severance agreement that provided, among other
things, in settlement of all rights under his employment agreement with the
Company, for a cash payment of $128,700 to Mr. Mooibroek over approximately five
months, the issuance of 5,555 shares of Common Stock of the Company that were
assigned to Mr. Mooibroek in lieu of a portion of his salary during 1996, the
grant to Mr. Mooibroek of a 10-year warrant to purchase 25,000 shares of Common
Stock of the Company at $2.25 per share and the cancellation of 384,850 options
to purchase shares of Common Stock of the Company that were previously granted
to Mr. Mooibroek, leaving Mr. Mooibroek with 207,236 fully vested options to
purchase shares of Common Stock of the Company. The severance agreement also
provided for the cancellation of Mr. Mooibroek's right to be granted an option
to purchase one-tenth of the number of shares of Common Stock of the Company as
to which Mr. Herrick exercised his warrant. Mr. Mooibroek further agreed to
assign to the Company patent protection on inventions made by Mr. Mooibroek and
to cooperate with the Company in obtaining such patent protection.

                                  STOCK OPTIONS

Option Grants During 1997 Fiscal Year

         The following table provides information related to options granted to
the Named Executives during fiscal 1997.
Potential Realized Value of
                                                                                         Assumed Annual Rates of Stock
                                           Individual Grants                          Price Appreciation for Option Term
                      ------------------------------------------------------------  ---------------------------------------
                         Number of        % of Total
                         Securities      Options/SARS      Exercise
                         Underlying       Granted to       or Base
                        Options/SARS     Employees in        Price    Expiration             5%                  10%
       Name             Granted (1)       Fiscal Year     ($/Share)       Date               ($)                 ($)
-------------------   --------------     -------------    ---------      ------             ----                 ---
Arup Sen                    25,000(1)        83.3%           1.81       06/24/07
David Saloff                     -              -               -          -
Joseph Mooibroek                 -              -               -          -
---------------
(1) Options to acquire shares of Common Stock all of which are currently
exercisable.

Option Exercises During 1997 Fiscal Year and Fiscal Year End Option Values

         The following table provides information related to options held by the
Named Executives. No stock options were exercised by a Named Executive during
fiscal 1997. Because the option exercise price exceeds 

                                       78
the closing price for the Company's Common Stock on December 31, 1997, no
options held by Named Executives are considered in-the-money at December 31,
1997. The Company does not have any outstanding stock appreciation rights.
Number of Securities            Value of Unexercised
                                                            Underlying Unexercised        In-The-Money Options/SARS
                                                          Options/SARS at FY-End (#)            at FY-End ($)(1)
                                                          --------------------------    ----------------------------
                             Shares
                            Acquired         Value
      Name                on Exercise    Realized($)(2)  Exercisable    Unexercisable    Exercisable    Unexercisable
-------------------       -----------    --------------  -----------    -------------    -----------    -------------
Arup Sen.................       0              -            70,000         30,000             -               -
David Saloff.............       0              -           100,000            -               -               -
Joseph Mooibroek.........       0              -           207,236            -               -               -
-------------------------
(1)      The closing price for the Company's Common Stock as reported through
         the OTC Bulletin Board on December 31, 1997, the last trading day of
         the 1997 fiscal year, was $0.28. Value is calculated on the basis of
         the difference between the option exercise price and $0.28 multiplied
         by the number of shares of Common Stock underlying the option.

(2)      Value is calculated based on the difference between the option exercise
         price and the closing market price of the Common Stock on the date of
         exercise multiplied by the number of shares to which the exercise
         relates.

      LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION

         The Company's Amended and Restated Bylaws (the "Bylaws") provide that
the Company will indemnify its directors and executive officers and may
indemnify its other officers, employees and other agents to the fullest extent
permitted by Delaware law. The Company is also empowered under the Bylaws to
enter into indemnification agreements with its directors and executive officers.
The Company has entered into one such agreement with Dr. Jayaraman as part of
his employment agreement. See --"Certain Transactions." The Bylaws also allow
the Company to purchase insurance on behalf of any person it is required or
permitted to indemnify.

         In addition, the Company's Certificate of Incorporation, as amended
(the "Certificate") provides that the Company's directors shall not be liable
for monetary damages for breach of fiduciary duty to the Company and its
stockholders as a director, except for liability (i) for breach of their duty of
loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law;
(iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law;
or (iv) for any transaction from which the director derived an improper personal
benefit. The Certificate further provides that no amendment or repeal of this
provision shall apply to or have any effect on the liability or alleged
liability of any director of the Company for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal. If the
Delaware General Corporation Law is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, the
liability of directors then will be eliminated or limited to the fullest extent
permitted by Delaware law, as so amended. This provision does not affect a
director's responsibilities under any other laws, such as the federal securities
laws or state or federal environmental laws.

                                       79
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification by the
Company would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which would result in a claim for such
indemnification.

                              CERTAIN TRANSACTIONS

         The Company consummated a significant reorganization (the
"Reorganization") as of August 24, 1998 as further described in Item 2 hereof,
including: (i) the merger of HealthTech Development Inc. ("HTD") with and into a
newly formed subsidiary of the Company ("EPi Sub") with the shareholders of HTD
receiving shares of Common Stock of the Company in exchange for their shares of
capital stock of HTD; (ii) the transfer of all of the assets of EPi Sub other
than those related to the SofPulse business (the "Sofpulse Assets") to Gemini
Health Technologies L.P. (the "Partnership") in exchange for partnership units
in the Partnership; (iii) the contribution by Krishna Jayaraman and Shashikala
Jayaraman (the "Jayaramans") of all of their partnership interests in Gemini
BioTech, Ltd. a Texas limited partnership ("Gemini"), and all of the stock of
Gemini BioTech, Inc., a Texas corporation and the general partner of Gemini, in
exchange for partnership units in the Partnership, which partnership units may
be converted after June 18, 1999 into 6,000,000 shares of Common Stock of the
Company; and (iv) the sale of the SofPulse Assets to a subsidiary of ADM Tronics
Unlimited, Inc., a company traded on the Nasdaq Small Cap Market ("ADM") in
exchange for (a) $150,000 in cash, (b) 1,400,000 shares of ADM common stock, (c)
the payment of $650,000 of the Company's payables by ADM and (d) the issuance of
a warrant to purchase additional shares of ADM common stock if ADM achieves
certain sales goals.

         In connection with the Reorganization, a Master Agreement, dated June
28, 1998 (along with all amendments thereto, the "Master Agreement") was entered
into among (i) HTD, the Company, and EPi Sub, (ii) Norton Herrick, David Saloff,
Murray Feldman, George Levine, and Paragon Capital Corporation at Spear, Leeds &
Kellogg, LLC (collectively, the "EPHI Group"), (iii) Arup Sen, James Kaput and
Richard Kneipper (collectively, the "HTD Group") and (iv) Krishna Jayaraman and
Shashikala Jayaraman (collectively, the "Gemini Group"). Pursuant to the Master
Agreement, the EPHI Group, the HTD Group and the Gemini Group agreed that
following the consummation of the Reorganization, in connection with the
election of directors to the Board of Directors of the Company they shall each
vote their shares of Common Stock in favor of a seven-person board of directors,
consisting of two persons nominated by the EPHI Group, two persons nominated by
the HTD Group, two persons nominated by the Gemini Group and one person who is
the Chief Executive Officer of the Company. In addition, in connection with the
election of the EPHI Group's nominees, Mr. Herrick and Mr. Feldman have agreed
to support the nomination of, and to vote their shares in favor of, a person
selected by the other. Pursuant to the Master Agreement, the EPHI Group has
selected David Saloff and Murray Feldman as their initial nominees, the HTD
Group has selected Bernard Carrico and Richard Kneipper as their initial
nominees, and the Gemini Group has selected Dr. Krishna Jayaraman as one of
their initial nominees and has not yet named the second nominee. Arup Sen, as
the Company's Chief Executive Officer, is the final initial nominee selected.

         Pursuant to the Master Agreement, upon consummation of the
Reorganization all shares of preferred stock and all warrants held by Mr.
Herrick (242,950 and 1,300,000, respectively) were redeemed and exchanged for an
aggregate of 1,575,000 shares of Common Stock. In addition, all warrants owned
by each of Mr. Feldman and Paragon (373,607 and 187,500, respectively) were
redeemed and exchanged for 160,000 shares and 90,000 shares of Common Stock,
respectively.

                                       80
Pursuant to the Master Agreement, Mr. Herrick, the EPHI Group, the HTD
Group and the Gemini Group agreed not to sell or otherwise dispose of any of the
shares of Common Stock received in the Reorganization until August 24, 1999,
provided that they each will be permitted to sell an amount of shares which,
when aggregated with all shares sold for their individual accounts within the
preceding three months, does not exceed the greater of (i) one percent of the
outstanding shares of Common Stock or (ii) the average weekly reported trading
volume of shares of the Common Stock during the preceding four calendar weeks.

         The Master Agreement will terminate on the earliest to occur of (i) on
August 24, 2000, or (ii) the date on which the market capitalization of the
Company equals or exceeds $40,000,000 for any period of 20 trading days within
any six-month period.

         Pursuant to a Registration Rights Agreement, dated as of June 28, 1998
(the "Registration Rights Agreement") among the Company, the EPHI Group, the HTD
Group and the Gemini Group, the Company agreed to file with the SEC as soon as
reasonable practicable a registration statement to register the shares of Common
Stock held by the EPHI Group, the HTD Group and the Gemini Group (collectively
the "Selling Stockholders") , including certain shares to be issued to the HTD
Group and the Gemini Group upon the achievement of certain milestones. The
Company has agreed to use its reasonable efforts to have the registration
statement declared effective and remain continuously effective for at least one
year (unless the registration statement can be filed or amended on From S-3, in
which case it shall remain effective until all the Selling Stockholders can
resell their shares under Rule 144(k)). In addition, any of the Selling
Stockholders can require the Company to continue to keep the registration
statement effective after the period of effectiveness is over by paying to the
Company on a pro rata basis the cost of maintaining the effectiveness. In
addition, if such registration statement is no longer in effect, the Company has
granted the Selling Stockholders piggyback registration rights on other
registration statements to be filed by the Company.

          In November 1995, the Company entered into a Preferred Stock and
Warrant Subscription Agreement with Mr. Norton Herrick, an investor in the
Company beneficially owning greater than 10% of the Common Stock of the Company,
whereby the Company issued to Mr. Herrick (i) 421,950 shares of Series A
Convertible Preferred Stock (the "Preferred Stock") and (ii) warrants to
purchase an aggregate of 1,721,950 shares of Common Stock in consideration of
$2,000,000. The balance of the shares of Preferred Stock and all of the Warrants
were redeemed and exchanged for 1,575,000 shares of Common Stock pursuant to the
Master Agreement described above.

         On November 25, 1997, the Company entered into an advisory services
agreement with 20th Century Associates, Inc. ("20th Century") relating to
planning, implementation and provision of investor and financial relations
services to the Company for which the Company agreed to issue 350,000 registered
shares of newly issued and registered Common Stock to 20th Century. As of
October 30, 1998, the Company had issued 250,000 shares of the Common Stock to
20th Century in consideration of the advisory services rendered under the
agreement.

         As part of the Reorganization, the Company entered into an employment
agreement with Krishna Jayaraman dated August 19, 1998, for a term expiring on
August 19, 2001 for Dr. Jayaraman's services as President and Chief Executive
Officer of The Gemini Biotech Division of the Company. This agreement provides
for a base salary of $120,000 which has increased to $150,000 and may further

                                       81
increase to $200,000 in a series of steps based on certain corporate milestones
and revenues of the Gemini Biotech Division. He also is entitled to benefits, a
term life contract, an automobile allowance and four weeks vacation per year.
The agreement also provides that the Company will grant to Dr. Jayaraman on the
date of the agreement an option to purchase 250,000 shares of Common Stock with
50,000 of the shares covered thereby vesting immediately, 62,500 of the shares
covered thereby vesting on each of the first and second anniversaries of the
agreement and an additional 75,000 of the shares covered thereby vesting on the
third anniversary of the date of the agreement. The agreement also provides that
if Dr. Jayaraman's employment is terminated by him by permitted resignation or
by the Company other than for "cause", Dr. Jayaraman will receive an amount
equal to 85% of the remaining portion of the base salary due him under the term
of the agreement, unless there is a permitted resignation following a relocation
of Dr. Jayaraman due to a change in control not proposed or recommended by Dr.
Jayaraman. In such case, Dr. Jayaraman would receive the sum of his annual base
salary and the average annual bonus received by him during the previous two-year
period. In the event of termination without "cause" or by permitted resignation,
Dr. Jayaraman will continue to receive benefits pursuant to the Company's
welfare programs and perquisite plans until the earliest of one year after his
termination, the end of the term of the agreement, or until Dr. Jayaraman is
reemployed. In addition, all of Dr. Jayaraman's options will immediately vest
and be exercisable for the full term of the option. Dr. Jayaraman is also
subject to a non-compete agreement as part of his employment agreement.

                             PRINCIPAL STOCKHOLDERS

         The following table sets forth information as of September 30, 1998,
regarding the beneficial ownership of Common Stock by each person known by the
Company to own beneficially 5% or more of the outstanding shares of Common
Stock, each director and executive officers of the Company, and the directors
and executive officers of the Company as a group, and as adjusted to reflect the
offering of Common Stock by this Prospectus. The persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
owned by them, unless otherwise noted. The address for each person below listed
is c/o the Company, 1109 NW 13th Street, Gainesville, Florida 32601, unless
otherwise noted.

                                       82
Percent of Class
                                                                                          -------------------------
                                                          Amount and Nature of             Before            After
             Name of Beneficial Owner                     Beneficial Ownership            Offering         Offering
             ------------------------                     --------------------            --------         --------
Arup Sen, Chairman of the Board, Chief
  Executive Officer and President                          2,715,360 (1)(2)                20.23%          14.85%
 
David Saloff, Director and Executive Vice                    393,485 (2)(3)                 2.93%           2.14%
  President

Murray Feldman, Director                                     917,910 (2)(4)                 6.90%           5.01%

Richard K.  Kneipper, Vice Chairman and
  Director                                                 1,342,694 (2)(5)                10.11%           7.34%

Bernard Carrico, Director                                      3,000 (5)                     *               *

Krishna Jayaraman, Director and Chief
  Executive Officer, Gemini BioTech Division                  50,000 (6)                     *               *

James Kaput, Vice President, Gemini                        1,339,694 (2)                   10.09%           7.33% 
      Biotech Division

Norton Herrick
      2295 Corporate Blvd., NW, Suite 222
      Boca Raton, FL 33431                                 1,893,950 (2)(7)                14.26%          10.36%

Paragon Capital Corporation
  at Spear, Leeds, Kellogg, LLC
      c/o George Levine
      1250 E. Hallandale Beach Blvd., Suite 300
      Hallandale, FL 33309                                   571,039 (2)                    4.30%           3.12%

Elan International Services, Ltd.
      102 St. James Court         
      Flatts, Smith Parish, Bermuda FL04                   7,027,202 (8)                   35.98%          35.78%

All directors and executive officers
  as a group (7 persons)                                   5,416,449 (2)                   46.98%          35.97%

* Less than one percent (1%)
(1)  Includes 436,966 shares subject to presently exercisable options.
(2)  To the extent that this person or persons shares voting power pursuant to
     the Master Agreement, such person or persons may be deemed to be a member
     of a "group" with the EPHI Group, the HTD Group and the Gemini Group
     pursuant to Rule 13d-5 under the Securities Exchange Ac of 1934, (the
     "Exchange Act") and this person or persons is deemed to beneficially own
     the shares of Common Stock currently beneficially owned by each of the
     other members of the group with which this person or persons shares such
     voting power, namely, Mr. Herrick (1,893,950 shares of Common Stock), Mr.
     Saloff (259,199 shares of Common Stock and presently exercisable options to
     purchase 134,286 shares of Common Stock), Mr. Feldman (895,410 shares of
     Common Stock and presently exercisable options to purchase 22,500 shares of
     Common Stock), Mr. Levine and Paragon Capital Corporation at Spear, Leeds &
     Kellogg, LLC (571,039 shares of Common Stock), Dr. Sen (2,278,394 shares of
     Common stock and presently exercisable options to purchase 436,966 shares
     of Common Stock), Mr. Kneipper (1,339,694 shares of Common Stock), Mr.
     Kaput (1,339,694 shares of Common Stock) and

                                       83
Mr. Jayaraman (50,000 presently exercisable options to purchase 50,000
     shares of Common Stock. See note (6) below regarding additional rights to
     acquire shares of Common Stock that are not currently exercisable. As of
     August 31 1998, the shares of Common Stock beneficially owned by the EPHI
     Group, the HTD Group and the Gemini Group represent approximately 70.13% of
     the issued and outstanding shares of Common Stock, calculated in accordance
     with Rule 13d-3 under the Exchange Act (based on 12,505,480 shares of
     Common Stock issued and outstanding following the consummation of the
     Reorganization, plus the 134,286, 22,500, 436,966 shares of Common Stock,
     respectively, issuable to Messrs. Saloff, Feldman and Sen, respectively,
     upon exercise of certain options in each case which may be deemed to be
     beneficially owned by such persons and which are deemed outstanding for
     purposes of this computation). Each such person or persons shares voting
     power of the shares of Common Stock beneficially owned by the respective
     group to which he belongs as described above, but has no other rights with
     respect to such shares and disclaims beneficial ownership of such shares.
(3)  Includes 134,286 shares subject to presently exercisable options.
(4)  Includes 22,500 shares subject to presently exercisable options.
(5)  Includes 3,000 shares subject to presently exercisable options.
(6)  Includes 50,000 shares subject to presently exercisable options. Dr.
     Jayaraman and his wife also have the right to convert their partnership
     units in the Partnership after August 23, 1999 into 6,000,000 shares of
     Common Stock.
(7)  Mr. Herrick disclaims beneficial ownership of 60,000 shares of Common Stock
     owned by Rozel International Holdings, which shares are pledged to Mr.
     Herrick as security for a loan.
 (8) Includes 7,500 shares of Series A Convertible
     Preferred Stock convertible into 6,250,000 shares of Common Stock.

                          DESCRIPTION OF CAPITAL STOCK

         General. As of the date of this Prospectus, the authorized capital
stock of the Company consisted of 30,000,000 shares of Common Stock, $.01 par
value, of which 12,505,480 shares were outstanding, and 10,000,000 shares of
Preferred Stock, $.01 par value, 7,500 shares of which were outstanding as the
Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock").
The Company is in the process of preparing an amendment to its Certificate of
Incorporation, as amended (the "EPI Certificate") and submitting such amendment
to the shareholders for approval, to increase the authorized number of shares of
Common Stock to 50,000,000 shares.

         The following description of the securities of the Company and certain
provisions of the EPI and Restated By-laws (the "EPI By-Laws"), is a summary and
is qualified in its entirety by the provisions of the EPI Certificate and the
EPI By-Laws as currently in effect. As of the date of this Prospectus, the
Company's Common Stock is held of record by 81 stockholders and its Series A
Preferred Stock, which is the only class of the Company's Preferred Stock issued
and outstanding, is held of record by one stockholder, Elan.

         EPI Common Stock. Holders of Common Stock are entitled to one vote for
each share held of record on all matters submitted to a vote of stockholders,
including the election of directors. Accordingly, holders of a majority of the
shares of Common Stock entitled to vote in any election of directors may elect
all of the directors standing for election if they choose to do so. The EPI
Certificate does not provide for cumulative voting for the election of
directors. Subject to preferential rights of any issued and outstanding
Preferred Stock, including the Series A Preferred Stock, holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Company's Board of Directors out of funds legally available
therefor, and will be entitled to receive, pro rata, all assets of the Company,
if any, remaining after payment of liabilities and the liquidation preferences
of any issued and outstanding Preferred

                                       84
Stock and available for distribution to such holders upon liquidation,
dissolution or winding-up of the Company. Holders of Common Stock have no
preemptive, subscription or redemption rights. All outstanding shares of Common
Stock are, and the shares of Common Stock offered hereby, upon issuance, will
be, fully paid and nonassessable.

         Preferred Stock. Pursuant to the EPI Certificate, the Company is
authorized to issue up to 10,000,000 shares of "blank check" Preferred Stock,
which may be issued from time to time in one or more series upon authorization
by the Company's Board of Directors. Subject to the terms of any issued and
outstanding Preferred Stock (including without limitation the Series A Preferred
Stock), the Board of Directors, without further approval of the stockholders, is
authorized to fix the designations, powers, preferences, rights, qualifications,
limitations and restrictions of all shares of each such series, including
without limitation voting rights, dividend rates, redemption and sinking fund
provisions, liquidation preferences, conversion rights, and the number of shares
constituting each such series, and any other rights, preferences, privileges and
restrictions applicable to each series of the Preferred Stock. The issuance of
the Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, among other things, will likely
decrease the amount of earnings and assets available for distribution to holders
of the Common Stock as dividends or upon liquidation, respectively, and could
adversely affect the rights and powers, including the voting rights, of the
holders of the Common Stock and, under certain circumstances, make it more
difficult for a third party to gain control of the Company, discourage bids for
the Common Stock at a premium or otherwise adversely affect the market price of
the Common Stock.

         Series A Convertible Preferred Stock

         Liquidation Preference; Ranking. Each share of Series A Preferred Stock
has a liquidation preference of $1,000, plus accrued and unpaid dividends (the
"Liquidation Preference"). The Series A Preferred Stock ranks senior in right of
payment to all Common Stock, but ranks junior in right of payment to all
indebtedness of the Company.

         Dividends. 10% per annum, payable semi-annually in cash, or in the
Company's discretion, by the issuance of additional shares of Series A Preferred
Stock on the same terms and conditions as the original issuance. The Series A
Preferred Stock will share in the same amount of dividends as would be payable
on the number of shares of Common Stock into which the Series A Preferred Stock
could be converted.

         Conversion. At the option of the holders thereof, at any time or from
time to time, each share of Series A Preferred Stock will be convertible into a
number of shares of the Common Stock obtained by dividing the outstanding amount
($7,500,000) plus accrued paid-in-kind dividends by $1.20 subject to adjustment
in certain circumstances to prevent dilution.

         Redemption. The Company has the right to call all or any portion of the
Series A Preferred Stock for redemption in cash for an amount equal to the
Liquidation Preference from and after October 1, 2003, if the closing bid price
of the Common stock is equal or greater than $2.50 per share for 20 out of 30
consecutive trading days. Thirty to sixty days prior to redemption, the Company
must give notice of redemption. If prior to redemption, the closing bid price
per share of Common Stock is below $2.50 for 45 consecutive days, then any
redemption notice shall be ineffective and the time period shall begin again.
The Series A Preferred Stock is mandatorily redeemable by the Company in cash
for an amount equal to the Liquidation Preference on September 30, 2005, unless
the Company determines that it has insufficient capital resources, in which case
the Series A Preferred stockholder must elect either to (I) extend the mandatory
redemption date to a date acceptable to the Company or (ii) accept in redemption
a number of shares of Common Stock equal to the quotient obtained by dividing
the Liquidation Preference by the current market price of the Common Stock at
such time.

                                       85
Voting Rights. In addition to the other voting rights provided by law
and those described below, holders of the Series A Preferred Stock are entitled
to vote together with the holders of the Company's Common Stock as a single
class on all matters submitted to a vote of stockholders. With respect to any
such vote, each share of Series A Preferred Stock is entitled to one vote for
each share of Common Stock into which such share of Preferred Stock could then
be converted.

         The affirmative vote of the holders of at least a majority of the
outstanding shares of the Series A Preferred Stock is necessary to (I) increase
or decrease the authorized or outstanding number of the shares of Series A
Preferred Stock so as to adversely affect the shares, (ii) authorize or issue
stock or securities convertible into or exercisable for stock having equal or
greater rights than the Series A Preferred Stock, or (iii) authorize or issue a
series of Preferred Stock having equal or greater rights than the Series A
Preferred Stock.

         Right of Exchange. If, as a result of Elan's purchase of equity
securities of the Company, Elan's aggregate interest in the Common Stock exceeds
19.9% of the outstanding Common Stock, Elan may elect to receive non-voting
securities of the Company to the extent of such excess, and Elan also will have
the right to exchange the new class of equity security for voting securities of
the Company. Assuming a public offering price of $.80 per share, Elan will own
approximately 16% (excluding warrants) of the outstanding Common Stock after the
offering. See "Risk Factors - Potential Dilution; Absence of Dividends",
"Transactions Related to the Offering" and "Certain Transactions".

         Elan Nominee to Board of Directors. The Company has agreed to take all
necessary actions to create a vacancy in the board of directors, to be filled by
a designee of Elan who is reasonably satisfactory to the Company. As long as
Elan beneficially owns 5% of the outstanding Common Stock, the Company has
agreed to include Elan's designee in the management-recommended slate of
directors at all meetings at which directors are elected.

Warrants

         As an incentive to extend the maturity dates of notes payable to
related parties, in August and November 1993, the Company issued five-year
warrants for the purchase of an aggregate of 8,717 shares of Common Stock at
$5.42 per share.

         During 1994, the Company issued five-year warrants for the purchase of
9,685 shares of Common Stock at $5.03 per share to a shareholder and creditor of
the Company as consideration for extending the maturity date of notes payable
due to the shareholder. Also during 1994, the Company issued five-year warrants
for the purchase of 41,969 shares of Common Stock at $5.03 per share to a
consultant of the Company for certain contributions of scientific development of
the Company.

                                       86
During June 1995, the Company issued five-year warrants to purchase
30,000 shares of Common Stock at $4.00 per share to consultants of the Company
for certain investor relations work. Further, a four-year warrant to purchase
25,000 shares of Common Stock at $5.25 per share was issued to a consultant to
the Company for certain scientific contributions to the Company.

         In November 1995, the Company issued five-year warrants to an
investment banker to purchase 100,000 shares of Common Stock at $5.50 per share
in connection with services rendered in an investment transaction in the Company
by an investor. In December 1995, five year warrants to purchase 65,000 shares
of Common Stock at $1.00 per shares were issued to a consultant to the Company
as full consideration for a three year financial consulting contract. These
warrants issued in November 1995 contain certain piggyback registration rights.
See "-- Registration Rights."

         In April 1997, a ten-year warrant to purchase 25,000 shares of Common
Stock at $2.25 was issued to the Joseph Mooibroek as part of his severance
agreement.

         All of the foregoing warrants are currently exercisable but none of the
foregoing warrants have been exercised. The above warrants in the aggregate
entitle the holders thereof to acquire 317,371 shares of Common Stock.

         Under the Elan Agreements, on September 30, 1998, Elan was issued a
seven-year warrant to acquire 1,000,000 shares of Common Stock at an exercise
price of $2.50 per shares, which warrant is exercisable on or after June 27,
1999. The exercise price of the Elan Warrant is subject to adjustment in the
event of below-market issuances of Common Stock or below-market grants or
exercises of options or warrants, excluding outstanding warrants as of September
30, 1998 and up to 2,250,000 options. The Company has granted Elan certain
registration rights in connection with the Elan Warrant. See "-- Registration
Rights."

Elan's Obligation to Purchase Common Stock

         Under the Elan agreements, Elan has agreed to invest, upon request by
EPI during the 60-day period ending November 29, 1998, $2 million to acquire
shares of Common Stock at a price per share equal to the per share price at
which EPI sells up to an additional $2 million of Common Stock to other
investors or, if no sales are consummated, at the average closing price of the
EPI Common Stock for the 20 consecutive trading days prior to the acquisition,
and, in any event, at a maximum price of $1.375 per share. On October 30, 1998,
the Company issued Elan 777,202 shares of Common Stock at $0.772 per share, with
aggregate proceeds of $600,000.

Exchange Rights for Partnership Units

         Pursuant to the Reorganization, the Jayaramans have the right to
exchange their 6,000,000 partnership units in Gemini Health Technologies L.P.
(the "Partnership") on a one unit for one share basis for Common Stock on or
after June 18, 1999. The Jayaramans are also entitled to earn up to 2, 050,000
in the Partnership units upon the achievement of certain milestones. The
additional Partnership units are subject to the same exchange rights as the
6,000,000 Partnership units. See - "Eear Out Shares." The Jayaramans are also
entitled to certain demand and piggy-back registration rights. See -
"Registration Rights".

                                       87
Earn-Out Shares

         Under the Reorganization, the shareholders of HTD are entitled on a pro
rata basis to earn up to an additional 1,650,000 shares of Common Stock upon the
achievement of certain milestones. These shares are subject to certain
registration rights (See - "Registration Rights"). Under the terms of the Gemini
acquisition, Gemini partners are entitled to receive an additional up to
2,050,000 Partnership Units, each exchangeable to the Company's Common Stock on
a one for one basis, upon the achievement of certain milestones relating to
Gemini service of business and Technologies and Certain if the earn-out shares
that may be issued to HTD shareholders and Gemini partners and adjustable based
on the trading price of the Company's Common Stock at the time when the
milestones are achieved.

Options

         As of October 30, 1998, options to purchase 1,500,000 shares of
Common Stock were outstanding under EPI's Stock Option, Plan, 1,134,988 of which
were exercisable on that date at prices ranging between $.26 and $5.50 per
share. An additional 408,988 shares have been granted, subject to amendment to
the Stock Option Plan authorizing sufficient additional shares under the plan to
cover such grants.

Registration Rights

         The holders of an aggregate of 9,462,828 shares of Common Stock and
other securities or rights exchangeable or convertible into 17,115,000 shares of
Common Stock consisting of 1,165,000 warrants, 3,700,000 earn out rights,
6,000,000 partnership units, and 7,500 shares of Preferred Stock convertible
into 6,250,000 shares of Common Stock are entitled to certain registration
rights as set forth below:

         Reorganization Agreements. Under the terms of a registration rights
agreement entered into in connection with the Reorganization Transactions,
certain registration rights were granted to the following individuals with
respect to shares of Common Stock issued or to be issued to such shareholders in
connection with the Reorganization Transactions: Gemini Group 6,000,000 shares,
the HTD Group 6,172,095 shares, Norton Herrick 1,893,950 shares and other
members of the EPHI Group 250,000 shares. The agreement also grants rights to
Gemini Group and the HTD Group to register up to 2,050,000 and 1,138,650 earn
out shares, respectively, which are issuable upon the achievement of certain
milestones.

         The Company agreed to file the current registration statement
registering such shares for sale by the holders as soon as reasonably
practicable, and to use its reasonable efforts to have the registration
statement declared effective and remain continuously effective for at least a
one-year period, subject to certain deferrals and restrictions, including the
right of underwriters of an offering to limit the number of shares to be
included in such registration. The Company agreed to use its reasonable efforts
to regain its eligibility to use Form S-3 and refile the registration statement
on Form S-3 and maintain its effectiveness until all of the holders can resell
their shares under Rule 144(k). Following the one-year period of effectiveness,
at the request of any holder, the Company has agreed to keep the registration
statement effective so long as such holder pays to the Company the cost of
maintaining the effectiveness of the registration statement. The holders also
have certain piggyback registration rights, subject to certain restrictions, if
the Company proposes to register its securities, either for its own account or
for the account of other security holders for cash.

         Under the terms of the HTD merger agreement entered into in connection
with the Reorganization Transactions, another 47,000 shares of Common Stock held
by EPI non-affiliate shareholders, an additional 1,349,197 shares of Common
Stock held by non-affiliate HTD shareholders, and up to 361,350 shares of Common
Stock issuable to non-affiliate HTD shareholders in connection with the
achievement of certain milestones, are subject to registration under the
registration statement and the Company has agreed to use its reasonable efforts
to cause the registration statement to become effective. The Company has agreed
to file all amendments or supplements to the registration statement in order to
allow for resales of the Common Stock described above for a period of one year
until August 24, 1999.

                                       88
In connection with the Reorganization, the Company issued Jones, Day,
Revis and Pogue 322,581 shares of Common Stock as payment for $650,000 in
overdue billings. The Company agreed to Register these shares in the Current
Registration Statement.

EPi Warrants

         Holders of 165,000 warrants issued in November 1995 (See - "Warrants")
have certain piggyback registration rights during the term of the warrant. They
are entitled to thirty days' prior notice of any registration by the Company,
and subject to certain restrictions, are entitled to have their shares included
in such registration statement.

Elan Transactions

         Pursuant to the Elan Agreement, any holder that holds securities
representing at least 1,250,000 shares of Common Stock has the right, on not
more than two occasions and subject to certain limitations, to require the
Company to register under the Securities Act, all or part of the registrable
securities, including approximately 2,527,202 shares of Common Stock (assuming a
$.80 per share market price on the remaining $1,400,000 of Common Stock which
Elan has agreed to purchase) and the 7,250,000 shares of Common Stock Elan may
acquire upon exercising its warrant and converting its Preferred Stock. The
Holders will have the right to select the investment bankers and managers to
administer an offering under a demand registration, subject to the Company's
approval. The Elan Agreement also provides that the Company shall include all
registrable securities beneficially owned by the Holder in the registration
statement, and if the registration statement is not declared effective, or the
effectiveness lapses, if the Company proposes to file a registration statement
under the Securities Act with respect to an offering by the Company, Elan will
be entitled to include all or part of its shares in that registration, subject
to the right of the managing underwriter to exclude shares from such
registration to the extent their inclusion would adversely affect the marketing
of the shares to be sold. To the extent that shares of the Common Stock have not
been sold pursuant to one of the foregoing registration statements, the Company
is required to register the Common Stock issuable upon conversion of the Series
A Preferred Stock within 60 days of the date of conversion; the other Common
Stock issued upon exercise of the Elan Warrant within 60 days of the initial
exercise thereof; and the Common Stock issued or issuable within 15 months of
September 30, 1998. In connection with the Elan Agreements, Elan has agreed not
to sell or otherwise dispose of any of its shares of Common Stock for a period
of 180 days following September 30, 1998. See "Shares Eligible for Future Sale."

                         DELAWARE ANTI-TAKEOVER LAW AND
                           CERTAIN CHARTER PROVISIONS

         The existence of the authorized but unissued Preferred Stock could have
the effect of making it more difficult for a third party to effect a change in
the control of the Board and therefore may discourage another person or entity
from making a tender offer for the Company's Common Stock, inducing offers at a
premium over the market price of the Common stock, and might result in a delay
in changes in control of management. In addition, these provisions could have
the effect of making it more difficult for proposals favored by shareholders to
be presented for shareholder consideration.

                                       89
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or at any time during the prior three years has
owned) 15% or more of the corporation's voting stock.

                          TRANSFER AGENT AND REGISTRAR

         The transfer agent and registrar for the Company's Common Stock is
Continental Stock Transfer and Trust Company.

                         SHARES ELIGIBLE FOR FUTURE SALE

         The Company has outstanding an aggregate of 13,282,682 shares of Common
Stock and 7,500 shares of Series A Preferred Stock. In addition, the Company has
reserved for issuance the remaining 16,717,318 shares of its authorized Common
Stock to meet the following contingent commitments to issue Common Stock:
12,250,000 shares issuable upon conversion of the Preferred Stock and accrued
paid in kind dividends thereon, 6,000,000 shares issuable upon exchange of
partnership units, 3,700,000 shares issuable as earn out shares pursuant to the
Reorganization, 100,000 shares issuable pursuant to a consulting agreement,
20,000 shares issuable pursuant to the Non-Employee Directors Equity
Compensation Plan for calendar year 1998, 1,500,000 shares issuable upon
exercise of stock options under the Company's stock option plan, 1,165,000
shares exercisable upon the exchange of warrants and 1,750,000 shares issuable
to Elan to fulfill its remaining commitment to purchase the Common Stock. These
contingent commitments exceed the authorized number of shares of Common Stock by
6,067,682 shares. The Company, however, is in the process of preparing an
Amendment to the EPI Certificate, and submitting such amendment to the
stockholders for approval, to increase the authorized number of shares of Common
Stock to 50,000,000 shares.

         Upon completion of this Offering, the Company will have outstanding
17,799,305 shares of Common Stock. Of these shares, the 13,979,451 shares of
Common Stock to be sold in this offering by the Company and the Selling
Shareholders will be freely tradeable without restriction or limitation except
to the extent such shares are subject to the "lock-up" agreements described
below, and except for shares purchased by "affiliates" of the Company, as that
term is defined in the Act. In addition, an aggregate of _______ shares of
Common Stock presently outstanding are also freely tradeable without restriction
or limitation under the Act. The remaining _______shares of Common Stock held by
existing shareholders are "restricted securities" as that term is defined in
Rule 144. Restricted securities may be sold in the public market only if they
are registered or if they qualify for exemption from registration under Rules
1244 or 701 under the Securities Act or otherwise.

         Lock-Up Agreements. The Selling Shareholders, pursuant to the
Reorganization have agreed to a "lock-up" until August 23, 1999 of the 8,044,095
shares of Common Stock issued in the Reorganization and the 9,700,000 shares of
Common Stock which may be issued through exchange or earn out in the
Reorganization. In addition, Elan has agreed to a "lock up" until June 27, 1999,
of the 777,202 shares of Common Stock issued to them, an additional 1,750,000
shares of Common Stock to be issued prior to year-end, and 7,250,000 shares of
Common Stock which may be issued on the conversion of the preferred stock or the
exercise of warrants. Following the lock-up periods, these shares will be
eligible for sale in the public market, subject to the conditions and
restrictions of Rule 144 under Act, as hereinafter described.

                                       90
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least one year is entitled to sell, within any three-month period
commencing 90 days after the date of this prospectus, a number of shares that
does not exceed the greater of (i) 1% of the then outstanding Common Shares or
(ii) the average weekly trading volume in the Common Shares during the four
calendar weeks preceding such sale, subject to the filing of a Form 144 with
respect to such sale and certain other limitations and restrictions. In
addition, a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, would be entitled to sell
such shares under Rule 144(k) without regard to the volume, manner of sale and
other limitations described above.

                              PLAN OF DISTRIBUTION

         The Company proposes to sell up to 5,000,000 shares of Common Stock at
a proposed price of $.80 per share directly to members of the public residing in
selected states. Announcements of this offering, in the form prescribed by Rule
134 of the Securities Act of 1933, will be communicated to selected persons.
There is no required minimum number of shares of Common Stock to be sold, and
all funds received will go immediately to the Company. If few shares of Common
Stock are sold, the result could be that all the proceeds will be used to pay
the expenses of this offering. This offering will begin on the date of this
Prospectus and continue for up to six months (unless extended) or until the
5,000,000 shares of Common Stock offered are sold or such earlier date as the
Company may close or terminate the offering. All shares of Common Stock will be
sold at the proposed public offering price of $.80 per share and a proposed
minimum purchase of 1,000 shares of Common Stock ($800) is required. Since there
is no minimum number of shares of Common Stock to be sold, there is no escrow
account for the deposit of subscribers' funds and no arrangements to return the
funds if all of the shares of Common Stock offered are not sold.

         The Company plans to offer and sell the shares of Common Stock directly
to investors through the Company's officers, employees and directors, and has
not retained any underwriters, brokers dealers or placement agents in connection
with this offering. However, the Company reserves the right to use brokers,
dealers, or placement agents and could pay commissions equal to as much as 10
percent of the gross proceeds. The Company will effect offers and sales of
shares of Common Stock through printed copies of this Prospectus delivered by
mail and electronically, by contacting prospective investors by publicizing this
offering through a posting on the Company's World Wide Website (which will be
established in November 1998), by publicizing this offering through newspaper
advertisements and by contacting additional potential investors by direct e-mail
and regular mail solicitation. Any voice or other communications will be
conducted in certain states through the Company's officers, employees and
directors, and in other states, where required, through a designated sales
agent, licensed in those states. Under Rule 3a4-1 of the Securities Exchange Act
of 1934 ("Exchange Act"), none of these officers, employees or directors of the
Company will be deemed a "broker", as defined in the Exchange Act, solely by
reason of participation in this offering, because (1) none is subject to any of
the statutory disqualifications in Section 3(a)(39) of the Exchange Act, (2) in
connection with the sale of the shares of Common Stock offered, none will
receive, directly or indirectly, any commissions or other remuneration based
either directly or indirectly on transactions in securities, (3) none is an
associated person (partner, officer, director or employee) of a broker or
dealer, and (4) each meets all of the following conditions: (a) primarily
performs substantial duties for the issuer otherwise than in connection with
transactions in securities; (b) was not a broker or dealer, or an associated
person of a broker or dealer, within the preceding 12 months; and (c) will not
participate in selling an offering of securities for any issuer more than once
every 12 months.

                                       91
To subscribe for shares of Common Stock, each prospective investor must
complete, date, execute and deliver to the Company (a) a Share Purchase
Agreement and (b) the purchase price of the shares of Common Stock subscribed
for by check payable to Electropharmacology, Inc. A copy of the Share Purchase
Agreement is included with this Prospectus at page ___.

         The Company reserves the right to reject any Share Purchase Agreement
in its entirety or to allocate shares of Common Stock for any reason whatsoever.
If any Share Purchase Agreement is rejected, funds received by the Company for
such subscription will be returned to the subscriber without interest or
deduction.

         Within five days of its receipt of a Share Purchase Agreement
accompanied by a check for the purchase price, the Company will send by first
class mail a written confirmation to notify the subscriber of the extent, if
any, to which such subscription has been accepted by the Company. Not more than
30 days following the mailing of its written confirmation, a subscriber's Common
Stock certificate will be mailed by first class mail. The Company shall not use
the proceeds paid by any subscriber until the Common Stock certificate
evidencing such investment has been mailed to such subscriber.

         There is only a limited public market for the Common Stock, and there
is no assurance that a more active trading market will develop as a result of
the completion of this offering (see "Price Range for Common Stock" and "Risk
Factors" Limited Prior Public Market for Common Stock; Possible Volatility of
Stock Price".)

                                  LEGAL MATTERS

         The validity of the Common Shares offered hereby will be passed upon
for the Company by Goodman Phillips & Vineberg, New York, New York.

                        CHANGES IN AND DISAGREEMENTS WITH
                        AUDITORS AND FINANCIAL DISCLOSURE

         On November 14, 1996, the Company discontinued the services of BDO
Seidman, LLP as its principal independent auditor. The report of BDO Seidman,
LLP on the financial statements of the Company for the year ended December 31,
1995, did not contain an adverse opinion or a disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audit of the fiscal year ended December 31, 1995 and
during the period from January 1, 1996 through November 14, 1996, there were no
disagreements with BDO Seidman, LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures or
any reportable events. The auditor's report of BDO Seidman, LLP on the financial
statements of the Company, as of and for the year ended December 31, 1994, was
modified to raise substantial doubt about the Company's ability to continue as a
going concern. BDO Seidman, LLP changed its auditor's report to an unqualified
opinion in connection with the issuance of the December 31, 1995 financial
statements. The decision to change auditors was approved by the Company's Board
of Directors.

         The Company retained, __________ in January 1997 to act as the
Company's independent auditors. The Company selected ________ because of its
breadth of experience in the health care industry.

                                       92
EXPERTS

         The financial statements of the Company at December 31, 1996 and 1997,
and for each of the two years in the period ended December 31, 1997, appearing
in this Prospectus and Registration Statement have been audited by______________
________, independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement, and are included in reliance
on such report given upon the authority of such firm as experts in accounting
and auditing.

         The financial statements of the Company at and for the year ended
December 31, 1995, appearing in this Prospectus and Registration Statement have
been audited by __________________, independent auditors, as set forth in their
report thereon appearing elsewhere herein and in the Registration Statement, and
are included in reliance on such report given upon the authority of such firm as
experts in accounting and auditing.

         Each of the following financial statements have been audited by
Sweeney, Gates & Co., as set forth in each of their reports thereon appearing
elsewhere herein and in the Registration Statement, and are included in reliance
on such reports given upon the authority of such firm as experts in accounting
and auditing:

         The financial Statements of HTD at December 31, 1996 and 1997, and for
each of the three years in the period ended December 31, 1997 and for the period
from December 14, 1993 (inception) to December 31, 1997;

         The financial statements of Delargen d/b/a Gemini Biotech, Inc.at
December 31, 1996 and for the six months ended June 30, 1997, the year ended
December 31, 1996 and for the period from January 14, 1996 (inception) to June
30, 1997; and

         The financial statements of Gemini Biotech, Ltd., at December 31, 1997
and for the period from July 1, 1997 (date of commencement of operations) to
December 31, 1997.

ADDITIONAL INFORMATION

         The Company is subject to the information and reporting requirements of
the Securities and Exchange Act of 1934, as amended, and in accordance therewith
files periodic reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Company intends to
furnish to its shareholders annual reports containing financial statements
audited by an independent public accounting firm and will make available copies
of quarterly reports containing unaudited financial statements for the first
three quarters of each fiscal year.

         The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement (which term shall include all amendments, exhibits and
schedules thereto) on Form S-1 under the Securities Act with respect to the
Common Shares offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, to which Registration Statement
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at N.W.,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. In addition, the Company is required to file
electronic versions of

                                       93
these documents with the Commission through the Commission's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a
World

                                       94
INDEX TO FINANCIAL STATEMENTS AND
                          SUPPLEMENTARY FINANCIAL DATA
PAGE
                                                                                          ----
Pro Forma Condensed Combined Financial Statements:
         Introduction                                                                     F-2
         Pro Forma Condensed Combined Balance Sheet -
              June 30, 1998 (unaudited)                                                   F-3
         Pro Forma Condensed Combined Statement of Operations - Six Months
              Ended June 30, 1998 (unaudited) and Year Ended December 31, 1997
              (unaudited)                                                                 F-4
         Notes to Pro Forma Condensed Combined Financial Statements                       F-6

EPi Financial Statements:
         Report of Independent Certified Public Accountants                               F-11
         Report of Independent Certified Public Accountants                               F-12
         Balance Sheets - June 30, 1998 (unaudited) and December 31, 1997 and 
              1996 (audited)                                                              F-13
         Statement of Operations - Six Months Ended June 30, 1998 and 1997
              (unaudited) and for Each of the Three Years in the Period Ended
              December 31, 1997 (audited)                                                 F-14
         Statements of Stockholders' Equity - Six Months Ended June 30, 1998
              (unaudited) and for Each of the Three Years in the Period Ended
              December 31, 1997 (audited)                                                 F-15
         Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997
              (unaudited) and for Each of the Three Years in the Period Ended
              December 31, 1997 (audited)                                                 F-16
         Notes to Financial Statements                                                    F-18

HTD Financial Statements:
         Report of Independent Certified Public Accountants, Sweeney, Gates &
              Company                                                                     F-37
         Balance Sheet - June 30, 1998 (unaudited)                                       
              and December 31, 1997 and 1996 (audited)                                    F-38
         Statements of Operations - Six Months Ended June 30, 1998 and 1997 and
              period from December 14, 1993 (inception) to June 30, 1998 
              (unaudited); For each of the Three Years in the Period Ended
              December 31, 1997; and Period from December 14, 1993 (inception)
              to December 31, 1997 (audited)                                              F-39
         Statements of Stockholders' Equity (Deficit)- for period from December
              14, 1993 to December 31, 1997 (audited) and Six Months Ended June
              30, 1998 (unaudited)                                                        F-40
         Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997 and
              for the Period from December 14, 1993 to June 30, 1998
              (unaudited); for each of the Three Years in the Period Ended
              December 31, 1997 and for the Period from December 14, 1993
              (inception) to December 31, 1997 (audited)                                  F-41
         Notes to Financial Statements                                                    F-42

Delargen d/b/a Gemini Biotech, Inc. Financial Statements:
         Report of Independent Certified Public Accountants, Sweeney, Gates &
              Company                                                                     F-46
         Balance Sheet - December 31, 1996                                                F-47
         Statements of Operations - Six Months Ended June 30, 1997, Year Ended
              December 31, 1996 and for the Period January 1, 1996 (inception)
              to June 30, 1997                                                            F-48
         Statements of Stockholders' Equity - For the Period January 1, 1996
              (inception) to June 30, 1997                                                F-49
         Statements of Cash Flows - Six Months Ended June 30, 1997, Year Ended
              December 31, 1996 and for the Period January 1, 1996 (inception)
              to June 30, 1997                                                            F-50
         Notes to Financial Statements                                                    F-51

Gemini Financial Statements:
         Report of Independent Certified Public Accountants, Sweeney, Gates &
              Company                                                                     F-55
         Balance Sheet - June 30, 1998 (unaudited) and December 31, 1997
              (audited)                                                                   F-56
         Statements of Operations - Six Months Ended June 30, 1998 and for the
              period July 1, 1997 (date of commencement of operations) to June
              30, 1998 (unaudited) and for the period July 1, 1997 (date of
              commencement of operations) to December 31, 1997 (audited)                  F-57
         Statements of Partnership Capital (Deficit) -Six Months Ended June 30,
              1998 (unaudited) and for the period July 1, 1997 (date of
              commencement of operations to December 31, 1997 (audited)                   F-58
         Statements of Cash Flows - Six Months Ended June 30, 1998 and for the
              period July 1, 1997 (date of commencement of operations) to June
              30, 1998 (unaudited) and for the period July 1, 1997 (date of
              commencement of operations) to December 31, 1997 (audited)                  F-59
         Notes to Financial Statements                                                    F-60
F-1
ELECTROPHARMACOLOGY, INC.
                         PRO FORMA FINANCIAL INFORMATION
                                   (unaudited)

         The accompanying unaudited Pro Forma Condensed Combined Balance Sheet
as of June 30, 1998 and the related unaudited Pro Forma Condensed Combined
Statement of Operations for the period ended June 30, 1998 and the year ended
December 31, 1997 give effect to (i) the acquisitions by the Company of
HealthTech Development, Inc., a development stage company ("HTD"), and Gemini
Biotech L.P., a development stage company ("GBLP") as of August 24, 1998 (see
"Business-Recent Corporate Reorganization"); (ii) the sale of the Company's
medical device business to AA Northvale Medical Associates, Inc. ("AANMA") as of
August 24, 1998 (see "Business-Recent Corporate Reorganization"); and (iii) the
acquisition of a worldwide license to Elan's flexible iontophoretic patch
technology for non-cosmetic dermatology and wound care application as of
September 30, 1998 (see "Business-Recent Elan Transactions"); and (iv) the
investment of $600,000 in Common Stock of the Company by Elan as of October 30,
1998 and an additional investment of $1,400,000 in Common Stock of the Company
by Elan to be made in December 1998 (see "Business-Recent Elan Transactions").

         The pro forma adjustments assume that these transactions had occurred
as of June 30, 1998 in the case of the Pro Forma Condensed Combined Balance
Sheet, or January 1, 1997 in the case of the Pro Forma Condensed Combined
Statement of Operations.

         These unaudited pro forma financial statements have been prepared by
management of the Company and should be read in conjunction with the historical
financial statements of the Company, HTD and GBLP included elsewhere in this
Prospectus (see "Index to Financial Statements"). The historical balances
represent the financial position and results of operations for each company and
have been prepared in accordance with generally accepted accounting principles.

         These unaudited pro forma financial statements are based on certain
assumptions and estimates which are subject to change, including in particular
the valuations of the technologies and other assets acquired by the Company from
HTD, GBLP and Elan and allocation of the purchase prices therefor between
inventory and in-process research and development. In determining the purchase
prices for the valuations of each of such acquisitions of technology, the
Company considered various valuation methodologies including the income
approach, stock price approach and comparable company approach. The Company
concluded that the preceding 20 day average price for the Common Stock of the
Company issued in such acquisition was the most appropriate and logical
valuation methodology and thus used it to account for the valuation of the
respective technologies acquired. Although the Company has used valuations that
it believes are reasonable based on its significant knowledge of such assets,
the technologies, chemical compounds, gene databases, intellectual property
rights and other intangible assets so acquired are not
at this time susceptible to precise valuation, and there can be no assurance
that such valuations are accurate or reliable (see "Risk Factors - Uncertainty
About Technologies and Successful Development of Products" and "Notes to Pro
Forma Financial Statements").

         In preparing our pro forma financial statements, we have attempted to
estimate the length of time and cost to advance each of the technologies into a
potential commercial product, as to which there can be no assurance (see "Risk
Factors"). Although we have used our experience and observation in the industry,
the results are estimates only. We are not sure if the valuation and the
respective allocation of the purchase price and the corresponding accounting
treatment as in-process research and development in the financial statements is
correct since we cannot at this time predict the outcome of any technology at
this early stage of development. Accordingly, these statements do not purport to
be indicative of the financial position or results of operations that might have
occurred, nor are they necessarily indicative of future results.

                                      F-2
Electropharmacology, Inc.
              Unaudited Pro Forma Condensed Combined Balance Sheet
                                 June 30, 1998
Historical                Merger                               
                                                    -----------------------       -----------                            
ASSETS                                                                             Pro Forma                   Pro Forma 
------                                                  EPi           HTD         Adjustments                   Combined 
                                                    -----------    --------       -----------                 -----------
Current assets:
   Cash                                                  62,465          48                                       62,513 
   Trade accounts receivable, net                       126,723                                                  126,723 
   Inventory                                            159,043                                                  159,043 
   Trade notes and other receivables                      2,181                                                    2,181 
   Prepaid expenses                                     161,962                                                  161,962 
                                                    -----------    --------        ----------                ----------- 
Total current assets                                    512,374          48                 -                    512,422 
                                                    -----------    --------        ----------                ----------- 

   Rental and other equipment, net                      568,497         966                                      569,463 
   Patents & Organization Cost, net                      86,088                                                   86,088 
   Deposits                                               5,075                                                    5,075 
   Acquired Developed Technology                                                                                       - 
   Investment in ADM Tronics                                                                                           - 
                                                    -----------    --------        ----------                ----------- 
Total Assets                                          1,172,034       1,014                 -                  1,173,048 
                                                    ===========    ========        ==========                =========== 

LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
   Note Payable                                         719,276                                                  719,276 
   Accounts payable                                     509,330      44,500                                      553,830 
   Accrued expenses                                     308,224                                                  308,224 
   Accrued commissions                                   14,262                                                   14,262 
   Accrued payroll                                        1,767                                                    1,767 
   Customer deposits                                          -                                                        - 
   Deferred Revenue                                      75,000                                                   75,000 
   Notes payable to related parties                      65,926                        63,654 (4)                129,580 
                                                                                                                       - 
                                                    -----------    --------        ----------                ----------- 
Total current liabilities                             1,693,785      44,500            63,654                  1,801,939 
                                                    -----------    --------        ----------                ----------- 

Long term Note Payable                                   90,260                                                   90,260 
Minority Interest in Limited Partnership                                                                                 
                                                    -----------    --------        ----------                ----------- 
Total Liabilities                                     1,784,045      44,500            63,654                  1,892,199 
                                                    ===========    ========        ==========                =========== 

Commitments and contingencies

Net capital deficiency/Equity:
   Convertible Preferred Stock                            2,430                        (2,430)(7)                      - 
   Common Stock                                          41,325          32            80,409 (1),(7)            121,766 
   Additional paid-in capital                        15,277,249     194,522         1,703,225 (1)             17,174,996 
   Deferred Compensation                                (67,678)                                                 (67,678)
   General Partner (1%)                                                                                                  
   Limited Partners (99%)                                                                                                
   Deficit/Retained Earnings                        (15,865,337)   (238,040)       (1,844,858)(1),(4),(7)    (17,948,235)
                                                    -----------    --------        ----------                ----------- 
   Net capital deficiency/Total Equity                 (612,011)    (43,486)          (63,654)                  (719,151)
                                                    -----------    --------        ----------                ----------- 
     Total liabilities and net capital deficiency     1,172,034       1,014                 -                  1,173,048 
                                                    ===========    ========        ==========                ===========
Medical Device     
                                                     Historical       Merger                        Divestiture      
                                                    -----------    ------------                   --------------     
ASSETS                                                              Pro Forma         Pro Froma      Pro Forma       
------                                                  GBLP       Adjustments         Combined     Adjustments      
                                                    -----------    ------------      -----------    -----------
Current assets:
   Cash                                               285,064                            347,577      135,000 (3)    
   Trade accounts receivable, net                      57,697                            184,420                     
   Inventory                                            7,528         730,000 (2)        896,571     (152,233)(3)    
   Trade notes and other receivables                   30,200                             32,381                     
   Prepaid expenses                                         -                            161,962                     
                                                    ---------      -----------       -----------     --------        
Total current assets                                  380,488         730,000          1,622,910      (17,233)       
                                                    ---------      -----------       -----------     --------        

   Rental and other equipment, net                    252,976                            822,439     (613,466)(3)    
   Patents & Organization Cost, net                    67,034                            153,122                     
   Deposits                                             3,350                              8,425                     
   Acquired Developed Technology                                                               -                     
   Investment in ADM Tronics                                                                   -      606,667 (3)    
                                                    ---------      -----------       -----------     --------        
Total Assets                                          703,848         730,000          2,606,896      (24,032)       
                                                    =========      ===========       ===========     ========        

LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
   Note Payable                                        97,185                            816,461     (672,750)(3),(6)
   Accounts payable                                      (480)                           553,350      (48,169)(3),(6)
   Accrued expenses                                    68,958                            377,182      (29,081)(3),(6)
   Accrued commissions                                      -                             14,262                     
   Accrued payroll                                     22,361                             24,128                     
   Customer deposits                                                                           -                     
   Deferred Revenue                                                                       75,000                     
   Notes payable to related parties                                                      129,580                     
                                                                                               -                     
                                                    ---------      -----------       -----------     --------        
Total current liabilities                             188,025               -          1,989,964     (750,000)       
                                                    ---------      -----------       -----------     --------        

Long term Note Payable                                932,791                          1,023,051                     
Minority Interest in Limited Partnership                            2,422,985 (2)      2,422,985                     
                                                    ---------      -----------       -----------     --------        
Total Liabilities                                   1,120,816       2,422,985          5,436,000     (750,000)       
                                                    =========      ===========       ===========     ========        

Commitments and contingencies

Net capital deficiency/Equity:
   Convertible Preferred Stock                                                                 -                     
   Common Stock                                                                          121,766        3,226 (3),(6)
   Additional paid-in capital                                                         17,174,996       96,774 (3),(6)
   Deferred Compensation                                                                 (67,678)                    
   General Partner (1%)                               (85,656)         87,919 (2)          2,263                     
   Limited Partners (99%)                               5,000         219,096 (2)        224,096                     
   Deficit/Retained Earnings                         (336,312)     (2,000,000)(2)    (20,284,547)     625,968 (3),(6)
                                                    ---------      ----------        -----------     --------        
   Net capital deficiency/Total Equity               (416,967)     (1,692,985)        (2,829,104)     725,968        
                                                    ---------      ----------        -----------     --------        
     Total liabilities and net capital deficiency     703,848         730,000          2,606,896      (24,032)       
                                                    =========      ==========        ===========     ========
Elan
                                                                          Transactions
                                                     Pro Forma           --------------         Pro Forma   
ASSETS                                               Combined              Pro Forma            Combined    
------                                             (as adjusted)          Adjustments         (as adjusted) 
                                                   -------------         --------------       --------------
Current assets:
   Cash                                                 482,577             2,000,000 (5)        2,482,577
   Trade accounts receivable, net                       184,420                                    184,420
   Inventory                                            744,338                                    744,338
   Trade notes and other receivables                     32,381                                     32,381
   Prepaid expenses                                     161,962                                    161,962
                                                    -----------            ----------          -----------
Total current assets                                  1,605,677             2,000,000            3,605,677
                                                    -----------            ----------          -----------

   Rental and other equipment, net                      208,973                                    208,973
   Patents & Organization Cost, net                     153,122                                    153,122
   Deposits                                               8,425                                      8,425
   Acquired Developed Technology                              -                                          -
   Investment in ADM Tronics                            606,667                                    606,667
                                                    -----------            ----------          -----------
Total Assets                                          2,582,864             2,000,000            4,582,864
                                                    ===========            ==========          ===========

LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
   Note Payable                                         143,711                                    143,711
   Accounts payable                                     505,181                                    505,181
   Accrued expenses                                     348,101                                    348,101
   Accrued commissions                                   14,262                                     14,262
   Accrued payroll                                       24,128                                     24,128
   Customer deposits                                          -                                          -
   Deferred Revenue                                      75,000                                     75,000
   Notes payable to related parties                     129,580                                    129,580
                                                              -                                          -
                                                    -----------            ----------          -----------
Total current liabilities                             1,239,964                     -            1,239,964
                                                    -----------            ----------          -----------

Long term Note Payable                                1,023,051                                  1,023,051
Minority Interest in Limited Partnership              2,422,985                                  2,422,985
                                                    -----------            ----------          -----------
Total Liabilities                                     4,686,000                     -            4,686,000
                                                    ===========            ==========          ===========

Commitments and contingencies

Net capital deficiency/Equity:
   Convertible Preferred Stock                                -                75,000 (5)           75,000
   Common Stock                                         124,992                25,000 (5)          149,992
   Additional paid-in capital                        17,271,770             9,400,000 (5)       26,671,770
   Deferred Compensation                                (67,678)                                   (67,678)
   General Partner (1%)                                   2,263                                      2,263
   Limited Partners (99%)                               224,096                                    224,096
   Deficit/Retained Earnings                        (19,658,579)           (7,500,000)(5)      (27,158,579)
                                                    -----------            ----------          ----------- 
   Net capital deficiency/Total Equity               (2,103,136)            2,000,000             (103,136)
                                                    -----------            ----------          ----------- 
     Total liabilities and net capital deficiency     2,582,864             2,000,000            4,582,864
                                                    ===========            ==========          ===========
(1) To reflect the elimination of HTD equity accounts, issuance of EPI shares
    and allocation of the purchase price in excess of net tangible assets
    acquired, see Note 2.
(2) To reflect the elimination of the GBLP equity accounts, issuance of EPI
    shares and allocation of the purchase price in excess of net tangilble
    assets acquired, see Note 2.
(3) To reflect the sale of the Medical Device Business for $150,000 cash (net of
    $15,000 registration fee) and ADM stock (2,925,000 shares) pursuant to the
    Asset Purchase Agreement.
(4) To record a related party payable of $63,654 related to the exercise of
    244,823 options issued to the President as if the change in control occurred
    on June 30, 1998.
(5) To record the initial license fee ($7.5M), convertible preferred stock
    investment ($7.5M), and common stock investment ($2M) assumed 2,500,000
    shares at $0.80 per share. See Note 5.
(6) To record the settlement of certain legal expenses ($100,000) through the
    issuance of common shares. See Note 6.
(7) To record the issuance of 1,872,000 common shares for the conversion of the
    outstanding preferred stock and in exchange for certain outstanding
    warrants. See Note 7.

                                      F-3
Electropharmacology, Inc.
         Unaudited Pro Forma Condensed Combined Statement of Operations
                         Six Months Ended June 30, 1998
Historical                   Merger                            
                                                           ---------------------            ----------                          
                                                                                             Pro Forma                Pro Forma 
                                                              EPi          HTD              Adjustments                Combined 
                                                           ---------      ------            -----------               ----------
Revenue:
  Rentals                                                    143,445           -                                        143,445 
  Sales                                                       42,000           -                                         42,000 
                                                           ---------      ------             ----------              ---------- 
Total revenue                                                185,445           -                      -                 185,445 

Operating expenses:
  Cost of revenue                                             67,064           -                                         67,064 
  Selling, general and administrative                        419,874       2,664                 79,944 (3),(5)         502,482 
  Research and development                                    13,863         300              2,000,000 (1)           2,014,163 
                                                           ---------      ------             ----------              ---------- 
Total operating expenses                                     500,801       2,964              2,079,944               2,583,709 
                                                           ---------      ------             ----------              ---------- 
Loss from operations                                        (315,356)     (2,964)            (2,079,944)             (2,398,264)

Other income  (expense)
  Interest expense                                           (20,939)          -                                        (20,939)
  Interest and other income                                    2,561          10                                          2,571 
  Loss on disposal of equipment                                    -                                                          - 
                                                           ---------      ------             ----------              ---------- 
Total other income  (expense)                                (18,378)         10                      -                 (18,368)
                                                           ---------      ------             ----------              ---------- 
Net loss                                                    (333,734)     (2,954)            (2,079,944)             (2,416,632)
                                                           =========      ======             ==========              ========== 

Net loss per share - basic and diluted                         (0.08)         (1)                                         (0.20)
                                                           =========      ======                                     ========== 

Weighted average number of common shares outstanding -
   basic and diluted                                       4,130,727       3,247             12,174,822              12,174,822 
                                                           =========      ======                                     ==========
Medical Device 
                                                          Historical      Merger                          Divestiture  
                                                          ----------    ----------                      -------------- 
                                                                         Pro Forma        Pro Froma        Pro Forma   
                                                             GBLP       Adjustments        Combined       Adjustments  
                                                           --------     -----------       ----------      -----------
Revenue:
  Rentals                                                         -                          143,445       (143,445)(2)
  Sales                                                     416,962                          458,962        (42,000)(2)
                                                           --------     ----------        ----------       --------    
Total revenue                                               416,962              -           602,407       (185,445)   

Operating expenses:
  Cost of revenue                                           205,817                          272,881        (67,064)(2)
  Selling, general and administrative                       327,681                          830,162       (200,000)(2)
  Research and development                                        -      2,000,000 (1)     4,014,163                   
                                                           --------     ----------        ----------       --------    
Total operating expenses                                    533,498      2,000,000         5,117,206       (267,064)   
                                                           --------     ----------        ----------       --------    
Loss from operations                                       (116,536)    (2,000,000)       (4,514,799)        81,619    

Other income  (expense)
  Interest expense                                                -                          (20,939)        20,939 (2)
  Interest and other income                                   6,584                            9,155                   
  Loss on disposal of equipment                                                                    -                   
                                                           --------     ----------        ----------       --------    
Total other income  (expense)                                 6,584              -           (11,784)        20,939    
                                                           --------     ----------        ----------       --------    
Net loss                                                   (109,952)    (2,000,000)       (4,526,584)       102,558    
                                                           ========     ==========        ==========       ========    

Net loss per share - basic and diluted                            -                            (0.37)                  
                                                           ========                       ==========                   

Weighted average number of common shares outstanding -
   basic and diluted                                              -                       12,174,822        322,581    
                                                           ========                       ==========
Elan
                                                                                 Transactions
                                                              Pro Forma          ------------           Pro Forma  
                                                              Combined             Pro Forma            Combined   
                                                            (as adjusted)         Adjustments         (as adjusted)
                                                            -------------         -----------         -------------
Revenue:
  Rentals                                                              -                                         -
  Sales                                                          416,962                                   416,962
                                                              ----------           ----------           ---------- 
Total revenue                                                    416,962                    -              416,962

Operating expenses:
  Cost of revenue                                                205,817                                   205,817
  Selling, general and administrative                            630,162                                   630,162
  Research and development                                     4,014,163            7,500,000 (4)        7,500,000
                                                              ----------           ----------           ---------- 
Total operating expenses                                       4,850,142            7,500,000            8,335,979
                                                              ----------           ----------           ---------- 
Loss from operations                                          (4,433,180)          (7,500,000)          (7,919,017)

Other income  (expense)
  Interest expense                                                     -                                         -
  Interest and other income                                        9,155                                     9,155
  Loss on disposal of equipment                                        -                                         -
                                                              ----------           ----------           ---------- 
Total other income  (expense)                                      9,155                    -                9,155
                                                              ----------           ----------           ---------- 
Net loss                                                      (4,424,026)          (7,500,000)          (7,909,863)
                                                              ==========           ==========           ========== 

Net loss per share - basic and diluted                             (0.35)                                    (0.53)
                                                              ==========                                ========== 

Weighted average number of common shares outstanding -
   basic and diluted                                          12,497,403            2,500,000           14,997,403
                                                              ==========                                ==========
(1) To record the purchase of in-process research and development. See Note 2.
(2) To reflect the sale of the Medical Device Division, including related
    depreciation expense and savings of $200,000 in SG&A costs, as if it had
    occurred on January 1, 1998. See "Business-Recent Corporate Reorganization".
(3) To record a related party payable of $63,654 related to the exercise of
    244,823 options issued to the President as if the change in control occurred
    on June 30, 1998. See "Certain Transactions"
(4) To record the initial license fee ($7.5M) paid by the Company to Elan in
    connection with the Elan transaction. See Note 5 and "Business-Recent Elan
    Transactions"
(5) To record the settlement of certain legal expenses ($100,000) through the
    issuance of common shares. See Note 6.
(6) To record the issuance of 1,872,000 common shares for the conversion of the
    outstanding preferred stock and in exchange for certain outstanding
    warrants. See Note 7.

                                      F-4
Electropharmacology, Inc.
         Unaudited Pro Forma Condensed Combined Statement of Operations
                          Year Ended December 31, 1997
Merger                                        Merger       
                                                                    ----------------                               -------------    
                                                  Historical                                          Historical                    
                                             -------------------                                      -----------                   
                                                                        Pro Forma          Pro Forma                  Pro Forma     
                                              EPi          HTD        Adjustments         Combined       GBLP        Adjustments    
                                           --------     ---------  ----------------      ---------   ----------    -------------
Revenue:
  Rentals                                   1,700,486           -                          1,700,486           -                    
  Sales                                       700,763           -                            700,763     118,018                    
                                         ------------    --------     ----------         -----------   ---------      ----------    
Total revenue                               2,401,249           -              -           2,401,249     118,018               -    
                                                                                                                                    
Operating expenses:                                                                                                                 
  Cost of revenue                             611,702           -                            611,702      92,619                    
  Selling, general and administrative       3,177,031      89,972         79,944 (3),(5)   3,346,947     193,169                    
  Research and development                    214,686      28,070      2,000,000 (1)       2,242,756           -       2,000,000 (1)
                                         ------------    --------     ----------         -----------   ---------      ----------    
Total operating expenses                    4,003,419     118,042      2,079,944           6,201,405     285,788       2,000,000    
                                         ------------    --------     ----------         -----------   ---------      ----------    
Loss from operations                       (1,602,170)   (118,042)    (2,079,944)         (3,800,156)   (167,770)     (2,000,000)   
                                                                                                                                    
Other income  (expense)                                                                                                             
  Interest expense                            (25,135)     (2,198)                           (27,333)    (71,622)                   
  Interest and other income                     9,894         124                             10,018      13,033                    
  Loss on disposal of equipment               (30,506)                                       (30,506)                               
                                         ------------    --------     ----------         -----------   ---------      ----------    
Total other income (expense)                  (45,747)     (2,074)             -             (47,821)    (58,589)              -    
                                         ------------    --------     ----------         -----------   ---------      ----------    
Net loss                                   (1,647,917)   (120,116)    (2,079,944)         (3,847,977)   (226,359)     (2,000,000)   
                                         ============    ========     ==========         ===========   =========      ==========    
                                                                                                                                    
Net loss per share - basic and diluted          (0.45)        (37)                             (0.33)          -                    
                                         ============    ========                        ===========   =========                    
Weighted average number of common shares                                                                                            
   outstanding - basic and diluted          3,697,611       3,247     11,741,706          11,741,706           -                    
                                         ============    ========                        ===========   =========                    
                                                                                                                                    
(RESTUBBED TABLE)
                                                              Medical Device                      Elan                             
                                                                Divestiture                    Transactions                        
                                                            -----------------                 -------------                        
                                                                                                                                   
                                                                                   Pro Forma                         Pro Forma      
                                                Pro Froma       Pro Forma           Combined     Pro Forma           Combined       
                                                 Combined      Adjustments       (as adjusted)  Adjustments        (as adjusted)    
                                                ---------   ----------------    ------------  ------------        -------------     
                                                                                                                                   
                                               
Revenue:                                 
  Rentals                                         1,700,486      (1,700,486) (2)             -                                 -    
  Sales                                             818,781        (700,763) (2)       118,018                           118,018    
                                                -----------   -------------         ----------     -----------       -----------    
Total revenue                                     2,519,267      (2,401,249)           118,018               -           118,018    
                                                                                                                                    
Operating expenses:                                                                                                                 
  Cost of revenue                                   704,321        (611,702) (2)        92,619                            92,619    
  Selling, general and administrative             3,540,116      (2,000,000) (2)     1,540,116                         1,540,116    
  Research and development                      (14,242,756)                         7,500,000       7,500,000 (4)    11,742,756    
                                                -----------   -------------         ----------     -----------       -----------    
Total operating expenses                          8,487,193      (2,611,702)         5,875,491       7,500,000        13,375,491    
                                                -----------   -------------         ----------     -----------       -----------    
Loss from operations                             (5,967,926)        210,453         (5,757,473)     (7,500,000)      (13,257,473)   
                                                                                                                                    
Other income  (expense)                                                                                                             
  Interest expense                                  (98,955)         25,135  (2)       (73,820)                          (73,820)   
  Interest and other income                          23,051                             23,051                            23,051    
  Loss on disposal of equipment                     (30,506)                           (30,506)                          (30,506)   
                                                -----------   -------------         ----------     -----------       -----------    
Total other income (expense)                       (106,410)         25,135            (81,275)              -           (81,275)   
                                                -----------   -------------         ----------     -----------       -----------    
Net loss                                         (6,074,336)        235,588         (5,838,748)     (7,500,000)      (13,338,748)   
                                                ===========   =============         ==========     ===========       ===========    
                                                                                                                                    
Net loss per share - basic and diluted                (0.52)                             (0.48)                            (0.92)   
                                                ===========                         ==========                       ===========    
Weighted average number of common shares                                                                                            
   outstanding - basic and diluted               11,741,706         322,581         12,064,287       2,500,000        14,564,287    
                                                ===========                         ==========                       ===========
(1) To record the purchase of in-process research and development. See Note 2.
(2) To reflect the sale of the Medical Device Division, including related 
    depreciation expense and savings of $200,000 in SG&A costs, as if it had 
    occurred on January 1, 1997. See "Business-Recent Corporate Reorganization".
(3) To record a related party payable of $63,654 related to the exercise of
    244,823 options issued to the President as if the change in control occurred
    on June 30, 1998. See "Certain Transactions"
(4) To record the initial license fee ($7.5M) paid by the Company to Elan in 
    connection with the Elan transaction. See Note 5 and "Business-Recent Elan
    Transactions"
(5) To record the settlement of certain legal expenses ($100,000) through the 
    issuance of common shares. See Note 6.
(6) To record the issuance of 1,872,000 common shares for the conversion of the
    outstanding preferred stock and in exchange for certain outstanding 
    warrants. See Note 7.

                                      F-5
Electropharmacology, Inc.

                     NOTES TO PRO FORMA FINANCIAL STATEMENTS

1. Determination of Purchase Price for HTD and GBLP

         The purchase price for both HealthTech Development, Inc., a development
stage company ("HTD"), and Gemini Biotech L.P. (GBLP) was determined by the
Company's management (see Notes to the Financial Statements - "Use of
Estimates") in accordance with APB 16 and was based upon a number of objective
and subjective factors including but not limited to (a) reference to the market
price of Common Stock during the negotiation period and leading up to the
execution of the acquisition agreements; (b) the Company's management's
estimation that the outstanding liabilities, transaction costs and ongoing
operation costs of HTD through the closing of its merger into the Company would
generally offset the realizable value of tangible assets, such that the only
material assets of HTD remaining as of the effective time of the merger would be
intangible assets consisting of technology rights and license agreements (see
"Business - Product Development Programs"); (c) the Company's management's
assessment of the synergistic value of (i) HTD's various technologies (ii)
GBLP's various technologies and (iii) the technologies licensed through the
licensing agreement with Elan Pharma International Limited, as well as the
investment by Elan International Services, Ltd. in Common Stock of the Company
(see "Business - Recent Elan Transactions") in combination with the Company's
own drug delivery technologies in attracting corporate sponsors, facilitating
technology licenses and other fund raising activities, and providing a greater
balance to the Company's stock holders.

         APB 16 states that the cost of an acquired company is measured by the
fair value of the consideration received. Since at the time of the foregoing
transactions there was no active trading market for the Company's Common Stock,
an objective measurement of its fair value is difficult. The Company utilized
various valuation methodologies including the income approach, stock price
approach and company comparable approach. Based on these methodologies, the
Company determined that the 20 day average stock price preceding each
transaction represented the most logical valuation methodology and has accounted
for the valuation of the respective technologies accordingly. This methodology
indicated a value of approximately $2,000,000 for HTD and $2,730,000 for GBLP
and their related developed technology (as defined below), which were the
primary assets being acquired by the Company given its current business
strategy. Since the technologies, chemical compounds, gene databases,
intellectual property rights and other intangible assets so acquired are not at
this time susceptible to precise valuation, the Company has used valuations that
it believes are reasonable based on its significant knowledge of such assets but
there can be no assurance that such valuations are accurate or reliable.

                                      F-6
2. Accounting for Mergers and Allocation of Purchase Price

         The HTD and GBLP mergers will be accounted for as a purchase
transaction with the Company as the acquiring company. The total estimated
purchase price of $2,000,000 for HTD and $2,730,000 for GBLP has been allocated
to the fair market values of the assets acquired and the liabilities assumed.
The pro forma allocation of the purchase price is based upon information that
was available at the date of preparation of the pro forma financial statements
and is subject to change, although this preliminary allocation is not expected
to materially differ from the final allocation.

         In accordance with the provisions of APB Nos. 16 and 17, all
identifiable assets acquired, including identifiable intangible assets, were
assigned a portion of the purchase price on the basis of their fair values. To
this end, the Company performed and detailed analysis to determine the fair
value of the identifiable assets in allocating the purchase price among the
Acquired Assets.

         The income, stock valuation, and comparable market approaches were used
to value the Acquired Assets. Standard valuation procedures indicate that these
are appropriate methodologies for valuing intangible assets such as patents and
patent applications, licenses, employment agreements, noncompete agreements,
chemical compounds, genetic databases, and various other intellectual property.

         In the case of HTD, the base technologies (the "Developed Technology")
have various ascertainable development timelines with additional human or
financial resources still required for further development in order to realize
economic benefits. These base technologies include intellectual property in the
application of cancer drugs, new drug targets, and immune system booster
technologies. Since the technology is not well defined and understood by the
biotechnology community, management of the Company has determined that a
combination of the various valuation methodologies would provide the most
reliable valuation. Other intangibles considered included license agreements,
patents issued and patent applications pending, reputation and associated
goodwill, as well as the potential for incomplete research and development
projects. A review of the assets and liabilities carried on HTD's balance sheet
as of December 31, 1997 indicated that the carrying value of such assets and
liabilities did not approximate their fair values at that date and, accordingly,
various intangible assets of $2,000,000 have been recorded. As a result of the
acquired technologies development timeline, substantial development costs,
technological feasibility, and various other uncertainties involved related to
the commercialization of these technologies, the Company has classified the
acquired intangible assets as in-process research and development in the
allocation of the purchase price. Although we have used our experience and
observation in the industry, the results are estimates only. We are not sure if
the valuation and the respective allocation of the purchase price and the
corresponding accounting treatment as in-process research and development in the
financial statements is correct since we cannot predict the outcome of any
technology at this early stage of development.

                                      F-7
The calculation of the estimated purchase price is as follows:

         NET LIABILITIES:
             Net liabilities (less fair value of assets)............. $   43,486
         EQUITY:
             Common Stock issued (6,172,000 shares valued
                  At $0.317 per share)...............................  1,956,514
                                                                      ----------

         Estimated Total Purchase Price.............................. $2,000,000

         As a condition to the HTD merger agreement, up to an additional
1,650,000 shares of Common Stock of the Company may be issued to the former
shareholders of HTD based on certain minimum net revenues amounts, certain net
pretax profit percentages, and the certain development milestones.

         The estimated allocation of the purchase price is as follows:

         In-Process Research and Development......................... $2,000,000
                                                                      ----------
             Estimated net assets acquired........................... $2,000,000

         In the case of GBLP, the base technologies (the "Developed Technology")
have various ascertainable development timelines with additional human or
financial resources still required to be expended for further development in
order to realize economic benefits. These base technologies include intellectual
property in the application of cancer and inflammation drugs. Management of the
Company has determined that a combination of the various valuation methodologies
would provide the most reliable valuation. Other intangibles considered include
license agreements, patents issued and patent applications pending, reputation
and associated goodwill, as well as the potential for incomplete research and
development projects. A review of the assets and liabilities carried on GBLP's
balance sheet as of December 31, 1997 indicated that the carrying value of such
assets and liabilities did not approximate their fair values at that date and
accordingly, various intangible assets of $2,730,000 have been recorded and
classified as inventory and in-process research and development in the
allocation of the purchase price. As a result of the acquired technologies
development timeline, substantial development costs, technological feasibility,
and various other uncertainties involved related to the commercialization of
these technologies, the Company has classified the majority of the acquired
intangible assets as in-process research and development in the allocation of
the purchase price. Although we have used our experience and observation in the
industry, the results are estimates only. We are not sure if the valuation and
the respective allocation of the purchase price and the corresponding accounting
treatment as in-process research and development in the financial statements is
correct since we can not predict the outcome of any technology at this early
stage of development.

                                      F-8
The calculation of the estimated purchase price is as follows:

         NET LIABILITIES:
             Net liabilities (less fair value of assets)............. $  416,968
          EQUITY:
             Partnership Units issued (6,000,000 units convertible
             Into 6,000,000 shares of Common Stock of the Company 
             after 12 months, valued at $0.3855 per unit)............  2,313,032
                                                                       ---------

         Estimated Total Purchase Price..............................  2,730,000

         As a condition to the GBLP merger agreement, additional partnership
units of up to 1,050,000 (convertible into 1,050,000 shares of Common Stock of
the Company) may be issued to the former partners of GBLP based on certain
development milestones.

         The estimated allocation of the purchase price is as follows:

         Inventory................................................... $  730,000
         In-Process Research and Development.........................  2,000,000
                                                                       ---------
                  Estimated net assets acquired......................  2,730,000

3. Divestiture of Company's SofPulse Business

         On August 18, 1998, the Company sold substantially all of the assets of
its SofPulse medical device business to a wholly-owned subsidiary of ADM Tronics
Unlimited, Inc. ("ADM"), a publicly traded company, in exchange for a
combination of $150,000 in cash, 1,400,000 shares of ADM common stock issued to
the Company, and additional 1,540,000 shares of ADM common stock issued to pay
approximately $650,000 of the Company's payable (see "Certain Transactions") and
a warrant to purchase additional shares of ADM common stock if ADM achieves
certain sales objectives with respect to its conduct of the SofPulse business.
The Company recorded an extraordinary gain on the disposition of assets of
approximately $640,000 as a result of this divestiture.

4. Additional Stock Options Issued to the Company's President

         Effective as of August 24, 1998 as a result of merger with HTD and the
acquisition of GBLP in conjunction with certain change of control provisions in
the President's employment contract, the Company recorded a related party
payable to the President for $63,654 related to the exercise of 244,823 options
to purchase common stock at $.26 per share. This has been shown as additional
compensation expense for pro-forma presentation.

                                      F-9
5. Elan License Agreement and Investment in EPi

         On October 1, 1998, the Company acquired a worldwide license to the
flexible iontophoretic patch technology for non-cosmetic dermatology and wound
care applications from Elan Pharma International Limited ("Elan Pharma"). The
Company made a cumulative up-front payment of $7,500,000 to Elan Pharma for
in-process research and development and will pay prescribed royalties and
license fees to Elan Pharma based on the Company's future revenues from the
commercialization of the technology.

         Management has determined that the licensed technology has various
ascertainable development timelines with additional human or financial resources
still required to be expended for further development in order to realize
economic benefits. As a result of the acquired technology's development
timeline, substantial development costs, technological feasibility, and various
other uncertainties involved related to the commercialization of these
technologies, the Company has classified the licensed intangible assets as
in-process research and development.

         Separately, Elan International Services, Ltd. ("Elan International")
invested $7,500,000 in the Company to acquire 7,500,000 shares of Convertible
Preferred Stock and warrants to acquire up to 1,000,000 shares of Common Stock
of the Company at an exercise price of $2.50 per share and also committed to
invest an additional $2,000,000 to acquire shares of Common Stock at the
election of the Company at the 20 day average closing price, not exceeding
$1.375. This $2,000,000 investment in Common Stock has been shown for pro-forma
presentation as 2,500,000 shares issued at $0.80. On October 30, 1998, Elan
International acquired 777,202 shares of Common Stock of the Company at $0.77
per share, or an aggregate of $600,000. In December 1998 Elan International will
acquire additional shares of the Company for an aggregate of $1,400,000 at the
20 day average stock price preceding the close.

6. Settlement of Certain Legal Expenses

         On August 24, 1998, in conjunction with the merger of HTD, the Company
issued 322,581 common shares at a price of $0.31 per share in settlement of
certain legal expenses totaling $100,000 with the Company's previous corporate
counsel.

7. Conversion of Preferred Stock and Exchange of Warrants

         On August 24, 1998, in conjunction with the merger of HTD, the Company
issued 1,872,000 common shares for the conversion of the outstanding preferred
stock and in exchange for certain outstanding warrants. As a result of these
issuances, the Company recorded additional consulting expense of $16,290.

                                      F-10
Report of Independent Certified Public Accountants

Board of Directors
Electropharmacology, Inc.

We have audited the accompanying balance sheet of Electropharmacology, Inc. (the
Company) as of December 31, 1997 and the related statements of operations,
shareholders' equity and cash flows for each of the two years in the period
ended December 31, 1997. 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 audit.

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

In our opinion, the financial statement referred to above present fairly, in all
material respects, the financial position of Electropharmacology, Inc. at
December 31, 1997 and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 2 to
the financial statements, the Company incurred significant recurring operating
losses and has both a working capital deficit and a net capital deficiency.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard in to these matters are also
described in Note 2. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that might result from
the outcome of this uncertainty.

                                      F-11
Report of Independent Certified Public Accountants

The Board of Directors
Electropharmacology, Inc.

We have audited the accompanying balance sheet of Electropharmacology, Inc. as
of December 31, 1995, and the related statements of operations, shareholders'
equity (capital deficit) and cash flows for each of the two years in the period
ended December 31, 1995. 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 the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also 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 out 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 Electropharmacology, Inc. as of
December 31, 1995, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.

                                      F-12
ELECTROPHARMACOLOGY, INC.
                                  Balance Sheet
June 30,             December 31,
                                                                 ---------        --------------------
                                                                   1998            1997           1996
                                                                  ------          ------         ------
                                                                (unaudited)
ASSETS
Current assets:
  Cash                                                          $     62,465    $   111,496     $  223,523
Trade accounts receivable, net of allowance for doubtful             
  accounts of $30,158 at 6/30/9, $26,000 at 12/31/97 &
  $134,000 at 12/31/96                                               126,723        169,404        572,202
Inventory                                                            159,043        152,233         94,164
Trade notes and other receivables                                      2,181         32,748        248,190
Prepaid expenses                                                     161,962        157,065         50,127
                                                                ------------     ----------    -----------
Total current assets                                                 512,374        622,946      1,188,206
Rental and other equipment, net                                      568,497        713,466        945,058
Patents, net of accumulated amortization of $14,000                   86,088         89,129             --
Deposits and other assets                                              5,075         18,001         79,816
                                                                ------------     ----------    -----------
Total assets                                                    $  1,172,034    $ 1,443,542    $ 2,213,080
                                                                ============    ===========    ===========
LIABILITIES AND NET CAPITAL DEFICIENCY

Current liabilities:
  Notes payable                                                 $    719,276    $   804,179    $        --
  Accounts payable                                                   509,330        380,313        316,746
  Accrued expenses                                                   308,224        187,933        513,130
  Accrued commissions                                                 14,262         46,181         30,845
  Accrued payroll                                                      1,767         18,385        104,701
  Customer deposits                                                       --          7,561          7,561
  Deferred revenue                                                    75,000             --             --
  Notes payable to related parties                                    65,926         73,926             --
Current maturities of obligations under capital leases                    --             --         22,386
Total current liabilities                                          1,693,785      1,518,478        995,369
                                                                ------------    -----------    -----------
Long-Term Liabilities:
  Notes payable
                                                                ------------    -----------    -----------
Obligations under capital leases, less current maturities             90,260             --          3,336
                                                                ------------    -----------    -----------
Total liabilities                                                  1,784,045      1,518,478        998,705
                                                                ------------    -----------    -----------
Commitments and contingencies

Net capital deficiency:
  Convertible preferred stock, $.01 par value -- 10,000,000
     authorized shares (entitled to $2,000,043 in liquidation)         2,430          2,430          4,220
         
  Common stock, $.01 par value -- 30,000,000 authorized
     shares; 4,132,493 shares issued and 4,071,194 shares
     outstanding at 6/30/98 and 12/31/97, respectively                41,325         40,711         35,402
  Additional paid-in capital                                      15,277,249     15,254,912     11,352,922
  Treasury stock, at cost, 10,493 common shares                           --             --        (60,000)
  Deferred compensation                                              (67,678)       (67,678)
Deficit                                                          (15,865,337)   (15,305,311)   (10,118,169)
                                                                 -----------    -----------    -----------
Net capital deficiency/Total shareholders' equity                   (612,011)       (74,936)     1,214,375
                                                                 -----------    -----------    -----------
Total liabilities and deficiency/equity                          $ 1,172,034    $ 1,443,542    $ 2,213,080
                                                                 ===========    ===========    ===========
See Accompanying Notes

                                      F-13
ELECTROPHARMACOLOGY, INC.
                            Statements of Operations
Six Months
                                             Ended June 30,                    Year Ended December 31,
                                           ------------------            ----------------------------------
                                              (Unaudited)
                                          1998           1997            1997           1996           1995
                                          ----           ----            ----           ----           ----
Revenue:
   Rentals                              $  359,143     $1,227,751     $ 1,700,486    $ 1,695,944    $   612,846
   Sales                                    75,860        287,000         700,763        409,818      1,383,817
                                        ----------     ----------     -----------    -----------    -----------
Total revenue                              435,003      1,514,751       2,401,249      2,105,762      1,996,663
Operating expenses:
   Cost of revenue                         138,599        202,649         611,702        376,197        224,155
   Selling, general and administrative     783,537      1,850,001       3,177,031      3,941,235      2,813,389

   Research and development                 37,974        183,173         214,686        815,722      1,690,163
                                        ----------     ----------     -----------    -----------    -----------
Total operating expenses                   960,110      2,235,823       4,003,419      5,133,154      4,727,707
                                        ----------     ----------     -----------    -----------    -----------
Loss from operations                      (525,107)      (721,072)     (1,602,170)    (3,027,392)    (2,731,044)
Other income (expense):
   Interest expense                        (36,649)        (5,582)        (25,135)        (8,933)      (463,172)
   Interest income                           2,595          7,152           9,894        108,335        124,630
   Loss on disposal of equipment              (865)            --              --             --             --
                                        ----------     ----------     -----------    -----------    ----------- 
                       
Total other income (expense)               (34,919)         1,570         (45,747)        99,402       (338,542)
                                        ----------     ----------     -----------    -----------    -----------
Net loss                                $ (560,026)    $ (719,502)    $(1,647,917)   $(2,927,990)   $(3,069,586)
                                        ==========     ==========     ===========    ===========    ===========
Net loss per share, basic and                
  diluted                                    (0.14)         (0.20)          (0.45)         (0.89)         (1.26)
                                        ==========     ==========     ===========    ===========    ===========
Weighted average number of common         
  shares outstanding, basic and            
  diluted                                4,113,328      3,606,388       3,697,611      3,298,849      2,429,880
                                        ==========     ==========     ===========    ===========    ===========
SEE ACCOMPANYING NOTES

                                      F-14
Electropharmacology, Inc.

           Statements of Shareholders' Equity (Net Capital Deficiency)
PREFERRED STOCK             COMMON STOCK                      ADDITIONAL   
                                    ------------------         ----------------      PAID-IN       DEFERRED     
                                    SHARES     AMOUNT          SHARES    AMOUNT      CAPITAL       COMPENSATION 
                                                                                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995         421,950    4,220       3,074,474   30,745     14,708,689                   
  Exercise of warrants                                        421,950    4,220                                  
  Issuance of common stock for
     services                                                  43,741      437        125,321                   
  Net loss                                                                                                      
 
----------------------------------------------------------------------------------------------------------------

Balance at December 31, 1996         421,950   $4,220       3,540,165  $35,402    $14,834,010                   

Issuance of common stock for
   services                                                   348,519    3,484        307,125                   
Issuance of common stock for
   employee stock plan                                         14,003      140         16,785                   
Retirement of treasury stock                                   10,493)    (105)        (1,758)                  
Conversion of preferred stock
   to common stock                  (179,000)  (1,790)         79,000    1,790
Issuance of stock options to
   purchase 72,500 shares of
   common stock                                                                        98,750       (67,678)    
 Net loss                                                                                                       
 
----------------------------------------------------------------------------------------------------------------

Balance at December 31, 1997         242,950   $2,430       4,071,194  $40,711    $15,254,912      $(67,678)    

Issuance of common stock
   for services (unaudited)                                    61,299      614         22,337                   
Net loss (unaudited)                                                                                            
Balance at June 30, 1998             
   (unaudited)                       242,950   $2,430       4,132,493  $41,325    $15,277,249      $(67,678)     
                                     
================================================================================================================
TOTAL
                                       TREASURY                    SHAREHOLDERS'
                                        STOCK         DEFICIT         EQUITY
                                                                   (NET CAPITAL
                                                                    DEFICIENCY)
--------------------------------------------------------------------------------
Balance at December 31, 1995           (60,000)     (10,671,267)     4,012,387
  Exercise of warrants                                                   4,220
  Issuance of common stock for
   services                                                            125,758
  Net loss                                           (2,927,990)    (2,927,990)
 
--------------------------------------------------------------------------------
Balance at December 31, 1996          $(60,000)    $(13,599,257)    $1,214,375

Issuance of common stock for
   services                                                            310,609
Issuance of common stock for
   employee stock plan                                                  16,925
Retirement of treasury stock            60,000          (58,137)
Conversion of preferred stock
   to common stock                 
Issuance of stock options to
   purchase 72,500 shares of
   common stock                                                         31,072
 Net loss                                            (1,647,917)    (1,647,917)
 
--------------------------------------------------------------------------------
Balance at December 31, 1997                 -     $(15,305,311)     $ (74,936)

Issuance of common stock
   for services (unaudited)                                             22,951
Net loss (unaudited)                                   (560,026)      (560,026)
Balance at June 30, 1998                     
  (unaudited)                                -     $(15,865,337)     $(612,011)
                                             
================================================================================

SEE ACCOMPANYING NOTES.

                                      F-15
ELECTROPHARMACOLOGY, INC.
                            STATEMENTS OF CASH FLOWS
Six Months Ended June 30,         Year Ended December 31,
                                                  -------------------------     -------------------------------
                                                     1998          1997         1997         1996          1995
                                                     ----          ----         ----         ----          ----
                                                         (Unaudited)
OPERATING ACTIVITIES:
Net Loss                                            $(560,026)    $(719,502)  $(1,647,917) $(2,927,990)  $(3,069,586)

Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:

Depreciation & Amortization                           132,822       145,618       303,093      289,553       531,497

Issuance of common stock and warrants for              
  services                                             22,951        64,304       310,609      125,758            --

Issuance of stock options to purchase common               
  stock                                                    --            --        31,072           --            --

Liability incurred for severance agreement                 --       128,700            --           --            --
 
Issuance of notes payable for service                      --            --       822,378           --            --

Loss on disposal of laboratory office equipment           865            --        30,506        6,426            --

Provision for doubful accounts                             --       (38,235)        9,214       93,000        45,728

Discount of trade note receivable                      30,567            --            --       21,982            --

Provision for impairment of inventory and             
  SofPulse units                                      248,190            --        99,518           --            --     
                                                     
Changes in operating assets and liabilities:

Trade notes receivable                                     --       248,190       210,442      273,162      (543,334)

Inventory                                              (6,810)     (153,935)      (67,294)     (47,893)     (139,271)

Accounts receivable                                    42,681       476,795       398,584     (315,370)     (110,007)

Prepaid                                                (4,897)       52,504       129,037       14,532       (59,291)

Deposits                                               12,926            --            --           --        15,425

Accounts payable                                      129,016        (4,711)       60,743       65,537      (175,870)

Deferred revenue                                       75,000            --            --           --            --

Accrued payroll                                            --            --       (86,316)      44,369       (24,406)

Accrued expenses, commissions and customer             
  deposits                                             64,193            --      (309,861)     194,543        85,008

Rental equipment (SofPulse units)                          --            --      (194,469)    (467,827)       51,954

Additional paid-in capital attributable to                 
  issuance of warrants for service                         --            --            --           --       214,500
                                                           
Net cash provided by (used in) operating            
  activities                                          (60,712)      199,728        99,339   (2,630,218)   (3,177,652)
                                                    ---------     ---------   -----------  -----------   -----------
INVESTING ACTIVITITES                              

Purchases of property and equipment                       (98)         (539)           --      (32,548)     (169,058)

Proceeds from sale of property and equipment           14,420            --         7,299           --            --

Patents, deposits and other assets                         --            --       (32,444)     (17,142)           --

Net cash used in investing activities                  14,322          (539)      (25,145)     (49,690)     (169,058)
                                                    ---------     ---------   -----------  -----------   -----------
F-16
ELECTROPHARMACOLOGY, INC.
                            STATEMENTS OF CASH FLOWS
Six Months Ended June 30,         Year Ended December 31,
                                                  -------------------------     -------------------------------
                                                     1998          1997         1997         1996          1995
                                                     ----          ----         ----         ----          ----
                                                         (Unaudited)
FINANCING ACTIVITIES

Net proceeds from issuance of common stock and             
  warrants                                                 --            --            --           --     5,248,500 
                                                           
Net proceeds from issuance of preferred stock              --            --            --           --     1,900,000

Repayment of long-term notes payable and               
  capitalized lease obligations                         5,359       (44,693)     (127,446)     (50,537)      (48,945)     
                                                       
Repayment of notes payable to related parties          (8,000)      (75,700)     (120,700)    (120,000)   (1,562,000)

Proceeds from notes payable to related parties             --            --        45,000           --       400,000

Proceeds from sale of common stock                         --            --        16,925        4,220            --
                                                    ---------     ---------   -----------  -----------   -----------
Net cash used in financing activities                  (2,641)     (120,393)     (186,221)    (166,317)    5,937,555

Net increase (decrease) in cash                       (49,031)       78,796      (112,027)  (2,846,225)    2,590,845

Cash at begining of year                              111,496       223,523       223,523    3,069,748       478,903
                                                    ---------     ---------   -----------  -----------   -----------

Cash at end of year                                 $  62,465     $ 302,319   $   111,496  $   223,523   $ 3,069,748
                                                    =========     =========   ===========  ===========   ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION

Cash paid during the period for interest, net           5,782         5,582        12,287        6,596      162,154
                                                    ---------     ---------   -----------  -----------   -----------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
  AND FINANCING ACTIVITIES

Notes payable to related party converted to                
  common stock                                             --            --            --           --     1,000,000 
                                                           
Prepaid offering costs charges to additional               
  paid-in capital                                          --            --            --           --       144,543 
                                                 
Liability incurred for the repurchase of common            
  stock                                                    --            --            --           --        60,000 
                                                           
Issuance of common stock for services                  22,951        64,304       310,609      125,758            --
 
Notes payable for prepaid insurance                        --            --       235,975           --            --

Asset recognized and liability incurred for the       
  financing of the directors and officers
  liability insurance premiums                        166,790       212,421            --           --            -- 
                                                    ---------     ---------   -----------  -----------   -----------
                                                      
Liability incurred for execution of severance       
  agreement with related party                             --       128,700            --           --            --
                                                    =========     =========   ===========  ===========     =========
The accompanying notes are an integral part of these financial statements.

                                      F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       Summary of Significant Accounting Policies

Nature of Business and Major Suppliers

         Electropharmacology, Inc. (the "Company") was incorporated on August
31, 1990 under the laws of the State of California under the name Magnetic
Resonance Therapeutics, Inc. and reorganized through a merger with and into
Electropharmacology, Inc., a Delaware corporation, in February 1995. The Company
was engaged up until August 24, 1998 (See footnote 17. Subsequent Events -
Recent Corporate Reorganization") in the development of novel medical
applications for pulsed electromagnetic signals, and has been engaged in
designing, developing, manufacturing and marketing medical devices that deliver
pulsed electromagnetic signals in the radio frequency range.

         For the periods ended December 31, 1997 and 1996, the Company was
dependent on four suppliers to supply all the major components of its products.
For the period ended December 31, 1995, the Company was dependent on three
suppliers to supply all the major components of its products. During such
period, management believed that alternative sources were available if the
current supply of any of its product's components was discontinued, limited or
delayed.

Unaudited Financial Statements

         The balance sheet and statement of changes in stockholders' equity as
of June 30, 1998 and the statements of income and cash flows for the six months
ended June 30, 1998 and 1997 are unaudited, and in the opinion of management ,
include all normal and recurring adjustments necessary for a presentation of the
Company's financial position, results of operations and cash flows. The data
disclosed in these notes to the financial statements for these periods is also
unaudited. The results of operations for the periods presented are not
necessarily indicative of the operations for the full year.

Revenue Recognition

         Rental revenue is recognized over the month-to-month period in which
the related equipment is under lease to a customer, primarily on a per use
basis. Sales revenue is recognized upon shipment and the transfer of ownership
of the product.

Inventory

         Inventory, which consists primarily of raw materials and work in
process, is valued at the lower of cost (average cost method) or market. Upon
completion, finished goods are transferred to property and equipment.

Patents and Other Assets

         Patents are amortized using the straight-line method over 17 years from
the date of issuance of the patent. Other assets are amortized using the
straight-line method.

                                      F-18
Rental and Other Equipment and Depreciation and Amortization

         Rental and other equipment is carried at cost. Depreciation and
amortization is computed using the straight-line method over the estimated
useful lives (or lease term if shorter) of the related assets as follows:

              Rental equipment            5 years
              Leasehold improvements      3 years
              Office equipment            4 to 7 years
              Laboratory equipment        4 to 7 years

Cost of Revenue

         Cost of revenue for the years ended December 31, 1997 and 1996 includes
costs associated with rental of the SofPulse units of approximately $485,000 and
$328,000, respectively.

Stock Based Compensation

         The Company has elected to follow Accounting Principles Board ("APB")
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under Financial Accounting
Standards Board (FASB) Statement No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB No. 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.

Net Loss per Share

         In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128 ("SFAS No. 128"), EARNINGS PER SHARE, which established new standards
for computing and presenting earnings per share. SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share.

         All loss per share amounts have been presented to conform to the SFAS
No. 128 presentation. Stock options and warrants have not been included in the
computation of diluted loss per share as the computation would not be dilutive.

         For additional disclosure regarding stock options and warrants see
Notes 7 and 8.

Advertising Costs

         Advertising costs, included in selling, general and administrative
expenses, are expensed as incurred and were $48,000 and $62,000 for 1997 and
1996, respectively.

                                      F-19
Use of Estimates and Concentration of Credit Risk

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

         Up until August 24, 1998 (see "footnote 17. Subsequent Events - Recent
Corporate Reorganization") the Company sold and/or rented its SofPulse product
to healthcare providers such as nursing homes, hospitals and physician practices
with no specific geographic concentration and extended credit based on an
evaluation of the customer's financial condition, generally without requiring
collateral. Exposure to losses on receivables was principally dependent on each
customer's financial condition. The Company monitors its exposure for credit
losses and maintains allowances for anticipated losses.

         In 1997, sales to three customers, National Patient Care Services, Inc.
("NPC"), Physiologic Reps, Inc. and Matt Starring, accounted for 36%, 30% and
11%, respectively, of the Company's total sales. Accounts receivable at December
31, 1997 from NPC totaled approximately $30,000 (net of amounts owed by the
Company to NPC of $4,000)

Deferred Compensation

         Deferred compensation related to stock options is amortized over the
period during which the options become exercisable.

Income Taxes

         The Company provides for income taxes under the provisions of FASB
Statement No. 109, ACCOUNTING FOR INCOME TAXES, which requires the asset and
liability method of accounting for income taxes. Under the asset and liability
method of FASB Statement No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.

Net Loss per Common Share

         For the years ended December 31, 1997, 1996 and 1995, options and
warrants were excluded from the computation of net loss per share because the
effect of inclusion would be antidilutive due to the Company's net operating
losses.

Reclassifications

         Certain reclassifications have been made to the 1996 financial
statements to conform with the 1997 presentation.

                                      F-20
2.       Liquidity and Basis of Presentation

         The accompanying financial statements have been prepared on a
going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.

         The Company reported a net loss of $1,647,917 for the year ended
December 31, 1997 and incurred cumulative net losses aggregating $15,305,311
through December 31,1997. In addition, at December 31, 1997, the Company had a
deficiency in working capital of $899,573 and a net capital deficiency of
$74,936.

         The Company reported a net loss of $2,927,990 for the year ended
December 31, 1996 and incurred losses aggregating $10,118,169 through December
31, 1996. At December 31, 1996, the Company had working capital of $192,837 and
shareholder's equity of $1,214,375.

         The Company reported a net loss of $3,069,586 for the year ended
December 31, 1995 and incurred cumulative net losses aggregating $7,190,179
through December 31, 1995. In addition, at December 31, 1995, the Company has
working capital of $2,824,190 and shareholders' equity of $4,012,387.

         The Company's 1998 operating plan consists of focusing on activities
involving the sale of the majority of its existing fleet of SofPulse devices to
a medical device company and entering into strategic alliances with or acquire
development stage biotechnology companies to better enable it to focus its
efforts in research and development (see "footnote 17. Subsequent Events -
Recent Corporate Reorganization"). It also contemplates stringent cost controls
and personnel reductions. The Company is also exploring alternative sources of
additional financing.

         The Company cannot predict whether the operating and financing plans
described above will be successful. If the Company is unable to successfully
implement its recent reorganization and restructuring, improve its operations
and obtain additional financings, it may not be able to continue as a going
concern. If the Company is unsuccessful in its efforts, it may be unable to meet
its obligations, making it necessary to undertake such other actions as may be
appropriate to preserve asset values.

3.       Trade Notes and Other Receivable

         During 1995, the Company received two promissory notes in connection
with the sale of SofPulse devices. In January 1997, the Company agreed to accept
$248,190 in full payment of these notes, which had an outstanding balance of
$270,172 at the time of the agreement. The notes were repaid in 1997, resulting
in a discount of $21,982. This discount was recognized in the statement of
operations for the year ended December 31, 1996. The balance in trade notes and
other receivables represents amounts received by NPC on behalf of the Company
relating to medical device rentals.

4.       Inventory

         The components of inventory are summarized as follows:

                                      F-21
(Unaudited)
                                            December 31, 1996        December 31, 1997       June 30, 1998
                                            -----------------        -----------------       -------------
Work-in-process                $24,940                 $ 23,366               $ 32,712
                  Raw material                    69,224                  128,867                126,331
                                                 -------                 --------               --------
                                                 $94,164                 $152,233               $159,043
                                                 =======                 ========               ========
5.       Rental and Other Equipment

         A summary of rental and other equipment is as follows:
(Unaudited)
                                                 December 31, 1996       December 31, 1997       June 30, 1998
                                                 -----------------       -----------------       -------------
Rental equipment                       $1,107,925              $1,171,060              $1,148,580
              Leasehold improvements                     68,270                  68,270                  68,270
              Office equipment under
                 capital lease                          153,580                 142,388                 142,388
              Office equipment                          118,530                 118,530                 118,628
              Lab equipment                              69,763                      --                      --
                                                     ----------              ----------              ----------
                                                      1,518,068               1,500,248              1,477,866
              Less accumulated depreciation
                 and amortization                      (573,010)               (786,782)               (909,369)
                                                     ----------              ----------              ----------
              Net rental and other equipment         $  945,058              $  713,466              $  568,497
                                                     ==========              ==========              ==========
6.       Notes Payable

         Notes payable at December 31, 1997 and June 30, 1998 (unaudited)
consists of the following:
(Unaudited)
                                                               December 31,                June 30
                                                                   1997                      1998
                                                               ------------              -----------
8% note payable to outside counsel, due
           on December 31, 1998                                  $672,751                  $672,751

         7.99% note payable to finance
           directors and officers insurance,
           due November 15, 1998                                  120,311                   136,785

         9.75% note payable to finance
           commercial general liability
           insurance, due April 21, 1998                           11,117                        --
                                                                 --------                  --------
                                                                 $804,179                  $809,536
                                                                 ========                  ========
F-22
The note payable to outside counsel is collateralized by a security
agreement on 55 SofPulse units and was settled infull as part of the recent
corporate reorganization (see "footnote 17. Subsequent Events Recent Corporate
Reorganization").

7.       Note Payable to Related Parties

         In October 1997, the Company issued three notes payable to its Chief
Financial Officer, Chief Executive Officer and a member of the board of
directors totaling $65,926 in exchange for cash advances of $45,000 and deferral
of salaries of $20,926. These notes bore interest at the prime rate (8.5% at
December 31, 1997) plus 1% and were due on demand.

         On April 12, 1997, the Company and the former Chief Executive Officer
entered into a severance agreement that provided for, among other things, a cash
payment by the Company of $128,700 in settlement of all rights under his
employment agreement with the Company. The loan and accrued interest were paid
in installments through January 1998. The balance due under this agreement at
December 31, 1997 was $8,000.

         The Company issued a $75,000 unsecured promissory note to a stockholder
of the Company, interest payable monthly at 9.5%, principal payable December 31,
1995, and convertible into shares of common stock at the lower of $5.42 per
share or the market price per share. This note was paid in full in January 1996.

         The Company issued a $45,000 unsecured promissory note to a stockholder
of the Company, interest payable monthly at 9.5%, principal payable December 31,
1995. The note was paid in full in January 1996.

8.       Shareholders' Equity and Warrants

         On January 11, 1993, the Company's Board of Directors approved an
amendment and restatement of its articles of incorporation to authorize
15,000,000 shares of no par value Common Stock and 5,000,000 shares of Preferred
Stock and to provide for an approximate 157 to 1 Common Stock split. On December
8, 1994, the Company's Board of Directors approved a reincorporation and
recapitalization of the Company under the laws of the State of Delaware and
approved a reverse stock split of shares of Common Stock on a 0.64568-for-1
basis and a change in the Company's authorized capital stock to 10,000 shares of
$.01 par value Common Stock and 1,000,000 shares of $.01 par value Preferred
Stock. All common share and per share amounts in the accompanying financial
statements have been retroactively adjusted to reflect these changes.

         As an incentive to extend the maturity dates of notes (payable to
related parties, in August and November 1993) the Company granted 5-year
warrants for the purchase of an aggregate of 20,339 shares of Common Stock at
$5.42 per share. No warrants have been exercised.

         During 1994, the Company issued 9,823 shares of Common Stock in
exchange for cash proceeds of $49,444 and issued 1,615 shares of Common Stock in
exchange for the rights to certain product related technology valued at $24,375.

         During 1994, the Company granted 5-year warrants for the purchase of
61,985 shares of Common Stock at $5.42 per share to a major shareholder and
creditor of the Company and for the purchase of 9,685 shares of

                                      F-23
Common Stock at $5.03 per share to a shareholder and creditor of the Company as
consideration for extending the maturity date of notes payable due to the
shareholders. No warrants have been exercised.

         During 1994, the Company granted 5-year warrants for the purchase of
41,969 shares of Common Stock at $5.03 per share to a consultant of the Company
for certain contributions of scientific development of the Company. No warrants
have been exercised.

         During December 1994, in connection with the issuance of 10% promissory
notes, the Company issued the creditors an aggregate of 200,000 shares of Common
Stock, valued at $5.15 per share. The Company recorded a $230,000 discount on
the notes payable to give effect to issuance of shares of Common Stock.
Additionally, the Company incurred loan costs of $145,000 in connection with the
transaction. The loan discount and deferred loan costs were amortized over the
life of the notes, which were repaid on May 19, 1995, upon closing of the
Company's initial public offering.

         On May 12, 1995, the Company consummated its initial offering of
securities by the sale of 1,250,000 shares of Common Stock at $5.00 per share.
Additionally, 718,750 redeemable warrants to purchase Common Stock were issued
and sold for $0.10 per warrant. Each warrant entitles the registered holder
thereof to purchase one share of Common Stock at a price of $6.00, subject to
adjustment in certain circumstances, at any time commencing June 12, 1996,
through May 12, 1998. Net proceeds of this offering, after the underwriter's
commissions and all expenses, were $5,103,957.

         For an aggregate of $187.50 the underwriter was issued warrants to
purchase 125,000 shares of Common Stock at $7.00 per share and 62,500 warrants
to purchase warrants at $0.14 each to purchase Common Stock at $6.00 per share.
No warrants have been exercised.

         During June 1995, the Company issued warrants to purchase 30,000 shares
of Common Stock at $4.00 per share and 12,000 shares of Common Stock at $5.25
per share to consultants of the Company for certain investor relations work.
Each of these warrants vested immediately and expires in five years. Further, a
four-year warrant to purchase 25,000 shares of Common Stock at $5.25 per share
was issued to a consultant to the Company for certain scientific contributions
to the Company. No warrants have been exercised.

         In November 1995, the Company issued to an investor (i) 421,950 shares
of Series A Convertible Preferred Stock (the "Preferred Stock") and (ii)
warrants to purchase an aggregate of 1,721,950 shares of Common Stock in
consideration of $2,000,000. Each share of Preferred Stock is convertible at a
conversion price of $4.74 per share which was at a discount from the market
price of $6.50 per share, at the option of the holder, into one share of Common
Stock, subject to adjustment in certain circumstances, at any time until
November 13, 2000, at which time outstanding shares of Preferred Stock
automatically convert into Common Stock. Shares of Preferred Stock have votes
equal to those of Common Stock into which they are convertible and, subject to
certain exceptions and except as required by law, vote together with the common
stock as a single class. The Preferred Stock votes as a single class on certain
matters including the incurrence of secured indebtedness by the Company, changes
in the number and the terms of the directors of the Company and the issuance of
cash dividends and redemptions or repurchase of securities by the Company. The
Preferred Stock is entitled to receive noncumulative cash dividends, when, as
and if declared by the Board of Directors of the Company and has a liquidation
preference of $4.74 per share. In May 1997, the Preferred Stock investor
("Investor") converted 179,000 shares of the Preferred Stock in to the same
number of shares of Common Stock with no proceeds to the Company.

                                      F-24
In November 1995, a family member of an officer and current member of
the Board of Directors of the Company, converted an aggregate of $1,000,000
principle amount of promissory notes into 195,945 shares of Common Stock. In
consideration for such conversion, the Company granted five-year warrants to
purchase 300,000 shares of Common Stock at a price of $6.25 per share, subject
to adjustment in certain circumstances. Subject to certain limitations and
exclusions, the Company agreed to include the shares underlying the warrants in
an appropriate registration statement filed by the Company. No warrants have
been exercised.

         The Investor's warrants consist of warrants to purchase: (i) 421,950
shares of Common Stock at an exercise price of $.01 per share; (ii) 800,000
shares of common stock at an exercise price of $6.00 per share; (iii) 250,000
shares of Common Stock at an exercise price of $7.50 per share; and (iv) 250,000
shares of Common Stock at an exercise price of $9.00 per share. The warrants are
exercisable at any time until November 13, 2005. The exercise price and number
of shares issuable upon exercise of the warrants are subject to adjustment in
certain circumstances, including the issuance of securities for a price less
than the current market value of the Common Stock. In June 1996, for proceeds to
the Company of $4,220, the Investor exercised 421,950 warrants to purchase
Common Stock at an exercise price of $.01 per share.

         In December 1995, the Company repurchased 10,493 shares of Common Stock
for $60,000 in connection with the resignation of the Company's chief operating
officer. The entire 10,493 shares were retired by the Company in October 1997.

         On November 1, 1996, the Company's stockholders approved proposals to
increase the Company's authorized capital stock from 10,000,000 to 30,000,000
shares of $.01 par value Common Stock and from 1,000,000 to 10,000,000 shares of
$.01 par value Preferred Stock.

         In April 1997, a ten-year warrant to purchase 25,000 shares of Common
Stock at $2.25 was issued to the former President as part of his severance
agreement. The fair value of the warrant based on the Black-Scholes valuation
method was $1.8 per share using the assumptions described in Note 8 and the
actual life of the warrant.

         Warrants to purchase an aggregate of 3,052,707 shares of Common Stock
have been issued to date. During 1996, 421,950 warrants were exercised. No
warrants were exercised during 1997.

         The following table summarizes information relative to the Company's
warrants which are exercisable at various dates through April 12, 2007:

                                      Shares             Price Range
                                      ------             -----------
Outstanding January 1, 1996          3,449,657          $ .01 - $9.00
           Exercised                  (421,950)         $ .01
Outstanding December 31, 1996        3,027,707          $1.00 - $9.00
           Granted                      25,000          $2.25
Outstanding December 31, 1997        3,052,707          $1.00 - $9.00

         At December 31, 1997 and 1996, shares of the Company's authorized but
unissued Common Stock were reserved for issuance as follows:

                                      F-25
NUMBER OF SHARES
                                                     --------------------------
                                                     December 31,  December 31,
                                                         1997          1996
                                                     ------------  ------------
           Exercise of warrants                        3,052,707     3,012,707
           Employee stock option plans (see Note 8)      590,778     1,113,860
           Convertible preferred stock                   242,950       421,950
                                                       ---------     ---------
                                                       3,886,435     4,548,517
                                                       =========     =========

         During 1997 and 1996, the Company issued 75,482 and 43,741 shares of
Common Stock, respectively, to officers of the Company in lieu of cash for
payment of outstanding employment related liabilities, totaling $158,609 and
$125,758, respectively.

         During 1997, the Company issued 250,000 shares of Common Stock at $.40
per share to consultants of the Company for certain investor relations work. The
Company recorded expense of $100,000 in connection with this transaction based
on the fair value of the Company's Common Stock on the date the shares were
issued.

         Effective November 1, 1996, the Board of Directors approved an Employee
Stock Purchase Plan ("ESPP") covering all employees who meet service period
requirements. The ESPP provides for the sale of Common Stock to employees of the
Company at a price equal to 85% of the lesser of the market value at the end of
or beginning of each respective quarter. No shares were issued under the ESPP
during 1996. During 1997 the Company issued 14,003 shares under the ESPP. The
ESSP was terminated effective October 1, 1997.

         Effective January 1, 1996, the Company established the
Electropharmacology, Inc. 1996 Non-Employee Director's Equity Compensation Plan
(the "Compensation Plan"). The Compensation Plan provides for the issuance of
Common Stock as compensation for serving as a director of the Company. No shares
were issued under the Compensation Plan during 1996. During 1997 the Company
issued 23,037 shares of Common Stock under the Compensation Plan.

         Additional equity and warrants have been issued in conjunction with the
Company's recent corporate reorganization (see footnote 17. Subsequent Events).

9.       Stock Options

         In April 1993, the Company adopted a stock option plan (the "Plan") for
officers, directors, employees and consultants. The options granted may be
either "incentive stock options" (for officers and employees only) within the
meaning of Section 422A of the Internal Revenue Code, and/or nonqualified stock
options (for officers, employees, directors and consultants). The exercise price
of incentive stock may not be less than 100% of the fair market value of the
Company's Common Stock as of the date of grant (110% of the fair market value if
the grant is to an employee who owns more than 10% of the outstanding Common
Stock (currently only the president of the Company). Nonqualified stock options
may be granted under the Plan at an exercise price less than the fair market
value of the Common Stock on the date of grant.

         As of December 31, 1995, the Board of Directors has authorized the
granting of options for up to 322,840 shares of Common Stock. Grants of options
to purchase 191,774 shares of Common Stock (net of forfeitures), (82,234 of
which are considered incentive stock options), have been formalized under the
Plan, of which 38,417 were granted in 1994 at an exercise price of $5.03 per
share, and 72,000 (net of forfeitures) were

                                      F-26
granted in 1995 at prices ranging from $5.25 to $8.25 per share, of which 15,500
have been canceled. The exercise prices were estimated by management to
approximate fair market value at the date of grant or when originally committed.
The options generally vest with a range from immediately to ratably up to five
years on differing vesting schedules. The aggregate proceeds to the Company upon
exercise of all options vested (incentive stock options and nonqualified stock
options, respectively) as of December 31, 1995 were $240,477. The aggregate
proceeds to the Company upon exercise of all options outstanding as of December
31, 1995 were $933,693. The options expire at dates ranging from four to seven
years after date of grant.

         On November 1, 1996, the Company amended the Plan to increase the
number of options authorized to 1,500,000 shares of Common Stock. As of December
31, 1996, the Board of Directors has authorized the granting of options for up
to 1,500,000 shares of Common Stock. Grants of options to purchase 1,113,860
shares of Common Stock (1,043,860 of which are considered incentive stock
options) have been finalized under the Plan. The options generally vest with a
range from immediately to ratably up to five years on differing vesting
schedules. The aggregate proceeds to the Company upon exercise of all options
vested (incentive stock options and nonqualified stock options, respectively) as
of December 31, 1996 were $1,906,826. The aggregate proceeds to the Company upon
exercise of all options outstanding as of December 31, 1996 were $5,543,616. The
options expire at dates ranging from two to ten years after date of grant.

         As of December 31, 1997, the Board of Directors has authorized the
granting of options for up to 1,500,000 shares of Common Stock. Grants of
options to purchase 590,778 shares of Common Stock, (215,020 of which are
considered incentive stock options) have been formalized under the Plan. The
options generally vest immediately to ratably up to ten years on differing
vesting schedules. The options expire at dates ranging from two to ten years
after date of grant.

         As required by SFAS No. 123 ("SFAS No.123"), pro forma information
regarding net income and earnings per share has been determined as if the
Company had accounted for its employee stock options under the fair value method
of that statement. The fair value for these options was estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1997 and 1996:

                                     For the year ended December 31,
                                     -------------------------------

                                           1997              1996
                                       -------------       --------
         Risk free interest rate       5.71% - 6.69%         5.2%
         Expected lives (years)           4  - 10            10
         Expected volatility               .681             .775
         Expected dividend yield             -                -

         The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, the
existing models, in management's opinion, do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

                                      F-27
For the purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The effect
of compensation expense from stock option awards on pro forma net loss reflects
only the vesting of 1995 through 1997 awards in 1997 and the vesting of 1996 and
1995 awards in 1996, in accordance with SFAS No. 123. Because compensation
expense associated with a stock option award is recognized over the vesting
period, the initial impact of applying SFAS No. 123 may not be indicative of
compensation expense in future years, when the effect of the amortization of
multiple awards will be reflected in pro forma net loss. The Company's pro forma
information follows:

                                       1997            1996            1995   
                                   -----------     -----------     -----------
         Net loss                  $(2,015,631)    $(3,665,506)    $(3,109,269)
                                   ===========     ===========     ===========
         Loss per common share
           (basic and diluted)     $      (.55)    $     (1.11)    $     (1.28)
                                   ===========     ===========     ===========

                                      F-28
Transactions under the Plan are summarized as follows:

                                                                   Weighted
                                                                    Average
                                                    Number         Exercise
                                                      Of          Price per
                                                    Shares          Share
                                                   ---------      ----------
         Outstanding January 1, 1995                 203,712

         Exercised                                         0
         Expired                                           0
         Forfeited                                         0
         Canceled                                    (99,438)
         Granted                                      87,500
                                                   ---------
         Outstanding December 31, 1995               191,774          $4.87

         Exercised                                         0              0
         Expired                                           0              0
         Forfeited                                         0              0
         Canceled                                    (37,000)         $8.09
         Granted                                     959,086          $5.12
                                                   ---------        -------
         Outstanding December 31, 1996             1,113,860          $4.98

         Exercised                                         0              0
         Expired                                           0              0
         Forfeited                                         0              0
         Canceled                                   (608,082)         $4.87
         Granted                                      85,000          $2.55
                                                   ---------        -------
         Outstanding December 31, 1997               590,778          $4.73
                                                   =========        =======

                                                     1997            1996
                                                     ----            ----
         Exercisable at December 31,                 501,950        397,985
                                                   =========        =======
         Reserved for future option grants at
                December 31,                         909,222        386,140
                                                   =========        =======
         Weighted average fair value of options
                granted                              $1.30           $4.26 
                                                   =========        =======

         During 1997, the Company granted stock options to consultants for the
purchase of 72,500 shares of Common Stock at exercises prices ranging from
$3.375 to $5.75 per share. Deferred compensation of $98,750 was recorded in
connection with the issuance of these options based on the Black-Scholes
valuation model using the assumptions described above and the estimated life of
options. The Company will amortize the deferred compensation over the
consultants' required service period of four years. Compensation expense for the
year ended December 31, 1997 totaled $31,072.

                                      F-29
The following table sets forth the information about stock options
outstanding at December 31, 1997:

                    Number         Weighted
                  Outstanding       Average      Weighted
                     as of         Remaining      Average
Range of          December 31,    Contractual    Exercise   Exercisable as of
Exercise Prices       1997           Life          Price    December 31, 1997
---------------   ------------    -----------    --------   -----------------
$ .28 - $2.88        89,728       5.33 years      $2.34            68,728
$3.38 - $5.75       501,050       7.54 years      $5.16           433,222
                    -------       ----------      -----           -------
                    590,778       7.20 years      $4.73           501,950

         Additional Stock Options have been issued in conjunction with the
Company's recent corporate reorganization (see footnote 17. Subsequent Events).

10.      Income Taxes

         As of December 31, 1997 and December 31, 1996, the Company had net
operating loss carryforwards of approximately $10,719,000 and $9,013,000,
respectively, available to offset future taxable income. Such carryforwards,
which may provide future tax benefits, expire in the years 2008 through 2012 and
tax credits of $148,000 which expire approximately in the years 2008 through
2011. During 1993 and 1995 and recently during the Company's recent corporate
reorganization (see footnote 17. Subsequent Events - Recent Corporate
Reorganization) changes in ownership of greater than 50% occurred as a result of
the Company issuing equity securities. As a result, a substantial limitation
will be imposed upon the future utilization of the Company's net operating loss
carryforwards.

         Significant components of the Company's deferred income taxes are as
follows:

                                                  December 31,   December 31,
                                                      1997           1996
                                                  ------------   ------------
         Net operating loss carryforwards         $ 4,033,395    $ 3,392,000
         Other                                        221,262        158,600
                                                  -----------    -----------
         Deferred tax assets                        4,254,657      3,590,600
         Deferred tax liabilities--equipment          (90,097)       (75,300)
                                                  -----------    -----------
                                                    4,155,560      3,475,300
         Less valuation allowance                  (4,155,560)    (3,475,300)
                                                  -----------    -----------
         Net deferred tax assets                  $         0    $         0
                                                  -----------    -----------

         The net change in the valuation allowance for the year ended December
31, 1997 and 1996 was an increase of approximately $680,000 and $1,075,300,
respectively.

         The difference between the benefit for income taxes and the amount
which results from applying the federal statutory tax rate of 34% to the loss is
due to the increase in the valuation allowance in 1997 and 1996, resulting in no
tax benefit reported in any of those years.

                                      F-30
Year ended December 31,
                                            ----------------------------
                                             1997                   1996
                                             ----                   ----
Tax at U.S. statutory rate                 (34.00%)                (34.00%)
State taxes, net of federal benefit         (3.61%)                 (3.63%)
Nondeductible items                           .16%                    .30%
Change in valuation allowance               41.28%                  36.72%
Other                                       (3.82%)                   .61%
                                           ------                  ------
                                             0.00%                   0.00%
                                           ======                  ======

11.      Lease Commitments

         The Company leases certain office equipment under operating lease
agreements which expire at various dates through October 2, 2001. Prior to the
recent corporate reorganization (see footnote 17. Subsequent Events - Recent
Corporate Reorganization), the Company leased its administrative facilities on a
month-to-month basis at a monthly rate of $3,600.

         Future minimum rental payments required under operating leases that
have an initial term in excess of one year as of December 31, 1997, are as
follows:

                  Year ended December 31,
                  -----------------------
                  1998                          $22,709
                  1999                           22,709
                  2000                           17,459
                  2001                           13,091
                                                -------
                  Total                         $75,968
                                                =======

         Rent expense under operating leases approximated $73,258, $62,475 and
$51,083 for the years ended December 31, 1997, 1996 and 1995, respectively.

         Subsequent to June 30, 1998, the Company entered into a short-term
lease for its corporate offices at a monthly rate of $1,800.

12.      Employment Agreements

         As of December 31, 1997, the Company had employment agreements with
certain executive officers, the terms of which expired at various times through
December 31, 2001.

         In the recent corporate reorganization of the Company (see Footnote 17,
Subsequent Event - Recent Corporate Reorganization), these agreements were
terminated and replaced by memorandums by the Board of Directors to the
executive officers outlining in general the revised terms of employment of these
officers. In addition, on August 19, 1998, a new employment agreement was
entered into with the new Chief Executive Officer and President of the Gemini
Biotech Division of the Company, the term of which expires August 18, 2001.

         On August 25, 1998, the Board of Directors issued a memorandum to Arup
Sen, outlining in general the terms of employment of Dr. Sen as Chief Executive
Officer of Epi, effective as of September 1, 1998. The memorandum provides for
an initial base salary of $130,000, which has increased to $150,000 and may
increase up to $200,000 in a series of stepped increments upon the achievement
of specified milestones. The memorandum also provides that the Company will
grant to Dr. Sen a ten- year option to purchase 500,000 shares of the Common
Stock at the stock price at the close of trading on the date of grant (August
25, 1998), 150,000 of which have vested based on the achievement of specific
milestones set by the Board of Directors, with the remainder to vest subject to
the achievement of other such milestones. In the event that Dr. Sen's employment
is terminated without "cause" before three years, Dr. Sen is entitled to a
severance of six months' base salary, subject to his mitigation of such payment
by seeking other employment. All his stock options will vest immediately and
will remain exercisable for the original term of the option in the event his
employment is terminated due to an acquisition by or merger with a third party
not recommended and/or approved by Dr. Sen.

         On August 25, 1998, the Board of Directors issued a memorandum to David
Saloff, outlining in general the terms of employment of Mr. Saloff as Executive
Vice President- Sales and Marketing of the Company, effective as of September 1,
1998. The memorandum provides for an initial base salary of $80,000, which may
increase up to $110,000 upon certain events, including the achievement of
certain annual revenues to be calculated by annualizing the prior six months'
revenues. The memorandum also provides that Mr. Saloff will be entitled to an
override on sales revenue at a specified percentages of the annualized revenue
calculated based on the previous month's revenues. Once Mr. Saloff's aggregate
annual compensation equals or exceeds $200,000, then the Company and Mr. Saloff

                                      F-31
will negotiate a new mutually acceptable compensation arrangement. The
memorandum also provides that the Company will grant to Mr. Saloff on August 25,
1998, a ten- year option to purchase 200,000 shares of the Common Stock at the
stock price of close of trading on the date of grant, with 20% of the shares
covered thereby vesting upon the first anniversary date, and an additional 20%
each succeeding anniversary date, with vesting to accelerate based on meeting
certain sales revenue growth targets and other events related to PEMS
technologies and products.

         As part of the reorganization transactions, the Company entered into an
employment agreement with Krishna Jayaraman dated August 19, 1998, for a term
expiring on August 19, 2001 for Dr. Jayaraman's services as President and Chief
Executive Officer of the Gemini Biotech Division of the Company. This agreement
provides for a base salary of $120,000 which has increased to $150,000 and may
increase further to $200,000 based on certain corporate milestones and revenues
of the Gemini Biotech Division. He is also entitled to benefits, a term life
contract, an automobile allowance and four weeks' vacation per year. The
agreement also provides that the Company will grant to Dr. Jayaraman on the date
of the agreement an option to purchase 250,000 shares of Common Stock, with
30,000 of the shares covered thereby vesting immediately, 62,500 of the shares
covered thereby vesting on each of the first and second anniversaries of the
agreement and an additional 75,000 of the shares covered thereby vesting on the
third anniversary of the date of the agreement. The agreement also provides that
if Dr. Hayaraman's employment is terminated by him by permitted resignation or
by the Company other than for "cause", Dr. Jayaraman will receive an amount
equal to 85% of the remaining portion of the base salary due him under the term
of the agreement, unless there is a permitted resignation following a relocation
of Dr. Jayaraman due to a change in control not proposed or recommended by Dr.
Jayaraman. In such case, Dr. Jayaraman would receive the sum of his annual base
salary and the average annual bonus received by him during the previous two-year
period. In the event of termination with out "cause" or by permitted
resignation, Dr. Jayaraman will continue to receive benefits pursuant to the
Company's welfare programs and perquisite plans until the earliest of one year
after his termination, the end of the term of the agreement, or until Dr.
Jayaraman in reemployed. In addition, all of Dr. Jayaraman's options will
immediately vest and be exercisable for the full term of the option. Dr.
Jayaraman is also subject to a non- compete agreement as part of his employment
agreement.

         For the year ended December 31, 1997 and 1996, approximately $152,446
and $37,000, respectively, of compensation was paid or is payable in Common
Stock.

         As of December 31, 1995, the President of the Company, had an
employment which provided for a annual base salary of $132,000 and a 10% annual
increase based on performance.

                                      F-32
13.      Termination of Distribution Agreement

         The Company announced on July 18, 1997 that its purchase-distribution
agreement with NPC was terminated following the announcement by the U.S. Health
Care Financing Administration ("HCFA")of its new policy denying Medicare
reimbursement for the use of all electrical stimulation, including pulsed
electromagnetic fields, in treating wounds. The multi-year distribution
agreement for the sale and rental of SofPulse devices was initially executed as
of May 1, 1997 and required NPC to purchase from the Company specified minimum
quotas of SofPulse devices in exchange for exclusive distribution rights to
three selected market applications of SofPulse in the U.S. NPC was also to
assume responsibility for the growth and operation of the Company's current
fleet of rental devices including the Company's sales and marketing group and
was to make monthly payments to the Company for five years and pay royalties to
the Company on NPC's rental revenues. The Company also sold approximately
$270,000 of accounts receivable arising from April 1997 rental revenues to NPC
for an initial payment from NPC in the amount of $200,000. NPC will remit the
balance to the Company when it is collected from the rental customers after
deducting certain interest payments on the initial $200,000 advance. Upon the
termination of the NPC purchase-distribution agreement, the Company reacquired
the marketing rights and control of its fleet of SofPulse devices from NPC.
Subsequently, a U.S. District Court enjoined HCFA in November 1997 from
implementing the national policy noted above and HCFA notified the fiscal
intermediaries in February of 1998 not to abide by the July 1997 national policy
memorandum.

14.   Contingencies

Litigation

         In February 1993, Diapulse Corporation of America, Inc. ("Diapulse")
filed a citizen's petition requesting that the FDA revoke the substantial
equivalence finding for the SofPulse and prevent the Company from making certain
labeling claims. The Company believes, based upon the advice of regulatory
counsel, that Diapulse's petition is without merit. The Company responded to the
petition. The Company made revisions in its promotional materials relating to
its SofPulse device to obviate any claim that such material is inconsistent with
FDA regulations. The Company believes that Diapulse's petition is lacking in
merit and that it is highly unlikely that the FDA will grant the petition. Even,
in the event that the FDA were to grant the petition, the Company's believes
that its future business is not likely to be materially adversely affected. In
October 1993, Diapulse submitted additional information to the FDA in support of
its petition and the Company responded. As of the date hereof, the FDA has not
notified the Company as to any action with respect to the aforementioned
petition.

                                      F-33
In August 1994, Diapulse filed a lawsuit in the Supreme Court of the
State of New York, Nassau County ("The Court"), captioned Diapulse Corporation
of America V. Magnetic Resonance Therapeutics, Inc. et al., alleging that the
defendants, Magnetic Resonance Therapeutics, Inc., a legal predecessor to the
Company, Bio-Sales, Inc., the Company, and certain of the Company's present and
former directors and officers, including Joshua Barnum ("Barnum"), David Mills
("Mills"), Arthur Pilla ("Pilla"), David Saloff ("Saloff"), and David Winter
("Winer"), engaged in deceptive acts and practices, false advertising and unfair
competition in the marketing of a medical device. The complaint also alleges
that Barnum and Mills breached confidentiality and noncompetition agreements
with Diapulse and that the Company, Barnum and Pilla aided in the alleged
tortious breach of the agreements. Diapulse seeks unspecified compensatory
damages, disgorgement of profits realized by the defendants as a result of their
alleged acts, treble damages, punitive damages and reasonable attorneys' fees.
Diapulse also seeks unspecified injunctive relief prohibiting the defendants
from engaging in the alleged acts and ordering the defendants to take remedial
action to rectify the effects on consumers and Diapulse caused by the
defendants' alleged acts. The defendants jointly moved to dismiss the complaint
on jurisdictional and substantive grounds. The Court dismissed Winer from the
case based on lack of personal jurisdiction. The Court also dismissed certain
claims, as to the remaining individual defendants, including deceptive acts and
practices, false advertising and unfair competition. As to the claims remaining
against the individual defendants, certain of such claims may be indemnified by
the Company. As to the Company, the Court denied the motion to dismiss. The
Company answered the complaint, denied all material allegations, asserted
various affirmative defenses and counterclaimed against Diapulse and Jesse Ross,
individually. The counterclaims allege causes of action against Diapulse and
Jesse Ross for federal unfair competition and tortious interference of existing
and contractual business relations. In addition, the Company has asserted claims
against Diapulse for deceptive acts and unfair trade practices, and trade
disparagement. In its counterclaims, the Company seeks compensatory and punitive
damages in an amount to be proved at trial. This lawsuit is in a preliminary
stage and its outcome is uncertain. Although the Company believes that it has
meritorious defenses that it will vigorously pursue and that its ability to
develop its future technologies and products does not materially depend on the
outcome of this litigation, there can be no assurance that the outcome of such
action will be resolved favorably to the Company.

         On August 28, 1997, Michelle O'Connell, formerly employed by Kinetech
Medical, Inc. ("Kinetech") as the Company's sales representative, filed a
complaint entitled O'Connell v. Kinetech Medical, Inc. and Electropharmacology,
Inc. in the County Court in Dallas County, Texas. The complaint alleged that
Kinetech and the Company were jointly and severally liable for an unspecified
amount of commissions earned by O'Connell from Kinetech, but unpaid, and
asserted a cause of action quantum meruit against the Company. O'Connell
dismissed the complaint against the Company in May 1998 and Kinetech immediately
filed a cross-complaint against the Company for breach of the agreement between
the Company and Kinetech for failing to pay commissions owed in excess of
$30,000. In August 1998, Kinetech joined National Patient Care Systems, Inc. as
an additional defendant for its share of the commissions owed. The Company
answered the cross-complaint and asserted several affirmative defenses. The case
has not yet been set for trial and no discovery between the Company and Kinetech
has taken place.

         On July 14, 1998, Jack Baxter ("Baxter"), a former employee of the
Company, filed a complaint entitled Baxter v. Electropharmacology, Inc. in the
Circuit Court in Broward County, Florida. The complaint alleges the failure by
the Company to make payments of $20,000 due to Baxter under an agreement
pursuant to which Baxter and the Company had agreed to the terms of the
termination of their employer-employee relationship. The Company answered the
complaint and asserted several affirmative defenses. The case has not yet been
set for trial and no discovery between the Company and Baxter has taken place.

                                      F-34
15.      Financial Instruments

         The carrying amount of financial instruments including cash, accounts
receivable, notes receivable from customers notes payable, notes payable to
related parties and accounts payable approximate fair value as of December 31,
1997 and 1996 because of the short maturity of these items.

16.      Fourth Quarter Adjustments

         Certain adjustments were recorded in the fourth quarter of 1997 which
included an adjustment to provide an additional allowance for obsolete inventory
and rental equipment of $73,000 and to reduce the carrying value of rental
equipment and inventory by $95,000.

17.      Subsequent Event - Recent Corporate Reorganization and Elan Transaction

         The Company consummated a corporate reorganization, consisting of five
steps, on August 18, 1998. First, the Company contributed all of its assets and
liabilities (other than those assets and liabilities related to its business of
manufacturing and distributing the SofPulse device (the "SofPulse Business")) to
its wholly-owned subsidiary, EPi HealthTech Inc., a Delaware corporation (EPi
Sub") in exchange for 100 shares of EPi Sub Common Stock. Second, HTD, a
privately held Company, was merged into EPi Sub, with the shareholders of HTD
receiving an aggregate of 6,172,095 shares of the Company's Common Stock (such
number of shares being substantially equivalent to the number of shares of the
Company's Common Stock outstanding at such time, or 6,333,385 shares). Third,
EPi Sub contributed all of its assets and liabilities (including both the assets
and liabilities contributed to it by the Company and the assets and liabilities
of HTD) to Gemini Health Technologies L.P., a newly-formed Delaware limited
partnership (the "Partnership") in exchange for 12,505,480 partnership units of
the Partnership (such number of partnership units corresponding to the number of
shares of the Company's Common Stock issued and outstanding following the
issuance of shares of the Company's Common Stock to the shareholders of HTD).
Simultaneously with contribution of EPi Sub's assets and liabilities to the
Partnership, Krishna and Shashikala Jayaraman (the "Jayaramans") transferred all
the limited partnership interests in Gemini, a privately held Texas limited
partnership and all the stock of its general partner, Gemini Biotech, Inc.
("GBI"), to the Partnership in exchange for 6,000,000 partnership units in the
Partnership, which partnership units are exchangeable, subject to certain
restrictions, for shares of the Company's Common Stock, on the basis of one
share of the Company's Common Stock for each partnership unit (subject to
adjustment in the case of certain events concerning the Company and/or the
Partnership). Fourth, the Company issued 1,872,000 shares of its Common Stock to
the holders of certain warrants and all outstanding Preferred Stock of the
Company in exchange for such warrants and Preferred Stock. Fifth, the Company
sold all of its assets and liabilities relating to the SofPulse Business to a
wholly-owned subsidiary of ADM Tronics Unlimited, Inc. ("ADMT"), a publicly
traded Company, in exchange for a combination of $150,000 in cash, 1,400,000
shares of ADMT Common Stock issued to the Company, an additional 1,525,000
shares of ADMT Common Stock issued to pay approximately $650,000 of the
Company's payable and a warrant to purchase additional shares of ADMT Common
Stock if ADMT achieves certain sales objectives with respect to its conduct of
the SofPulse Business.

         The effect of the corporate reorganization is that the businesses
previously conducted by the Company (other than the SofPulse Business), HTD and
Gemini are now being conducted by the Partnership and Gemini, with EPi Sub being
the general partner of the

                                      F-35
Partnership and the Jayaramans being the limited partner of the Partnership, and
the Partnership being the limited partner of Gemini and Gemini Biotech, Inc.
remaining as the limited partner of the Partnership. At such time as the
Jayaramans exchange all of their partnership units in the Partnership for shares
of the Company's Common Stock, it is expected that the Partnership and Gemini
will be dissolved, EPi Sub will be dissolved and all of such businesses will be
conducted by the Company under the new corporate name of Gemini Health
Technologies Inc.

         On September 30, 1998, the Company has entered into an agreement with
Elan. Pursuant to the agreement, the Company acquired a worldwide license to
Elan's flexible iontophoresis patch technology for non-cosmetic dermatology and
wound care applications in exchange for a $7,500,000 up-front payment and
certain future payments of prescribed license fees and royalties payable from
the revenues of resulting products. Elan also made an investment of $7,500,000
in the Company to acquire convertible Preferred Stock and warrants, each at a
premium to the current market price and agreed to invest an additional
$2,000,000 to acquire shares of the Company's Common Stock at a price to be
determined by an agreed upon formula.

                                      F-36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and
  Board of Directors of
HealthTech Development, Inc. (a development stage company)

We have audited the accompanying balance sheets of HealthTech Development, Inc.
(a development stage company) as of December 31, 1997 and 1996, and the related
statements of operations, shareholders' equity (deficit) and cash flows for the
years ended December 31, 1997, 1996 and 1995 and for the period from December
14, 1993 (inception) to December 31, 1997. 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 the audits 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 HealthTech Development, Inc. (a
development stage company) as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for the years ended December 31, 1997, 1996
and 1995, and for the period December 14, 1993(inception) to December 31, 1997,
in conformity with generally accepted accounting principles.

The Company is in the development stage and to date has had limited operations.
The continuation of the Company's business is dependent upon its ability to
obtain adequate financing arrangements and, ultimately, future profitable
operations.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred losses and will need to achieve
profitable operations and obtain adequate financing in order to continue
operations. These factors raise substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

                                       Sweeney, Gates & Co.

Ft. Lauderdale, FL
July 17, 1998

                                      F-37
HEALTHTECH DEVELOPMENT, INC.
                          (A Development Stage Company)

                                 BALANCE SHEETS
June 30,               December 31,
                                                                                  --------           ---------------------
                                                                                    1998             1997             1996
                                                                                    ----             ----             ----
ASSETS                                                                          (unaudited)
Current assets:
  Cash and cash equivalents                                                       $      48       $     809       $   3,619
  Accounts receivable                                                                     -               -          56,000
                                                                                  ---------       ---------       ---------
     Total current assets                                                                48             809          59,619
                                                                                  ---------       ---------       ---------

Property and equipment                                                                1,931           1,931           1,931
Less accumulated depreciation                                                          (965)           (772)           (386)
                                                                                  ---------       ---------       ---------
                                                                                        966           1,159           1,545
                                                                                  ---------       ---------       ---------

                                                                                  $   1,014       $   1,968       $  61,164
                                                                                  =========       =========       =========

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
  Accounts payable and accrued expenses                                           $  44,500       $  44,500       $ 114,454
                                                                                  ---------       ---------       ---------
      Total current liabilities                                                   $  44,500          44,500         114,454
                                                                                  ---------       ---------       ---------

Shareholders' deficit:
  Common stock, $.01 par value, 1,000,000 shares authorized,
    3,247 shares issued and outstanding on June 30, 1998,
    3,247 shares issued and outstanding on December 31, 1997,
    800 shares issued and outstanding on December 31, 1996                               32              32               8
  Additional paid in capital                                                        194,522         192,522          55,172
  Accumulated deficit during development stage                                     (238,040)       (235,086)       (108,470)
                                                                                  ---------       ---------       ---------
                                                                                    (43,486)        (42,532)        (53,290)
                                                                                  ---------       ---------       ---------

                                                                                  $   1,014       $   1,968       $  61,164
                                                                                  =========       =========       =========
The accompanying notes are an integral part of these financial statements.

                                      F-38
HEALTHTECH DEVELOPMENT, INC.
                          (A Development Stage Company)

                            STATEMENTS OF OPERATIONS
December 14,                                                                         December 14,
                                      1993                                                                                 1993
                                 (inception) to         Six Months                                                    (inception) to
                                    June 30,          Ended June 30,                Year ended December 31,            December 31,
                                    --------    -----------------------      --------------------------------------    ------------
                                     1998          1998           1997         1997           1996          1995           1997
                                     ----          ----           ----         ----           ----          ----           ----
                                  (unaudited)   (unaudited)
Sales                              $ 157,662     $      --     $      --     $      --     $ 121,662     $  36,000        $ 157,662
Cost of sales                        133,750            --            --            --        97,750        36,000          133,750
                                   ---------     ---------     ---------     ---------     ---------     ---------        ---------
                                                                                                                     
Gross profit                          23,912            --            --            --        23,912            --           23,912
                                   ---------     ---------     ---------     ---------     ---------     ---------        ---------
                                                                                                                     
Operating expenses:                                                                                                  
   General and                                                                                                       
     Administrative                                                                                                  
     Expenses                        156,384         2,664        49,986        89,972        17,838        28,169          153,720
                                                                                                                     
   Research and                                                                                                      
     development                                                                                                     
     costs                           104,620           300        17,285        34,570        62,750         5,000          104,320
                                   ---------     ---------     ---------     ---------     ---------     ---------        ---------
Total operating                                                                                                      
   expenses                          261,004         2,964        62,271       124,542        80,588        33,169          258,040
                                   ---------     ---------     ---------     ---------     ---------     ---------        ---------
Operating loss                      (237,092)       (2,964)      (62,271)     (124,542)      (56,676)      (33,169   )     (234,128)
                                   ---------     ---------     ---------     ---------     ---------     ---------        ---------
                                                                                                                     
                                                                                                                     
Other income                                                                                                         
   (expense):                                                                                                        
   Interest expense                   (2,198)           --        (1,099)       (2,198)           --            --           (2,198)
   Interest income                     1,250            10            62           124           448           359            1,240
                                   ---------     ---------     ---------     ---------     ---------     ---------        ---------
                                        (948)           10        (1,037)       (2,074)          448           359             (958)
                                   ---------     ---------     ---------     ---------     ---------     ---------        ---------
                                                                                                                     
Net loss                           $(238,040)    $  (2,954)    $ (63,308)    $(126,616)    $ (56,228)    $ (32,810   )    $(235,086)
                                   =========     =========     =========     =========     =========     =========        =========
The accompanying notes are an integral part of these financial statements.

                                      F-39
HEALTHTECH DEVELOPMENT, INC.
                          (A Development Stage Company)

                  STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

          FOR THE PERIOD DECEMBER 14, 1993 (INCEPTION) TO JUNE 30, 1998
Common stock
                                           ------------------------     Additional         Accumulated
                                            Number             Par       paid in         Deficit During
                                           Of shares          Value      capital        Development Stage      Total
                                           ---------          -----     ----------      -----------------      -----
Common stock issued
  December 14, 1993 through
  December 31, 1994                           666            $   7        $ 31,022           $     --        $ 31,029

Net loss December 14, 1993
  through December 31, 1993                    --               --              --            (19,432)        (19,432)
                                            -----            -----        --------           --------        -------

Balance, December 31, 1994                    666                7          31,022            (19,432)         11,597

Common stock issued                           134                1           7,499                              7,500

Capital contributions                          --               --          16,151                 --          16,151

Net loss for the year ended
  December 31, 1995                            --               --              --            (32,810)        (32,810)
                                            -----            -----        --------           --------        --------

Balance, December 31, 1995                    800                8          54,672            (52,242)          2,438

Contribution of capital                        --               --             500                 --             500

Net loss for the year ended
  December 31, 1996                            --               --              --            (56,228)        (56,228)
                                            -----            -----        --------           --------        --------

Balance, December 31, 1996                    800                8          55,172           (108,470)        (53,290)

Issuance of stock for
  expenses                                    822                8          46,139                 --          46,147

Issuance of stock for rights                  500                5          28,065                 --          28,070

Issuance of stock for services                800                8          44,904                 --          44,912
Issuance of stock for legal
  services                                    325                3          18,242                 --          18,245
Net loss for the year ended
  December 31, 1997                            --               --              --           (126,616)       (126,616)
                                            -----            -----        --------           --------        --------
Balance, December 31, 1997                  3,247               32         192,522           (235,086)        (42,532)
                                            -----            -----        --------           --------        ========

Capital Contribution (unaudited)                                             2,000                              2,000

Net loss for the six months ended
  June 30, 1998 (unaudited)                                                                    (2,954)         (2,954)
                                            -----            -----        --------           --------        -------- 
                                                                                             
Balance, June 30, 1998 (unaudited)          3,247            $  32        $194,522           $238,040        $(43,486)
                                            =====            =====        ========           ========        ========
The accompanying notes are an integral part of these financial statements.

                                      F-40
HEALTHTECH DEVELOPMENT, INC.
                                       (A Development Stage Company)

                                          STATEMENTS OF CASH FLOWS
December 14, 1993
                                                      (inception) to       Six Months                     
                                                         June 30,        Ended June 30,             Year ended December 31, 
                                                         --------       ----------------         ------------------------------   
                                                           1998         1998        1997         1997         1996         1995    
                                                           ----         ----        ----         ----         ----         ----    
                                                       (unaudited)
Cash flows from operating activities:                 
  Net income                                             $(238,040)   $(2,954)     $(63,308)    $(126,616)   $(56,228)    $(32,810)
  Adjustment to reconcile net income to net
    cash provided by operating activities:
  Non-cash professional fees paid in common stock          18,245           -        9,122         18,245           -            - 
  Issuance of common stock for expenses
     paid by stockholder                                   46,147           -       23,074         46,147           -            - 
  Non-cash compensation charge for issuance of
     common stock                                          44,912           -       22,456         44,912           -            - 

  Issuance of common stock for intellectual rights         28,070           -       14,035         28,070           -            - 

  Depreciation and amortization
                                                              965         193          193            386         386            - 
 Changes in assets and liabilities:
   Decrease (increase) in:
     Accounts receivables                                       -           -       28,000         56,000     (40,000)     (16,000)
     Other assets                                               -           -            -              -           -          932
   Increase (decrease) in:
     Accounts payable and accrued expenses                 44,500           -      (31,321)       (69,954)     97,650       16,800
                                                         --------     -------      -------      ---------    --------     --------

        Total adjustments                                 182,839         193       65,559        182,646
                                                         --------     -------      -------      ---------    --------     --------

  Net cash provided (used) by operating activities        (55,201)     (2,761)       2,251         (2,810)      1,808      (31,078)
                                                         --------     -------      -------      ---------    --------     --------

Cash flows used for investing activities:
  Purchase of property and equipment                       (1,931)          -            -         (1,931)          -       (1,931)
                                                         --------     -------      -------      ---------    --------     --------
Net cash used for investing activities                     (1,931)          -            -              -      (1,931)           - 
                                                         --------     -------      -------      ---------    --------     --------

Cash flows from financing activities:
  Proceeds from sale of securities                         38,529           -            -              -           -        7,500

  Proceeds from capital contribution                       18,651       2,000            -              -         500       16,151
                                                         --------     -------      -------      ---------    --------     --------

  Net cash from financing activities                       57,180       2,000            -              -         500       23,651
                                                         --------     -------      -------      ---------    --------     --------

Net increase (decrease) in cash                                48        (761)      (2,251)        (2,810)        377       (7,427)

Cash and cash equivalents, beginning                            -         809          809          3,619       3,242       10,669
                                                         --------     -------      -------      ---------    --------     --------
Cash and cash equivalents, ending                        $     48     $    48      $ 3,060      $     809    $  3,619     $  3,242
                                                         ========     =======      =======      =========    ========     ========

Supplemental disclosure of cash flow information:
  Cash paid for interest during the period               $      -     $     -      $     -      $       -    $      -     $      - 
                                                         ========     =======      =======      =========    ========     ========
December 14, 1993
                                                     (inception) to
                                                      December 31,
                                                      ------------
                                                          1997
                                                          ----
                                                     
Cash flows from operating activities:                
  Net income                                          $(235,086)
  Adjustment to reconcile net income to net          
    cash provided by operating activities:           
  Non-cash professional fees paid in common stock        18,245
  Issuance of common stock for expenses              
     paid by stockholder                                 46,147
  Non-cash compensation charge for issuance of       
     common stock                                        44,912
                                                     
  Issuance of common stock for intellectual rights       28,070
                                                     
  Depreciation and amortization                      
                                                            772
 Changes in assets and liabilities:                  
   Decrease (increase) in:                           
     Accounts receivables                                     -
     Other assets                                             -
   Increase (decrease) in:                           
     Accounts payable and accrued expenses               44,500
                                                      ---------
                                                     
        Total adjustments                               182,646
                                                      ---------
                                                     
  Net cash provided (used) by operating activities      (52,440)
                                                      ---------
                                                     
Cash flows used for investing activities:            
  Purchase of property and equipment                     (1,931)
                                                      ---------
Net cash used for investing activities                   (1,931)
                                                      ---------
                                                     
Cash flows from financing activities:                
  Proceeds from sale of securities                       38,529
                                                     
  Proceeds from capital contribution                     16,651
                                                      ---------
                                                     
  Net cash from financing activities                     55,180
                                                      ---------
                                                     
Net increase (decrease) in cash                             809
                                                     
Cash and cash equivalents, beginning                          - 
                                                      ---------
Cash and cash equivalents, ending                     $     809
                                                      =========
                                                     
Supplemental disclosure of cash flow information:    
  Cash paid for interest during the period             $      -
                                                      =========

Non cash transactions were as follows:

         Legal fees amounting to $18, 245 were paid in 1997 by issuing 325 share
of common stock valued at $56.14 per share.
         Operating expenses amounting to $46,147 paid by the officers of the
Company were paid in 1997 by issuing 822 shares of common stock valued at $56.14
per share including interest of $2,198.
         Officers were issued 800 shares of common stock for services rendered
in 1997, valued at $56.14 per share.
         An officer was issued 500 shares of common stock in payment for
intellectual rights valued at $56.14 per share.

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

                                      F-41
HEALTHTECH DEVELOPMENT, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

Organization - HealthTech Development, Inc., (the "Company"), was incorporated
in the State of Texas on December 14, 1993. The Company was formed to acquire,
develop and commercialize emerging biomedical technologies. The Company is in
the development stage and its efforts through December 31, 1997, have primarily
involved acquiring technology rights and providing consulting services to other
biotech-related companies and universities.

Cash and cash equivalents - Cash and cash equivalents are defined as cash and
investments that have a maturity of less than three months.

Research and development - Research and development costs are expensed as
incurred. Payments related to the acquisition of technology rights, for which
development work is in process, are expensed and considered a component of
research and development costs.

Income taxes - The Company, with the consent of its shareholders, has elected
under the Internal Revenue Code to be an S corporation. In lieu of corporation
income taxes the shareholders of an S corporation are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes has been included in the financial
statements.

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

Stock-Based Compensation - The Company accounts for stock-based awards using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Accordingly, no
compensation cost has been recognized for its stock options. The Company
provides additional pro forma disclosures as required under Statement of
Financial Accounting Standard, No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123").

2. GOING CONCERN CONTINGENCY

The Company has minimal capital available to meet future obligations and to
carry out its planned operations. These factors raise substantial doubt about
the Company's ability to continue as a going concern.

In order to continue any significant operations, the Company will have to pursue
other sources of capital, such as raising equity, and the acquisition of other
profitable operations. The Company is also negotiating a sale of the Company to
another biotech-related company. See Note 6, Subsequent Events. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

                                      F-42
HEALTHTECH DEVELOPMENT, INC.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS (Continued)

3. RELATED PARTY TRANSACTIONS

The Company was paid for consulting services it performed for a related biotech
company. The services were provided pursuant to an oral agreement. The biotech
company was related by having common shareholders. The Company paid its former
President for performing the consulting services. Consulting income from the
related company was $80,000 and $36,000, respectively, for 1996 and 1995.
Consulting service expense was charged for the same amount in each year. The
Company paid its former President $57,500, $40,250, and $32,000, respectively,
for 1997, 1996, and 1995 for these as well as other consulting services.

4. SHAREHOLDERS' EQUITY

From inception through December 31, 1994, the founding shareholders were issued
666.7 shares for total consideration of $31,029. On December 31, 1995, the
Company sold 133.3 shares to an unrelated third party for $7,500 or $56.14 per
share. In 1995, the shareholders contributed $16,151 to capital. In 1996, one
shareholder contributed $500 to capital.

On January 31, 1997, the Company issued 822 shares of common stock valued at
$56.14 per share for expenses totaling $46,147, paid by the present Chairman of
the Board when he was the President and Chief Executive Officer of the Company.
The expenses principally related to 1996 and were charged in that period.
Interest expense of $2,198 was included in the agreement. At the same time, the
Company issued 500 shares in exchange for the assignment and transfer of all his
rights with respect to possible business opportunities involving the following:
Physical Optics Corporation, GeneQuEST Incorporated and Baxter Healthcare. These
rights were valued at $56.14 per share or a total of $28,070. In addition, the
Company issued 200 shares to the Chairman in exchange for an agreement to commit
to devote a portion of his time during 1997 to attempt to maximize the value of
the Company. The Company valued this commitment at $11,228 or $56.14 per share.
On the same date, the Company issued 600 shares to the present President in
exchange for an agreement to commit to devote a portion of his time during 1997
to attempt to maximize the value of the Company. The Company valued this
commitment at $33,684 or $56.14 per share.

On July 15, 1997, the Company issued to its attorney 325 shares of common stock
for legal services totaling $18,245. The shares were issued based on $56.14 per
share.

On January 31, 1997, the Company granted stock options for 154 shares of common
stock to the President and three shareholders at an exercise price of $1,000 per
share, exercisable at any time prior to January 1, 1998. The options were not
exercised and have expired.

On December 29, 1995, the Company granted stock options for 45 shares of common
stock to two individuals at an exercise price of $1,000 per share, exercisable
at any time prior to January 1, 1998. The options were granted as an inducement
for grantees to invest $700,000 each to purchase shares of common stock. The
options were not exercised and have expired. 

                                      F-43
HEALTHTECH DEVELOPMENT, INC.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS (Continued)

4. SHAREHOLDERS' EQUITY (continued)

The options outstanding at the end of each of the last three years and changes
in options in each of those years are summarized as follows:
Weighted
                                          Number of  Exercise Price   Average Price
                                           Shares      Per Share        Per Share
                                          ---------  --------------   -------------
Outstanding, January 1, 1995                 --            --               --
  Granted                                    45        $1,000           $1,000
  Exercised                                  --            --               --
                                           ----        ------           ------
Outstanding, December 31, 1995               45         1,000            1,000 
  Granted                                    --            --               -- 
  Exercised                                  --            --               --
Outstanding, December 31, 1996               45         1,000            1,000
                                           ----        ------           ------
  Granted                                   154         1,000            1,000
  Exercised                                  --            --               --
                                           ----        ------           ------
Outstanding, December 31, 1997              199        $1,000           $1,000
                                           ====        ======           ======
Options exercisable at the end of each fiscal year are as follows:
Weighted
                                          Number of  Exercise Price   Average Price
                                           Shares      Per share        Per share
                                          ---------  --------------   -------------
December 31,1995                              45        $1,000          $1,000
December 31, 1996                             45         1,000           1,000
December 31, 1997                            199         1,000           1,000
The options outstanding at December 31, 1997 expired on January 1, 1998.

FASB Statement 123, "Accounting for Stock based Compensation"("FASB 123"),
requires the Company to provide pro forma information regarding net income and
earning per share as if compensation cost for the Company's options or warrants
has been determined in accordance with the fair value based method prescribed in
FASB 123. The Company estimates the fair value of each stock option or warrant
at the grant date by using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in the current period: a
dividend yield of 0%, estimated volatility of 0%, a risk-free interest rate of
5.50%, and an expected life of nine month to two years. Under the accounting
provisions of FASB 123, the Company's net loss and net loss per common share
would have been unchanged.

                                      F-44
HEALTHTECH DEVELOPMENT, INC.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS (Continued)

5. RESEARCH AND DEVELOPMENT ACTIVITIES

The Company was formed in 1993 to acquire develop and commercialize emerging
biomedical technologies. The Company has entered into options to license and/or
license agreements with certain national laboratories and universities. The
Company initially focused on technologies related to the development of
vaccines, diagnostics for cancer and certain biodegradable materials and
achieved controlled release of biological substances to improve the function of
orthopedic devices. The Company abandoned two development projects related to
cancer vaccine development and biomaterials for bone healing with orthopedic
devices. In 1997, certain of the Company's exclusive licenses were terminated by
the licensors as a result of discontinuation of related development activities
by the Company. The Company is the assignee of intellectual property rights,
including pending patent applications, with respect to certain technologies
related to biodegradable materials for the controlled release of
pharmaceutically active materials, the design of small molecule drugs for the
treatment of cancer spread and the creation of genetic databases and genetic
tests for certain diet-regulated diseases. The Company maintains an exclusive
license to a United States patent related to a method of detection of certain
malignant cancers, although there can be no assurance that the Company will be
able fund further development (see Note 2, Going Concern Contingency). The
Company's management does not believe that the termination of this license will
have a material adverse effect on the Company's contemplated product development
programs.

The Company entered into two Sponsored Research Agreements with an educational
institution on January 1, 1996, which expired on December 31, 1997. The Company
was to sponsor the research and obtain the rights to intellectual property
developed during the course of such research with a view to profitable
commercialization of such intellectual property. The Company made the initial
payments of $6,250 on February 8, 1996. Additional payments of $152,061 were due
on September 1, 1996 and $93,447 on September 1, 1997 and were not paid. The
Company was in default of the agreements and the agreements were terminated. The
Company had total liability under the terms of the agreements to pay all
reasonable expenses incurred or committed to be expensed as of the effective
termination date, including salaries for appointees for the remainder of their
appointment. Although the Company will not get the intellectual rights, if any,
to the research, it has provided an estimate of $25,000 to meet future
contingencies related to this agreement.

6. SUBSEQUENT EVENT

On August 24, 1998, the Company split its shares 1,950.53 for one. The Company
was merged into Electropharmacology, Inc. ("EPi"), with the shareholders of HTD
receiving an aggregate of 6,172,095 shares of the Company's common stock (such
number of shares being substantially equivalent to the number of shares of the
EPi's common stock outstanding at such time, or 6,333,385 shares).

                                      F-45
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors
Delargen Corporation
d/b/a Gemini Biotech, Inc.

We have audited the accompanying balance sheet of Delargen Corporation d/b/a
Gemini Biotech, Inc. (a development, stage company) as of December 31, 1996 and
the related statements of operations, stockholder's equity (deficit) and cash
flows for the year ended December 31, 1996 and for the period from January 1,
1997 to June 30, 1997 and from January 1, 1996 (inception) to June 30, 1997.
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 audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Delargen Corporation d/b/a
Gemini Biotech, Inc. (a development stage company) as of December 31, 1996 and
the results of its operations and its cash flows for the periods from January 1,
1997 to June 30, 1997 and from January 1, 1996 (inception) to June 30, 1997 in
conformity with generally accepted accounting principles.

The Company is in the development stage and to date has had limited operations.
The continuation of the Company's business is dependent upon its ability to
maintain future profitable operations.

Ft. Lauderdale, Florida                                      Sweeney, Gate & Co.
September 28, 1998

                                      F-46
DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (A Development Stage Company)

                                 BALANCE SHEET

                               DECEMBER 31, 1996

ASSETS

Current assets:
    Cash and cash equivalents                                    $ 33,519
    Accounts receivable                                             4,000
    Accounts receivable-related parties                            31,426
                                                                 --------

      Total current assets                                         68,945

Property and equipment, net                                        92,044

Other assets:
    Investment in partnership                                      18,000
    Organizational and loan costs, net                                575
                                                                 --------

      Total other assets                                           18,575
                                                                 --------

        Total assets                                             $179,564
                                                                 ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Current maturities of long-term debt                         $ 36,324
    Accounts payable                                                4,949
    Note payable-related party                                      5,000
                                                                 --------

      Total current liabilities                                    46,273

Long-term debt                                                    120,569

Shareholders' equity:
    Common stock--$.01 par value; 1,000,000 authorized;             1,000
      100,000 shares outstanding
    Additional paid-in capital                                     40,000
    Deficit accumulated during the development stage              (28,278)
                                                                 --------

      Total Shareholders' equity                                   12,722
                                                                 --------

        Total liabilities and shareholders' deficit              $179,564
                                                                 ========

   The accompanying notes are an integral part of these financial statements

                                      F-47
DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (A Development Stage Company)

                             STATEMENT OF OPERATIONS
January 1, 1996     January 1, 1996
                                              January 1, 1997       (Inception)         (Inception)
                                                     to                 to                  to
                                               June 30, 1997     December 31, 1996    June 30, 1997
                                              -----------------  -----------------   -----------------
Revenues:
  Sales                                             $ 16,244           $ 10,107          $ 26,351

Cost and expenses:
  Cost of sales                                        2,544              6,060             8,604
  General and administrative                          36,149             16,743            52,892
                                                    --------           --------          --------

         Total cost and expenses                      38,693             22,803            61,496
                                                    --------           --------          --------

Loss from operations                                 (22,449)           (12,696)          (35,145)

Other expenses:
      Interest expense                                 5,759             15,582            21,341
                                                    --------           --------          --------

Net loss                                            $(28,208)          $(28,278)         $(56,486)
                                                    ========           ========          ========
F-48
DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (a Development Stage Company)

                        STATEMENT OF SHAREHOLDERS' EQUITY
Deficit   
                                                               Common Stock                              Accumulated 
                                                              $.01 Par Value            Additional       During the  
                                                      -------------------------------    Paid-in         Development 
                                                          Shares           Amount        Capital            Stage
                                                      ----------------  -------------  -------------   ----------------
Common stock issued at inception
  of Company                                               100,000        $ 1,000        $40,000
Net loss--January 1, 1996 (inception)
  through December 31, 1996                                                                               $ (28,278)
                                                           -------        -------        -------          ---------
Balance--December 31, 1996                                 100,000          1,000         40,000            (28,278)

Net loss--January 1, 1997
  through June 30, 1997                                                                                    (28,208)
                                                           -------        -------        -------          ---------
Balance--June 30, 1997                                     100,000        $ 1,000        $40,000          $ (56,486)
                                                           =======        =======        =======          =========
F-49
DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (A Development Stage Company)

                            STATEMENTS OF CASH FLOWS
January 1, 1996   January 1, 1996
                                                                                January 1, 1997      (Inception)        (Inception)
                                                                                      to                 to                 to
                                                                                 June 30, 1997    December 31, 1996   June 30, 1997
                                                                                 -------------    -----------------   -------------
Cash flows from operating activities:
    Net (loss)                                                                      $(28,208)         $(28,278)         $ (56,486)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
        Depreciation and amortization                                                 10,436             1,123             11,559
        Changes in operating assets and liabilities:                                       -
           (Increase) in accounts receivable                                           4,000            (4,000)                 0
           (Increase) in accounts receivable - related parties                        31,426           (31,426)                 0
           (Increase) in other assets                                                      -              (575)              (575)
           Increase in accounts payable                                               (5,556)            4,949               (607)
                                                                                    --------          --------          ---------

Total adjustments                                                                     40,306           (29,929)            10,377
                                                                                    --------          --------          ---------

Net cash used for operating activities                                                12,098           (58,207)           (46,109)

Cash flows from investing activities:
    Purchase of equipment and other fixed assets                                     (26,788)          (93,167)          (119,955)
    Investment in partnership                                                         (6,000)          (18,000)           (24,000)
                                                                                    --------          --------          ---------

Net cash used for investing activities                                               (32,788)         (111,167)          (143,955)

Cash flows from financing activities:
    Increase in shareholder debt                                                       1,476             1,476
    Increase in note payable-related parties                                               -             5,000              5,000
    Proceeds from advances on SBA loan                                                     -            75,000             75,000
    Payments to reduce SBA loan                                                       (5,357)           (3,571)            (8,928)
    Proceeds from capital lease financing                                                               87,560             87,560
    Payments to reduce capital lease financing                                        (8,454)           (2,096)           (10,550)
    Proceeds from stock issuance                                                                        41,000             41,000
                                                                                    --------          --------          ---------

Net cash provided by financing activities                                            (12,335)          202,893            190,558
                                                                                    --------          --------          ---------

Net increase (decrease) in cash                                                      (33,025)           33,519                494

Cash at beginning of period                                                           33,519                 -                  -
                                                                                    --------          --------          ---------

Cash at end of period                                                               $    494          $ 33,519          $     494
                                                                                    ========          ========          =========

Supplemental disclosure of cash flow information:
      Cash paid for interest during the period                                      $  5,759          $ 15,582          $  21,341
                                                                                    ========          ========          =========
      Cash paid for income tax during the period                                    $      -          $      -          $       -
                                                                                    ========          ========          =========
The accompanying notes are an integral part of these financial statements

                                      F-50
DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Organization - Delargen Corporation d/b/a Gemini Biotech, Inc. (the
"Company") is a biotechnology company incorporated in Texas on December 7, 1995.
It commenced operations on January 1, 1996 as a provider of synthesis of
nucleobases, their analogs and polymers for research purposes. On May 31, 1996,
the Company filed an assumed name certificate and began doing business as Gemini
Biotech, Inc. The Company is in the development stage and its efforts from
January 1, 1996 (inception) through June 30, 1997 primarily involved laboratory
services to other biotech companies or universities.

Cash and cash equivalents - Cash and cash equivalents are defined as cash and
investments that have a maturity of less than three months.

Inventories - Inventory is stated at cost, which is the lower of cost (first-in,
first-out) or market.

Property and Equipment - Property and equipment are recorded at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. The lives range from three to five years.

Revenue recognition - The Company recognizes revenue when the products are
shipped to the customer.

Organizational costs - Significant costs related to the organization of the
Company were deferred and amortized over a period of five years.

Income taxes - The Company accounts for income taxes on an asset and liability
approach to financial accounting. Deferred income tax assets and liabilities are
computed annually for the difference between the financial statement and tax
basis of assets and liabilities that will result in taxable or deductible
amounts in the future, based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period, plus or minus the change during the period
in deferred tax assets and liabilities. The Company made no provision for taxes
because there has not been any taxable profit since its inception.

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

                                      F-51
DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS (Continued)

2.       GOING CONCERN CONTINGENCY

The Company incurred losses for the year ended December 31, 1996 and for periods
from January 1, 1997 to June 30, 1997 and from January 1, 1996 to June 30, 1997.
Management's plans in regard to these matters are to increase the revenue for
the laboratory service business and to commence research activities with its
scientific staff, and to obtain grant funding.

The Company is also negotiating a sale of the Company to another biotech-related
company. See Note 8 - Subsequent Events. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

3.       PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of December 31, 1996:

              Furniture and fixtures                                  $ 5,617
              Laboratory equipment                                     87,550
                                                                      -------
                                                                       93,167
               Less: accumulated depreciation                          (1,123)
                                                                      -------
               Property and equipment, net                            $92,044
                                                                      =======

Depreciation expense charged to income was $1,123 in 1996.

4.       LOAN AND NOTE AGREEMENTS

On April 30, 1996, the Company entered into loan and note agreement with a bank
and the U. S. Small Business Administration ("SBA") for $75,000. The SBA
guarantees eighty percent of the loan. The loan is to be repaid in eighty-four
principal installments of $892.86 plus interest. The interest rate is two and
three quarters of a percent over the minimum prime rate as published in the
Money Rate Section of the Wall Street Journal The final payment is due March 30,
2003. Collateral for the loan is all of the Company's equipment, inventory and
accounts receivable. In addition, the loan is guaranteed by the Company's
stockholder. As of December 31, 1996 the outstanding loan balance was $71,428.

Maturities of the note payable for the next five years are as follows:

        December 31,                                                 Amount
        ------------                                                 ------
          1997                                                      $10,714
          1998                                                       10,714
          1999                                                       10,714
          2000                                                       10,714
          2001                                                       10,714
          Thereafter                                                 17,858

                                      F-52
DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS (Continued)

5.       CAPITAL LEASE AGREEMENTS

On January 1, 1998 the Company entered into a capital lease agreement for the
acquisition of laboratory equipment at a cost of $72,000. The lease agreement
required thirty-six payments of $2,241 and one balloon payment of $7,212.
Payment amounts included principal, interest at a rate of 13.319% and taxes. In
addition to the collaterized equipment covered by the lease, payments required
under the lease agreement were guaranteed by the Company's shareholder. For
financial reporting purposes, minimum lease payments relating to the equipment
have been capitalized. The lease expires December 2000. The leased property
under capital lease as of December 31, 1996 had a cost of $72,000, accumulated
amortization of $0 and a net book value of $72,000. Amortization of the leased
property is included in depreciation expense.

The future minimum lease payments under capital lease and the net present value
of the future minimum lease payments at December 31, 1996 were as follows:

          Total minimum lease payments                             $   87,702

          Amount representing interest                                 15,702

          Present value of net minimum lease payments                  72,000

          Current portion                                              19,087
                                                                     --------

          Long-Term capital lease obligation                         $ 52,913
                                                                     ========

6.       RESEARCH AND DEVLOPMENT ACTIVITES

The Company was formed December 1995 and as of January 1996 started to acquire,
develop and commercialize biomedical technologies and products. The Company is
engaged in the custom synthesis of oligonucleotides, peptides, genes and novel
nucleosides. The research activities focus on the design and synthesis of
therapeutic drugs and diagnostic agents using nucleic acid based compounds. The
Company has built a library of proprietary and exclusively licensed compounds
for the treatment of cancer and rheumatoid arthritis.

7.       INCOME TAXES

The tax effect of the net operating losses were not recorded in 1997 and 1996 as
a deferred tax asset since the realization was uncertain. The Company did not
record a federal or state income tax expense for 1997. At December 31, 1997, the
Company had approximately $56,485 in federal tax loss carryforwards that expires
in 2011.

                                      F-53
DELARGEN CORPORATION
                           D/B/A GEMINI BIOTECH, INC.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS (Continued)

8.       SUBSEQUENT EVENTS

On July 1, 1997, the Company transferred all its assets and business to Gemini
Biotech, Ltd., ("Gemini") for a one percent general partnership interest in the
partnership. On August 24, 1998, the limited partners transferred all the
limited partnership interests in Gemini, a privately held Texas limited
partnership, and all the stock of the Company, the general partner, to Gemini
Health Technologies L.P., a newly-formed Delaware limited partnership (the
"Partnership"). A majority interest in the Partnership is owned by a publicly
held company, Electropharmacology, Inc. ("EPi"). The assets transferred to the
Partnership by the limited partners were exchanged for 6,000,000 partnership
units in the Partnership, which Partnership units are exchangeable, subject to
certain restrictions, for shares of EPi's common stock, on the basis of one
share of EPi's common stock for each Partnership unit (subject to adjustment in
the case of certain events concerning EPi and/or the Partnership).

The effect of the transaction is that the business previously conducted by EPi
and Gemini is now being conducted by the Partnership and Gemini, with a wholly
owned subsidiary of EPi ("Epi Sub") the general partner of the Partnership and
Shashikala and Krishna Jayaraman (the "Jayaramans") the previous limited
partners of Gemini, serving as the limited partners being the limited partner of
the Partnership, and the Partnership being the limited partner of Gemini and the
Company remaining as the general partner of the Partnership. At such time as the
Jayaramans exchange all of their partnership units in the Partnership for shares
of EPi's common stock, it is expected that the Partnership and Gemini will be
dissolved, EPi Sub will be dissolved and all of such businesses will be
conducted by EPi.

                                      F-54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Partners and
Limited Partners of
Gemini Biotech, Ltd.

We have audited the accompanying balance sheet of Gemini Biotech, Ltd. (a
development stage Partnership) as of December 31, 1997 and the related
statements of operations, partners' capital (deficit) and cash flows for the
period July 1, 1997 (date of commencement of operations) to December 31, 1997.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Gemini Biotech, Ltd. as of
December 31, 1997 and the results of its operations and its cash flows for the
period July 1, 1997 to December 31, 1997 in conformity with generally accepted
accounting principles.

The Partnership is in the development stage and to date has had limited
operations. The continuation of the Partnership's business is dependent upon its
ability to maintain future profitable operations.

The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 2 to the
financial statements, the Partnership has incurred a significant loss in the
period from July 1, 1997 to December 31, 1997 and has a net capital deficiency
that raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
Partnership was not in compliance with certain of the ratios relating to worth
contained in a loan obtained from an insurance company. The insurance company
currently has the right to accelerate payment of the note. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

Ft. Lauderdale, Florida                        Sweeney, Gates & Co.
June 30, 1998

                                      F-55
GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                                  BALANCE SHEET

                                                   June 30,       December 31,
ASSETS                                               1998             1997
                                                  -----------     ------------
                                                  (unaudited)
Current assets:
    Cash and cash equivalents                      $  49,407      $  454,992
    Cash-restricted                                  235,657         235,657
    Accounts receivable                               57,697          43,090
    Inventory                                          7,528           5,000
    Prepaid expense                                        -           3,125
                                                   ---------      ----------
         Total current assets                        380,488         741,864
                                                   ---------      ----------

Property and equipment, net                          252,976         185,864
                                                   ---------      ----------

Other assets:
    Organizational and loan costs, net                67,034          71,737
    Deposits                                           3,350           3,350
                                                   ---------      ----------
         Total other assets                           70,384          75,087
                                                   ---------      ----------

                                                   $ 703,848      $1,002,815
                                                   =========      ==========

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
    Current maturities of long-term debt           $  97,185      $   97,185
    Accounts payable                                       -          26,818
    Accrued expenses                                  90,840          15,408
    Sales tax payable                                      -           3,748
                                                   ---------      ----------

         Total current liabilities                   188,025         143,159
                                                   ---------      ----------

Long-term debt                                       932,791       1,180,325
                                                   ---------      ----------

Partnership capital (deficit):
    General partner                                  (85,656)       (101,573)
    Limited partners                                (331,312)       (219,096)
                                                   ---------      ----------

       Total partnership capital (deficit)          (416,967)       (320,669)
                                                   ---------      ----------

                                                   $ 703,848      $1,002,815
                                                   =========      ==========

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

                                      F-56
GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                             STATEMENT OF OPERATIONS
For the Period         For the Period
                                        Six Months       July 1, 1997           July 1, 1997
                                          ended        (commencement) to      (commencement) to
                                         June 30,           June 30,             December 31,
                                           1998              1998                    1997
                                       -----------     -----------------      -----------------
                                       (unaudited)       (unaudited)            (unaudited)
Sales, net of sales returns and        
  allowances                           $ 416,962          $ 534,980              $ 118,018
Cost of sales                           (205,817)          (298,436)               (92,619)
                                       ---------          ---------              ---------

         Gross profit                    211,145            236,544                 25,399
                                       ---------          ---------              ---------

Selling, general and
  administrative expenses               (327,681)          (520,850)              (193,169)
                                       ---------          ---------              ---------

         Loss from operations           (116,536)          (284,306)              (167,770)

Other income (expense):
     Interest expense                          -            (71,622)               (71,622)
     Interest income                       6,584             19,617                 13,033
                                       ---------          ---------              ---------
     Total other income (expense)          6,584            (52,005)               (58,589)
                                       ---------          ---------              ---------

Net loss                               $(109,952)         $(336,311)             $(226,359)
                                       =========          =========              =========
The accompanying notes are an integral part of these financial statements.

                                      F-57
GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                   STATEMENT OF PARTNERSHIP CAPITAL (DEFICIT)

        FOR THE PERIOD JULY 1, 1997 (date of commencement of operations)
                                TO JUNE 30, 1998
General         Limited           Limited
                                               Partner         Partner           Partner             Total
                                               -------         -------           -------             -----
Profit percentage                                     1%            49.5%            49.5%            100.%
                                              =========        =========        =========         =========

Contribution of assets                        $                $   2,500        $   2,500         $   5,000
                                                                                                  ---------

Distributions                                   (99,310)               -                -           (99,310)

Net loss during development
  Stage                                          (2,263)        (112,048)        (112,048)         (226,359)
                                              ---------        ---------        ---------         ---------

Balance, December 31, 1997                    $(101,573)       $(109,548)       $(109,548)        $(320,669)
                                              ---------        ---------        ---------         ---------

Net loss for six months ended
  June 30, 1998 (unaudited)                   $  (1,100)       $ (54,426)       $ (54,426)        $(109,952)
                                              ---------        ---------        ---------         ---------
                                                                                   (1,100)          (54,426)

Distributions                                    17,018           (1,682)          (1,682)           13,654
                                              ---------        ---------        ---------         ---------

Balance, June 30, 1998 (unaudited)            $ (85,655)       $(165,656)       $(165,656)        $ 416,967
                                              =========        =========        =========         =========
The accompanying notes are an integral part of these financial statements.

                                      F-58
GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                             STATEMENT OF CASH FLOWS
For the Period     For the Period
                                                                       Six Months         July 1, 1997       July 1, 1997
                                                                          Ended        (commencement) to   (commencement) to
                                                                      June 30, 1998      June 30, 1998      December 31, 1997
                                                                      -------------      -------------      -----------------
                                                                       (unaudited)        (unaudited)
Cash flows from operating activities:
        Net loss                                                        $(109,952)         $(336,311)         $(226,359)
                                                                        ---------          ---------          ---------
Adjustment to reconcile net income to net
    cash provided by operating activities:
        Depreciation and amortization                                      40,005             68,410             28,405
    Changes in assets and liabilities:
        Decrease (increase) in:
           Accounts receivable                                            (14,607)           (57,697)           (43,090)
           Inventory                                                       (2,528)            (7,528)            (5,000)
           Prepaid expense                                                  3,125                  -             (3,125)
           Deposits                                                             -             (3,350)            (3,350)

        Increase (decrease) in:
           Accounts payable                                               (26,818)                 -             26,818
           Accrued expenses                                                72,540             87,948             15,408
           Sales tax payable                                               (3,748)                 -              3,748
                                                                        ---------          ---------          ---------
          Total adjustments                                                67,469             87,783             19,814
                                                                        ---------          ---------          ---------

    Net cash used in operating activities                                 (41,983)          (248,528)          (206,545)
                                                                        ---------          ---------          ---------

Cash flows used for investing activities:
        Purchase of property and equipment                                (98,714)          (306,608)          (207,894)
        Organizational and loan costs incurred                             (3,700)           (81,812)           (78,112)
                                                                        ---------          ---------          ---------
    Net cash used in investing activities                                (102,414)          (388,420)          (286,006)
                                                                        ---------          ---------          ---------

Cash flows from financing activities:
        Proceeds from note payable                                              -          1,315,000          1,315,000
        Principal payments on note payable                               (247,534)          (285,024)           (37,490)
        Distributions to general partner                                  (17,018)          (116,328)           (99,310)
        Contributions by limited partners                                   3,364              8,364              5,000
                                                                        ---------          ---------          ---------
    Net cash provided by financing activities                            (261,188)           922,012          1,183,200
                                                                        ---------          ---------          ---------

Net increase (decrease) in cash                                          (405,585)           285,064            690,649

Cash and cash equivalents, beginning                                      690,649                  -                  - 
Cash and cash equivalents, ending                                       $ 285,064          $ 285,064          $ 690,649
                                                                        =========          =========          =========

 Supplemental disclosure of cash flow information:
        Cash paid for interest during the period                        $  56,312          $ 127,934          $  71,622
                                                                        =========          =========          =========
The accompanying notes are an integral part of these financial statements.

                                      F-59
GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                          NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Organization - Gemini Biotech, Ltd. (the "Partnership") is a
biotechnology partnership formed in Texas on January 15, 1997. It commenced
operations on July 1, 1997 as a provider of synthesis of nucleobases, their
analogs and polymers for research purposes. The partnership was formed by the
contribution of assets from its general partner Delargen Corporation and its
limited partners Krishna Jayaraman and Sharma Jayaraman. The general partner
contributed a service business and laboratory equipment at book value. Since the
assets were less than the liabilities assumed, the partnership recorded a
distribution of $99,310. The limited partners contributed their interest in
certain inventory of nucleobases and polymers. The inventory was contributed at
the partners' cost of $5,000. The Partnership is in the development stage and
its efforts through December 31, 1997 primarily involved laboratory services to
other biotech companies or universities.

Cash and cash equivalents - Cash and cash equivalents are defined as cash and
investments that have a maturity of less than three months.

Inventories - Inventory is stated at cost, which is the lower of cost or market.

Property and Equipment - Property and equipment are recorded at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. The lives range from three to seven years. Leasehold
improvements are being amortized over the remaining term of the lease of 18
months.

Revenue recognition - The Partnership recognizes revenue when the products are
shipped to the customer.

Deferred Loan costs - The Partnership incurred costs in obtaining financing
which have been deferred and are being amortized over 101 months.

Organizational costs - Significant costs related to the organization of the
Partnership are deferred and amortized over a period of five years.

Research and development - Research and development costs are expensed as
incurred.

Income Taxes - The Company is formed as a partnership. All taxable income or
loss flows through to the partners. Accordingly, no income tax expense or
liability is recorded in the accompanying financial statements.

Fair Value of Financial Instruments - The fair value of the Partnership's
financial instruments such as account receivables, accounts payable, and notes
payable approximate their carrying value.

                                      F-60
GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                          NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

2. GOING CONCERN CONTINGENCY

The Partnership incurred a significant loss for the period from July 1, 1997 to
December 31, 1997 and had a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. The Partnership was not in
compliance with certain of the ratios relating to net worth contained in a loan
obtained from an insurance company. The insurance company currently has the
right to accelerate payment of the note. Management's plans in regard to these
matters are to increase the revenue for the laboratory service business and to
commence research activities with its scientific staff, and to obtain grant
funding.

The Partnership is also negotiating a sale of the Partnership to another
biotech-related company. See Note 7, Subsequent Events. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of December 31, 1997:

     Laboratory equipment                                     $179,775
     Furniture and fixtures                                      9,291
     Computers                                                  12,874
     Leasehold improvements                                      5,954
                                                              --------
                                                               207,894
      Less: accumulated depreciation and
         Amortization                                           22,030
                                                              --------

      Property and equipment, net                             $185,864
                                                              ========

Depreciation and amortization expense charged to income was $22,030 in 1997.

                                      F-61
GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                          NOTES TO FINANCIAL STATEMENTS

4. LOAN AND NOTE AGREEMENTS

On June 27, 1997, the Partnership entered into loan and note agreements (the
"Agreement") with an insurance company in the amount of $1,315,000. The loan
amortizes over 101 payments ending July 1, 2006. Interest is at two points over
prime. At December 31, 1997, the rate was 10.50%. The collateral for the note is
all the Partnership's assets including accounts receivable, inventory, property
and equipment owned by the Partnership and to be acquired in the future. In
addition, the loan is guaranteed by the Rural Biological Science Department of
the Federal Drug Administration. The limited partners have personally guaranteed
the repayment of this indebtedness.

As of December 31, 1997, the Partnership had been advanced $1,079,343 of the
total loan. The insurance company had recorded the transaction as though the
Partnership borrowed the entire $1,315,000 at the inception of the loan. The
insurance company had retained the balance as of December 31, 1997 of $235,657
in a bank. The amount is restricted awaiting documentation for the Partnership
to draw down the balance.

The Agreement states the Partnership must maintain certain financial covenants
principally relating to working capital, fixed charge ratios and net worth. The
covenants also include a limitation on compensation and distributions. All of
the amounts outstanding under the Agreement will become due and payable if an
event of default occurs. The Partnership was not in compliance with certain of
the ratios relating to net worth. The insurance company currently has the right
to accelerate payment of the note.

Maturities of the note payable for the next five years are as follows:

December 31,                                         Amount
------------                                         ------
  1998                                             $   97,185
  1999                                                 90,909
  2000                                                121,273
  2001                                                134,688
  2002                                                149,531
       Thereafter                                     683,924
                                                   ----------
                                                   $1,277,510
                                                   ==========

5. RESEARCH AND DEVLOPMENT ACTIVITES

The Partnership was formed in 1997 to acquire, develop and commercialize
biomedical technologies and products. The Partnership is engaged in the custom
synthesis of oligonucleotides, peptides, genes and novel nucleosides. The
research activities focus on the design and synthesis of therapeutic drugs and
diagnostic agents using nucleic acid based compounds. The Partnership has built
a library of proprietary and exclusively licensed compounds for the treatment of
cancer and rheumatoid arthritis.

                                      F-62
GEMINI BIOTECH, LTD.
                        (A Development Stage Partnership)

                          NOTES TO FINANCIAL STATEMENTS

6. CONCENTRATION OF CREDIT RISK AND SALES

During the year the Partnership maintained cash balances in excess of the
Federally insured limits. The funds are with a major money center bank.
Consequently, the Partnership does not believe that there is a significant risk
in having these balances in one financial institution. The cash balance at
December 31, 1997 was $454,992.

One customer accounted for approximately 41% of the Partnership's sales for the
period July 1, 1997 (date of commencement of operations) to December 31, 1997.

7. COMMITMENTS AND CONTINGENCIES

The Partnership leases its office and laboratory facility under a 20-month lease
expiring February 28, 1999. The monthly rental is $3,350 and pass through of
expenses. Rent expense was $20,100 for the period ended December 31, 1997.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 1997, for each of the
next 5 years and in the aggregate are:

Years Ending December 31,                              Amount
-------------------------                              ------
1998                                                  $40,100
1999                                                    6,700
                                                      -------
                                                      $46,800

8. SUBSEQUENT EVENTS

On August 18, 1998, the limited partners transferred all the limited partnership
interests in Gemini, a privately held Texas limited partnership, and all the
stock of Delargen Corp., the general partner, to Gemini Health Technologies
L.P., a newly-formed Delaware limited partnership (the Partnership). A majority
interest in the Partnership is owned by a publicly held company,
Electropharmacology, Inc. ("EPi"). The assets transferred to the Partnership by
the limited partners were are being exchanged for 6,000,000 partnership units in
the Partnership, which Partnership units are exchangeable, subject to certain
restrictions, for shares of the EPi's common stock, on the basis of one share of
EPi's common stock for each Partnership unit (subject to adjustment in the case
of certain events concerning EPi and/or the Partnership).

                                      F-63
COMMON STOCK PURCHASE AGREEMENT

To purchase any of the shares of Common Stock, you must be a resident of a state
where the sale of shares of Common Stock is permitted under the state's
securities laws and you may be required to meet certain investor suitability
requirements in certain states. A list of such states will be provided by the
Company upon request.

TO:      Electropharmacology, Inc.
         1109 N.W. 13th Street
         Gainesville, Florida 32601, USA
         Phone: (954) 367-9088
         Fax: (954) 367-0720
         Email: ephi@bellsouth.net

I have received and read the Prospectus dated _______________, 1988 by which the
shares of Common Stock of Electropharmacology, Inc. are offered.

Enclosed is payment for _________ shares of Common Stock (minimum _______
shares), at $_______ per share, totaling $_________. (Make check payable to
Electropharmacology, Inc.)

Signature(s):________________________________________         Date:_____________

Register the shares of Common Stock in the following name(s) and amount(s):

Name(s):____________________________   Number of Shares:________________________

As (check one): Individual _____  Joint Tenants _____  Trust _____  IRA _______

         Tenants in Common _____  Corporation _______  Keogh _____  Other _____

For the person(s) who will be registered owner(s):

Mailing address:__________________________________________________________

City, State and Zip Code:_________________________________________________

Business Phone: (      )                           Home Phone: (      )        
                __________________________________             ________________

Social Security or Taxpayer ID Number_____________________________________

    (Please attach any special mailing instructions other than shown above.)

         Electropharmacology, Inc. reserves the right to reject any Common Stock
Purchase Agreement in its entirety or to allocate shares of Common Stock for any
reason whatsoever.

        NO COMMON STOCK PURCHASE AGREEMENT IS EFFECTIVE UNTIL ACCEPTANCE

         (If accepted, you will be mailed a copy of this Agreement executed by
Electropharmacology, Inc. To retain for your records.)

Subscription accepted by Electropharmacology, Inc.:

______________________________________________________
Authorized Officer                          Date

                                       95
PART II - REGISTRATION STATEMENT

Item 13.          Other Expenses of Issuance and Distribution

         The expenses payable by the Company in connection with the issuance and
distribution of the securities being registered are estimated to be as follows:

         SEC Registration Fee . . . . . . . . . . . . . . . . . . . . $6,445.16
         Printing and Edgarizing. . . . . . . . . . . . . . . . . . .     *
         Accounting Fees and Expenses. . . . . . . . . . . . . .  . .     *
         Legal Fees and Expenses. . . . . . . . . . . . . . . . . . .     *
         Blue Sky Fees and Expenses. . . . . . . . . . . . . . .  . .     *
         Transfer Agent's Fees and Expenses . . . . . . . . . . . . .     *
         Miscellaneous Expenses . . . . . . . . . . . . . . . . . . .     *
                                                                      ----------
                                            Total                     $   *
                                                                      ==========

*        To be completed by amendment.

Item 14.          Indemnification of Directors and Officers

         Section 145 of the Delaware General Corporation Law ("DGCL") empowers a
corporation to indemnify its directors and officers or former directors or
officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers. Such law provides further
that the indemnification permitted thereunder shall not be deemed exclusive of
any other rights to which the directors and officers may be entitled under a
corporation's certificate of incorporation, bylaws, any agreement or otherwise.

         Reference is made to Article Ninth of the Company's Certificate of
Incorporation, as amended (the "Certificate"), which Certificate appears as
Exhibit 3.1 to the Registration Statement. Article Ninth provides for the
indemnification of directors and officers. Reference is also made to Article
Tenth of the Certificate which limits the liability of directors to the full
extent permitted by the DGCL.

         Reference is made to Article XVII of the Company's By-laws, which
appear as Exhibit 3.2 to the Registration Statement. Article XVII provides for
the indemnification of directors and officers to the fullest extent permitted by
the DCGL.

         Sections 7 and 8 of the Underwriting Agreement dated May 12, 1995
between the Company and Paragon provide for the indemnification of the Company's
officers, directors and control persons under certain circumstances.

Item 15.          Recent Sales of Unregistered Securities

Item 16.          Exhibits and Financial Statement Schedules

                                       96
ELECTROPHARMACOLOGY, INC.

                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS
Additions
                                                                                        (Deductions)
                                                                  Beginning           Charged to Costs        Balance at End
                                                                   of Year              and Expenses             of Period
                                                                  ---------           ----------------        --------------
Six months ended June 30, 1998:
Deducted from asset accounts:

Valuation allowance for deferred tax assets                       4,155,560                     --               4,155,560

Allowance for uncollectible accounts                                134,000               (103,842)                 30,158
                                                                 ----------             ----------              ----------
Total                                                            $4,289,560               (103,842)             $4,185,718
                                                                 ==========             ==========              ==========

Year ended December 31, 1997:
Deducted from asset accounts:

Valuation allowance for deferred tax assets                       3,475,300                680,260               4,155,560

Allowance for uncollectible accounts                                134,000               (108,000)                 26,000
                                                                 ----------             ----------              ----------
Total                                                            $3,609,300               $572,260              $4,181,560
                                                                 ==========             ==========              ==========

Year ended December 31, 1996:
Deducted from asset accounts:

Valuation allowance for deferred tax assets                       2,400,000              1,075,300               3,475,300

Allowance for uncollectible accounts                                 85,100                 48,900                 134,000
                                                                 ----------             ----------              ----------
Total                                                            $2,485,100             $1,124,200              $3,609,300
                                                                 ==========             ==========              ==========

Year ended December 31, 1995:
Deducted from asset accounts:

Valuation allowance for deferred tax assets                       1,200,000              1,200,000               2,400,000

Allowance for uncollectible accounts                                106,969                (21,869)                 85,100
                                                                 ----------             ----------              ----------
Total                                                            $1,306,969             $1,178,131              $2,485,100
                                                                 ==========             ==========              ==========
97
(A)      Exhibits

      Exhibit
       Number      Description of Exhibit
      -------      ----------------------

        3.1        Certificate of Incorporation, as amended (?) [Certificate of
                   Designations](1)

        3.2        Amended and Restated By-laws (1)

        5.1        Opinion of Goodman, Vineberg & Phillips regarding the
                   legality of the securities being issued (1)

       10.4        Employment Agreement dated August 5, 1996, between the
                   Company and Joseph Mooibroek (5)

       10.5        Employment Agreement dated August 5, 1996, between the
                   Company and David Saloff (4)

       10.6        Employment Agreement dated November 11, 1996, between the
                   Company and Arup Sen (4)

       10.16       Agreement dated April 12, 1997, between the Company and
                   Joseph Mooibroek (4)

       16.1        Letter from BDO Seidman, LLP regarding response to Change in
                   Certifying Accountants dated January 8, 1997 (10)

       23.1        Consent of Ernst & Young LLP, independent auditors (1)

       23.2        Consent of BDO Seidman LLP, independent auditors (1)

       24.1        Powers of Attorney (included in the Signature Page hereof)

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

(1)    To be filed by amendment.
(4)    Previously filed as an exhibit to the Company's Annual Report on Form
       10-KSB for the year ended December 31, 1996 and incorporated by reference
       herein.
(5)    Previously filed as an exhibit to the Company's Current Report on Form
       8-K dated August 5, 1996 and incorporated by reference herein.
(10)   Previously filed as an exhibit to the Company's Current Report on Form
       8-K dated December 13, 1996 and incorporated by reference herein.

(B)      Financial Statement Schedules

         None.

Item 17.          Undertakings

         (a)      The undersigned registrant hereby undertakes:

                  (1) To file, during any period in which offers or sales are
                  being made, a post-effective amendment to this registration
                  statement:

                           (I) To include any prospectus required by Section
                           10(a)(3) of the Securities Act of 1933;

                           (ii) To reflect in the prospectus any facts or events
                           arising after the effective date of the registration
                           statement (or the most recent post-effective
                           amendment hereof) which,

                                      98
individually or in the aggregate, represent a
                           fundamental change in the information set forth in
                           the registration statement. Notwithstanding the
                           foregoing, any increase or decrease in volume of
                           securities offered (if the total dollar value of
                           securities offered would not exceed that which was
                           registered) and any deviation from the low or high
                           end of the estimated maximum offering range may be
                           reflected in the form of prospectus filed with the
                           SEC pursuant to Rule 424(b) if, in the aggregate, the
                           changes in volume and price represent no more than 20
                           percent change in the maximum aggregate offering
                           price set forth in the "Calculation of Registration
                           Fee" table in the effective registration statement;

                           (iii) To include any material information with
                           respect to the plan of distribution not previously
                           disclosed in the registration statement or any
                           material change to such information in the
                           registration statement.

                  (2) That, for the purpose of determining any liability under
                  the Securities Act of 1933, each such post-effective amendment
                  shall be deemed to be a new registration statement relating to
                  the securities offered therein, and the offering of such
                  securities at that time shall be deemed to be the initial bona
                  fide offering thereof.

                  (3) To remove from registration by means of a post-effective
                  amendment any of the securities being registered which remain
                  unsold at the termination of the offering.

         (b) Insofar as indemnification for liabilities arising under the
         Securities Act of 1933 may be permitted to directors, officers and
         controlling persons of the registrant pursuant to the foregoing
         provisions, or otherwise, the registrant has been advised that in the
         opinion of the Securities and Exchange Commission such indemnification
         is against public policy as expressed in the Act and is, therefore,
         unenforceable. In the event that a claim for indemnification against
         such liabilities (other than the payment by the registrant of expenses
         incurred or paid by a director, officer or controlling person of the
         registrant in the successful defense of any action, suit or proceeding)
         is asserted by such director, officer or controlling person in
         connection with the securities being registered, the registrant will,
         unless in the opinion of its counsel the matter has been settled by
         controlling precedent, submit to a court of appropriate jurisdiction
         the question whether such indemnification by it is against public
         policy as expressed in the Act and will be governed by the final
         adjudication of such issued.

         (c) The undersigned registrant hereby undertakes to supply by a means
         of a post-effective amendment all information concerning a transaction,
         and the Company being acquired involved therein, that was not the
         subject of and included in the registration statement when it became
         effective.

                                      99
SIGNATURES

         Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registrant Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Gainesville, State
of Florida on November 9, 1998.

                                      ELECTROPHARMACOLOGY, INC.

                                      By:    s/ Arup Sen
                                         --------------------------------------
                                                         Arup Sen
                                         President and Chief Executive Officer

         Pursuant to the requirements of the Securities Act of 1933, this
Registrant Statement has been signed by the following persons in the capacities
indicated on November 9, 1998.

      Signatures                                Title
      ----------                                -----

---------------------------      Chairman of the Board
Arup Sen                         and Chief Executive Officer

            *
---------------------------      Executive Vice President of Marketing,
David Saloff                     Chief Financial Officer and Director
                                    (Principal Financial and Accounting Officer)

            *
---------------------------
Murray Feldman                   Director

            *
---------------------------
Richard K. Kneipper              Vice Chairman and Director

            *
---------------------------
Krishna Jayaraman                Director

            *
---------------------------
Bernard V. Carrico               Director

*    The undersigned, by signing his or her name hereto, does sign and execute
     this Registration Statement pursuant to the Powers of Attorney executed on
     behalf of the above-named officers and directors and contemporaneously
     filed herewith with the Securities and Exchange Commission.

                                      By:    s/ Arup Sen
                                         ---------------------------------------
                                                         Arup Sen
                                                    Attorney-in-Fact

                                       100