1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

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

FOR THE TRANSITION PERIOD FROM _______________ TO _______________

Commission file number 0-19749

CHEMTRAK INCORPORATED
(Exact name of Registrant as specified in its charter)

DELAWARE 77-0295388
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)

929 EAST ARQUES AVENUE, SUNNYVALE, CA 94086
(Address of principal executive offices) (zip code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 773-8156

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

Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.001
PAR VALUE

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

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

The approximate aggregate market value of the Common Stock held by
non-affiliates of the Registrant, based upon the closing bid price of the Common
Stock reported on the Nasdaq National Market was $16,000,000 as of February 28,
1997.

The number of shares of Common Stock outstanding as of February 28,
1997 was 11,880,938.

DOCUMENTS INCORPORATED BY REFERENCE

Part III - Portions of the Registrant's definitive Proxy Statement for
the Registrant's Annual Meeting of Stockholders, which will be filed with the
Securities and Exchange Commission, are incorporated by reference to the extent
stated herein. Page 1 of Exhibit Index at Page
2

PART I

ITEM 1 - BUSINESS.

Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section.

ChemTrak Incorporated ("ChemTrak" or the "Company") conceives,
develops, manufactures and markets leading edge and easy-to-use personal
medical diagnostic systems for worldwide point-of-care markets. The Company has
developed a patented, non-instrumented, hand-held diagnostic technology, the
AccuMeter(R) cassette system, an enabling technology applicable to a broad range
of general chemistry and immunoassay tests designed to screen and diagnose
health conditions with accuracy comparable to physician office and laboratory
instrumented tests. The Company has also developed the AWARE(R) home HIV test
service, a consumer-access reference laboratory which is designed to provide
test results and counseling for a variety of health conditions. The Company
markets its products to over-the-counter and professional markets worldwide,
directly and through strategic alliances with healthcare and consumer products
companies.

Currently, ChemTrak's CholesTrak(TM) Home Cholesterol Test, the first
United States Food and Drug Administration (the "FDA") approved product of its
kind, is available internationally and in most retail pharmacies and mass
merchandise outlets in the United States. ChemTrak has also received FDA
marketing clearance for its single-use, whole blood, physician's office test for
Helicobacter Pylori (H. pylori), the bacterium now recognized as a contributor
to duodenal and peptic ulcers in humans. ChemTrak recently announced the United
States retail market entry of ColoCARE(R), a home test to detect the early
warning signs of colorectal disease and has submitted an application to the FDA
for approval to market its AWARE(R) home HIV test service.

ChemTrak was founded in 1985 to bring health care closer to the patient
by dramatically changing the way many in vitro diagnostic tests are performed.
In vitro diagnostic testing is the process of analyzing constituents of blood,
urine and other specimens taken from the body. It is the standard diagnostic
methodology used to screen for, monitor and diagnose diseases and other medical
conditions. Currently, most diagnostic testing is performed in clinical
laboratories by skilled technicians, who must process the specimen, measure its
volume, add reagents and use sophisticated machines to read and calculate the
results. Typically, results are not received by the physician or the patient for
one to two days. In contrast, the Company's easy-to-use AccuMeter(R) cassette
system permits the physician or the patient to perform quantitative and
qualitative diagnostic tests at the physician's office or in the patient's home
and to obtain the results within minutes. The AWARE(R) home HIV test service is
designed to provide results from a mail-in specimen within days, affording the
convenience of at-home use, consumer access and telephone counseling.

ChemTrak began marketing the AccuMeter(R) Total Cholesterol Test to the
United States physician office market in May 1991, following receipt of
clearance from the FDA, and to the international consumer retail and physician
office markets in October 1991. In March 1993, the Company received clearance
from the FDA for the United States consumer retail market. In January 1994, the
Company began marketing the AccuMeter(R) Cholesterol Self-Test through United
States consumer catalogues and signed a license and supply agreement for the
Total Cholesterol Test with Advanced Care Products, now known as Direct Access
Diagnostics ("DAD"), a Johnson & Johnson company, for over-the-counter retail
outlets in North America. In December 1995, the Company regained the exclusive
rights to market its total cholesterol product in the United States retail
market and relaunched it in January 1996 under the trade name CholesTrak(TM).

In February 1995, the Company acquired Coonan Clinical Laboratories,
Inc. ("CCL") a company engaged in research and development of a home HIV test
service. The Company believed that the acquisition of CCL would accelerate the
time to market for a home HIV test service product. In 1995 ChemTrak filed a
pre-market approval application ("PMA") for the Company's AWARE(R) home HIV test
service with the FDA. Amendments were filed in March and August 1996. The test
is awaiting FDA approval, while two competitive mail-in home HIV test services
have gained approval and begun nationwide marketing in the United States. The
Company anticipates approval in 1997. There can be no assurance that the
Company will receive FDA marketing approval for the AWARE(R) home HIV test
service or that if approved, it will be able to compete with existing products.

ChemTrak was incorporated in California in 1985 [and reincorporated in
Delaware in 1992]. Its principal offices are located at 929 East Arques
Avenue, Sunnyvale, CA 94086 and its telephone number is 408.773.8156. The
Company also has a website at WWW.ChemTrak.COM.

2
3
POINT-OF-CARE DIAGNOSTIC MARKETS

General

The diagnostic testing industry is experiencing rapid growth as health
care providers and payors recognize that regular diagnostic testing can result
in earlier detection of diseases, more accurate diagnoses and more effective
treatment, which in turn help reduce the overall cost of health care. As
innovative and cost-effective technology becomes available, diagnostic testing
is gradually migrating from high-volume clinical laboratories to point-of-care
sites, such as clinics, physician offices, homes and patient's bedsides and
emergency rooms. While clinical laboratories will continue to provide batch
testing, the Company believes that a new market is emerging for point-of-care
diagnostics which will result in more frequent testing. Point-of-care testing
eliminates the time and cost associated with utilizing remotely located
laboratories, including those associated with specimen collection, preservation,
transportation, processing and reporting of results. While the Company's
proposed AWARE(R) home HIV test service uses a laboratory at ChemTrak, the
Company believes that the privacy and convenience of the home test service will
outweigh the time and cost associated with utilizing this laboratory.

Consumer Retail Market

According to industry sources, the consumer retail market for home
health tests in the United States increased from $258 million in 1985 to over $1
billion in 1995, with a growth rate of 13.1% in 1995 alone. It is expected to
grow to nearly $3 billion by the year 2000. The North American market for home
tests (excluding glucose monitoring) was reported to be worth about $483 million
in 1996. Preventive health care is emerging as a primary focus of medical
intervention, and consumer self-testing is becoming an important part of health
care as individuals become more aware of and involved with their own health.
Several self-tests, including tests for blood glucose, pregnancy, ovulation,
fecal occult blood and various urine components, have gained prominence as
physicians and patients have begun to realize the potential of such tests for
promoting improved health care. None of these tests, however, gives accurate,
quantitative results without an instrument. The Company believes that the
ability to perform accurate, quantitative tests without an instrument will
create major new market opportunities for home health screening and monitoring.
The Company believes that new technologies, such as its AccuMeter(R) cassette
system, and new methodologies, such as its proposed AWARE(R) home HIV test
service, which make testing simpler and more convenient, may provide access to
this market.

ACCUMETER(R) CHOLESTEROL PRODUCTS

AccuMeter(R) Total Cholesterol Test

ChemTrak's first product, the CholesTrak(TM) home cholesterol test,
called the AccuMeter(R) Total Cholesterol Test in professional markets, is
designed for the consumer retail and physician office markets and is the first
commercially available cholesterol test that can be used in the home. The
AccuMeter(R) Total Cholesterol Test received FDA 510(k) clearance for
professional use in March 1991 and for consumer use in March 1993. This 1993
clearance allows the CholesTrak(TM) home cholesterol test to be performed by any
consumer and is the first such clearance issued by the FDA for a quantitative
cholesterol test in the retail market. In many foreign countries, including some
of those in which the Company is currently distributing its product, no
regulatory clearance is required for distribution of the CholesTrak(TM) home
cholesterol test to consumers.

The CholesTrak test was launched by ChemTrak's own sales and marketing
group to the United States retail market in early 1996. The test is now widely
distributed to pharmacy chains, mass merchandisers and wholesalers through a
broker network and is supported by national advertising and promotion. The
CholesTrak tests are intended for individuals who are already aware they have
high cholesterol and are working to lower it through diet and exercise. The
test is designed to give them the feedback required to remain motivated.

3
4

HELICOBACTER PYLORI TEST

H. pylori is a bacteria that has been identified by a consensus panel
of the National Institutes of Health as the causative agent of a large
percentage of duodenal and gastric ulcers and is associated with a high
incidence of stomach cancer if left untreated. There are an estimated 40 million
new cases of H. pylori infection in the United States per year.

H. pylori, which afflicts an estimated 40% of the United States
population, is found in approximately 90% of patients with duodenal ulcers and
70% of patients with gastric ulcers. Research has shown that once H. pylori is
eliminated, the average one-year recurrence rate of ulcers is approximately 10%,
compared to a 50% to 70% recurrence rate for ulcers treated with traditional
histamine-2 receptor antagonists drugs ("H2RAs") alone.

Each year, there are over 40 million office visits for gastritis, one
of the symptoms of a possible ulcer, in the United States alone. Last year, the
worldwide market for medications containing H2RAs, which are used to treat
gastric ulcers, exceeded $7 billion.

Currently, H. pylori is often detected either through endoscopy
procedures performed by physicians, or by experimental breath tests using
special equipment. Clinical laboratories now perform a growing number of direct
immunoassays for the antibodies to H. pylori in serum samples. The ChemTrak test
is a one-step, whole blood test that will indicate the presence or absence of H.
pylori antibodies in minutes during a patient's visit to a physician's office.

In 1995, the Company announced it had signed a license and supply
agreement with Astra Merck, Inc. (AMI) for sales of ChemTrak's H. pylori test to
both professional markets and over-the-counter retail outlets in the United
States. The test was cleared by the FDA for professional use in 1996 and then
received further 510(k) clearance for improved accuracy claims in March of 1997.
The test named Hp Chek(TM) by Astra Merck, will be marketed by

4
5
AMI's sales force alongside the prescription medicine, Prilosec(R), used for the
treatment of several acid-related disorders including active duodenal ulcers.

ColoCARE(R)

Colorectal cancer now accounts for over 55,000 American deaths each
year. It is the nation's second leading cancer killer with 131,000 Americans
diagnosed annually. According to the American Cancer Society and seven other
medical groups, this type of test can be as effective in detecting the early
warning signs of colorectal disease as mammograms are for breast cancer
detection. If used annually by persons over fifty, it is believed that screening
tests for the early warning signs of colorectal disease such as ColoCARE(R),
where positive results are followed up by a doctor's visit, could cut deaths by
one-third.

In February 1997, ChemTrak announced the introduction of ColoCARE(R),
a home test for the early warning signs of colorectal disease, which is
FDA-cleared, low-priced and clinically accurate. The ColoCARE(R) test is
non-invasive, sanitary and easy-to-use. The Company has signed a distribution
agreement with this test's developer, Helena Labs.

The ColoCARE(R) test is easy to use, sanitary and reliable. Used in the
privacy of the bathroom, the user simply removes the test pad from its envelope
and drops it into the toilet bowl following a bowel movement and before
flushing. Chemicals in the pad cause it to turn blue within 30 seconds if hidden
blood is present in detectable amounts. The presence of blood in the stool is a
recognized early warning sign of colorectal disease including cancer. The user
notes any color change, records the information and flushes the toilet. No
sample handling is required. Three consecutive tests are required. If during any
of the tests the pad turns blue, a physician should be consulted as soon as
possible. The test pad should not change color if blood is not detected.

The Company believes that the ColoCARE(R) test has broad market
potential. The American Cancer Society reports that early cancer detection is of
critical importance. The disease strikes men and women about equally, and those
over forty may be at increased risk. As reported in a national news
publication, "An easy take home test for colorectal cancer could lower the cost
and unpleasantness that deter many Americans from being examined for the
nation's second leading cancer killer."

FUTURE HIV TEST

An estimated 4% of adult Americans, or 7.3 million people, report they
have engaged in risk behaviors for HIV infection. Over 33 million HIV tests were
performed by clinical laboratories in the United States in 1994. Of the
estimated 1 million Americans living with HIV, only 30% to 60% have been tested,
and about one-half of those who test positive are tested long after infection,
when treatment is less successful. In 1995, the Company filed a PMA with the FDA
for the AWARE(R) home HIV test service.

The AWARE(R) home HIV test service requires the consumer to provide a
dried blood sample on a special collection card. The consumer then sends the
card with the sample to the Company's licensed laboratory; the card is
identified only by a code number to ensure the consumer's anonymity. To obtain
the result, the consumer then calls a special number set up by ChemTrak, using
only the code number for identification. Trained counselors employed by ChemTrak
will provide the results, and provide information and referrals for further
testing. While the Company is still awaiting FDA approval, two competitors
received approval for similar systems and have launched them nationwide. There
can be no assurance that the Company will receive FDA marketing approval for the
AWARE(R) home HIV test service, or that if approved, it will be able to compete
with existing products.

FUTURE ACCUMETER(R) PRODUCTS

The Company believes that its AccuMeter(R) cassette system is an
enabling technology and will be applicable to a broad range of general
chemistry and immunoassay tests, including the following:

Theophylline Test

Theophylline is a drug prescribed for use by people suffering from
asthma and other respiratory difficulties. Approximately six million patients
take theophylline to relieve or prevent symptoms of asthma. The drug is
effective only over a limited range: too little is ineffective, too much causes
side effects that include headache, nausea, vomiting, low blood pressure,
tachyccardia, arrhythmia, and convulsions. Also, the safe and effective range
for theophylline varies from patient to patient. Monitoring theophylline levels
helps clinicians establish and maintain safe and effective dosages in both
acute and chronic treatment, and over 20 million theophylline tests are
routinely performed in clinical laboratories in the United States every year,
with results sometimes not available for hours or even days. ChemTrak's
AccuMeter(R) Theophylline Test enables the physician to monitor theophylline
drug levels with ease -- during a single office visit. The test is simple
enough to be prescribed for home use to check night-time or early morning
concentrations of the drug, information which could improve patient management
critically. Theophylline levels must be monitored carefully during therapy, as
low levels are ineffective and high levels can be toxic. The Company believes
that approximately 25 million theophylline tests are performed annually in the
United States. Currently, most theophylline testing requires costly instruments
that are not suitable for use either in physician offices or homes. The Company
believes that the only existing non-instrumented test requires a complex
procedure and exact measurement of the blood sample.

ChemTrak's test for quantifying blood levels of theophylline for use in
professional settings has been reformulated and completed. The Company is in the
process of preparing an FDA 510(k) filing for its theophylline test.

Other Future AccuMeter(R) Products

Additional tests incorporating the AccuMeter(R) technology that the
Company has targeted for future research and development include tests for other
infectious diseases. The AccuMeter(R) technology may assist in detecting disease
by enabling the detection of low levels of proteins, which is a necessary step
in detecting infection. The Company has developed a whole blood , one-step HIV
1/2 test in the AccuMeter(R) format which has the same protocol as the H.pylori
test. The test is currently in pre-clinical studies.

5
6
The World Health Organization estimates that currently 11 million
people are infected with HIV and that this number will reach 30 million by the
year 2000. The Company believes that the AccuMeter(R) technology will be
applicable to other infectious disease tests as well.

Other future products that the Company may develop include tests for
low density lipoprotein ("LDL"), or "bad cholesterol", and glycosylated
hemoglobin. Monitoring glycosylated hemoglobin provides information regarding
the well being of diabetics over a broader time period than can be achieved by
monitoring blood glucose levels alone. An LDL test could serve as a companion
product to the Company's total cholesterol tests. The Company has yet to develop
prototypes for these additional tests and all are in the early stage of
development.

There can be no assurance that the Company will develop or complete
development of any of its future products, that such products will receive
marketing approval by the FDA or foreign regulatory authorities or that any
current or future products will be manufactured in commercial quantities or
marketed successfully.

GOVERNMENTAL REGULATION

ChemTrak's products are regulated under the 1976 and 1990 device
amendments to the Food, Drug and Cosmetic Act (the "Amendments"), which, among
other things, classify devices into three categories (Class I, II and III) over
which the FDA maintains increasing levels of regulation. Although some of
ChemTrak's products may be classified as Class III, the majority of ChemTrak's
products are or are expected to be classified as Class I or II devices. Prior to
marketing any of these devices, the Company must obtain pre-clearance from the
FDA, either through the notification ("510(k) Notification") process or the
pre-market approval application ("PMA") process. If a product is a Class III
device, it requires a PMA. The PMA process is lengthy, usually taking
approximately 18 to 30 months. The Company believes that the majority of its
products can be pre-cleared using the 510(k) Notification process, which takes
approximately 90 to 180 days. There can be no assurance that a given product can
be pre-cleared using the 510(k) Notification process or that the process will be
completed within the usual time frame. The 510(k) Notification process for the
CholesTrak(TM) Home Cholesterol Test took 18 months.

Because all devices new to the marketplace after 1976 are automatically
classified as Class III devices (unless they have been reclassified) in any
510(k) Notification, the Company must, among other things, demonstrate that the
product to be marketed is "substantially equivalent" to another legally marketed
device in order to obtain reclassification. Test data from clinical trials may
be required to demonstrate "substantial equivalence." The Company may commence
marketing the product only after the FDA issues a written order finding either
that the PMA has been approved or that "substantial equivalence" has been
established, which latter event may take longer than the 90-day period estimated
for a 510(k) Notification review. By requesting additional data, the FDA can
further delay the Company's market introduction of its products. However, there
can be no assurance that the Company will obtain the required marketing
clearance for any of its development stage products on a timely basis, or at
all. Although the Company believes that there are significant markets for its
products independent of the United States physician office and over-the-counter
consumer retail market, failure to obtain such FDA clearance for its future
products could have a material adverse effect on the Company's business,
financial condition and results of operations, as well as its relationships with
its corporate partners.

The Amendments also require the Company to manufacture its products in
compliance with the FDA's current Good Manufacturing Practices ("cGMP")
regulations and to register its manufacturing facility and its products. The
Company has registered its facility and its products with the FDA. The Company
has also registered its manufacturing facility with the Department of Health
Services of the State of California, as required, and has passed federal and
state inspections confirming the Company's compliance with the cGMP regulatory
requirements for its products. However, there can be no assurance that the
Company's facility will continue to satisfy cGMP regulations. In addition, the
manufacture, sale or use of the Company's products are also subject to
regulation by other federal entities, such as the Occupational Safety and Health
Agency and the Environmental Protection Agency, and by various state agencies.
Federal and state regulations regarding the manufacture, sale or use of the
Company's products are subject to future change, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Certain of ChemTrak's products, when used, may also be regulated under
the Clinical Laboratory Improvement Amendments Act of 1988 ("CLIA"). CLIA is
intended to insure the quality and reliability of all medical testing in
laboratories in the United States, regardless of where these laboratories are
located. Final regulations to

6
7
implement CLIA were published in February 1992, effective September 1, 1992,
except for participation in proficiency testing which for previously unregulated
laboratories were not effective until January 1994. In January 1993, the
Department of Health and Human Services published certain revisions to these
regulations. The regulations establish requirements for laboratories in the
areas of administration, participation in proficiency testing, patient test
management, quality control, personnel, quality assurance and inspection. Under
these regulations, the specific requirements that a laboratory must meet depend
upon the complexity of the tests performed by the laboratory. Laboratory tests
are categorized as either waived tests, tests of moderate complexity or tests of
high complexity. Laboratories that perform waived tests are not governed by the
CLIA regulations, but must obtain a registration certificate with the Health
Care Financing Administration ("HCFA"). Laboratories that perform either
moderate or high complexity tests must meet the requirements in all areas and
are required to obtain either a registration certificate or certification of
accreditation from the HCFA. In March 1995, the Center for Disease Control
granted waived status for the CholesTrak Total Cholesterol Test, and informed
the Company that all tests cleared by the FDA for over-the-counter consumer use
are automatically waived.

SALES AND MARKETING

The Company's marketing strategy is to utilize targeted marketing of
its consumer CholesTrak(TM) Home Cholesterol Test, ColoCARE(R) home test for the
early warning signs of colorectal disease, its AWARE(R) home HIV test service
(pending FDA approval), and future consumer personal diagnostics tests to make
direct sales to the consumer as well as through chain drug, mass merchandisers
and natural/health food stores in the United States. ChemTrak has agreements
with a number of trade relation sales force groups which in turn sell through
broker organizations servicing the retail market. These organizations receive a
percentage of sales based upon performance. The Company advertises and promotes
its products to key population segments.

Professional markets in the United States are served through a number
of arrangements with pharmaceutical companies and medical product distributors.
See "Corporate Partners." Internationally, the Company has a number of
arrangements in place for the marketing and sales of its Total Cholesterol Test
to consumer retail markets in Europe, Africa and the Pacific Rim area.

CORPORATE MARKETING PARTNERS

Through its corporate partner alliances, ChemTrak expects to more
effectively reach the international consumer retail and United States physician
office markets. ChemTrak has non-material distribution arrangements with a
number of independent health care supply organizations domestically and
worldwide. ChemTrak has in effect material contractual relationships with the
following corporate partners:

Corporate Partner Market Country Product
- -----------------------------------------------------------------------------------------

Astra Merck Inc. Consumer retail United States H. pylori
Physician office Puerto Rico

The Boots Company PLC Consumer retail United Kingdom Cholesterol Test

Helena Laboratories, Inc. Consumer retail Canada Cholesterol Test

Jokoh, Inc. Physician office Japan Theophylline Test

Orion Diagnostica Physician office United States Cholesterol Test

Selfcare, Inc. Consumer retail All of Europe and AWARE(R) Home
Scandinavia HIV Test Service

Termination of any of these arrangements with corporate partners could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, there can be no assurance that these
corporate partners will meet their projected sales volumes, that the Company
will be successful in retaining these corporate alliances or that it will be
able to enter into additional alliances on acceptable terms if at all.

7
8
Astra Merck Inc. (AMI). In March 1995, the Company entered into a
multi-year license and supply agreement with AMI to market the Company's H.
pylori test in the United States and Puerto Rico. The initial term expires
either six years from March 1, 1995 or four years after the first
over-the-counter sale, whichever is earlier. After the initial term, the
agreement provides for renewal on an annual basis. AMI has been granted
exclusive United States marketing rights to ChemTrak's H. pylori test for both
professional markets and for over-the-counter retail outlets. In return,
ChemTrak is entitled to receive separate cash payments from AMI upon realization
of certain milestones ultimately leading to the commercialization of the H.
pylori test. The Company will also receive a per unit price for each product it
manufactures and sells to AMI. The Agreement calls for AMI to purchase certain
minimum quantities during specified periods commencing on the first shipment to
the professional market. The agreement may be terminated by either party on
sixty days notice if the other party commits a material breach of the
agreement. The H. pylori test has received FDA clearance for sale to the
professional market with the first shipment expected in April 1997. The Company
expects to commence the process of seeking FDA approval for over-the-counter
retail sales later in 1997.

The Boots Company PLC. In December 1991, the Company entered into a
multi-year agreement with The Boots Company PLC ("Boots") for the sale of the
AccuMeter cholesterol test under Boots' brand name in the United Kingdom. Boots
is a diversified company and includes Boots The Chemists, a 1,069 store pharmacy
division of Boots.

Helena Laboratories, Ltd. In April 1996, ChemTrak signed an agreement
with Helena Laboratories Ltd. for distribution of the home cholesterol test in
Canada. Helena Laboratories (Canada) is part of an international clinical
diagnostic company currently operating in over 40 countries and its innovative
products have been available in Canada for more than 15 years. Helena
Laboratories (Canada) has been marketing ColoCARE(R), a unique and patented home
test for the early warning signs of colorectal disease, and in the process has
created a new category in Canadian pharmacies.

Jokoh Co., Ltd. Japan. In May 1996, ChemTrak completed a licensing
and distribution agreement with Jokoh Co., Ltd. Japan to introduce ChemTrak's
non-instrumented, quantitative, whole-blood test for the asthma drug
theophylline into the Japanese marketplace. The Company believes that its
AccuMeter(R) Theophylline Test will be, if approved by Japanese authorities, the
only non-instrumented, quantitative, whole-blood test for theophylline offered
in Japan. Jokoh specializes in clinical laboratory analytical product
manufacturing and marketing.

Orion Diagnostica. In March 1995, ChemTrak signed an agreement with
Orion Diagnostica Inc., the United States division of a Finland-based worldwide
manufacturer and marketer of diagnostic tests, granting them the right to market
the AccuMeter(R) cholesterol test to physicians offices, hospitals and
commercial laboratories through its direct sales force as well as a network of
medical surgical sales representatives throughout the United States.

Selfcare Inc. In January 1997, ChemTrak announced a pan-European
alliance with Selfcare Inc. of Waltham, Massachusetts to market the AWARE(R)
home HIV testing and counseling service. The agreement calls for licensing of
ChemTrak's AWARE(R) home HIV test service including product design and
manufacture, proprietary finger stick device, customized computer sample and
results tracking systems, laboratory protocols, professional counselor training
and certification programs to Selfcare. As part of the agreement Selfcare will
pay for the cost of regulatory submissions in each of the countries of Europe.
Selfcare in turn will augment its existing European

8
9
operations with local reference laboratories and counseling centers to provide
efficient individualized home HIV testing services throughout Europe. Selfcare
does, however, have the option to terminate the agreement if the FDA does not
approve ChemTrak's AWARE(R) home HIV test service in 1997. Selfcare, with
facilities in Waltham, Massachusetts, Inverness, Scotland, Galway, Ireland and
Munich, Germany is engaged in the development, manufacture and marketing of
self-test diagnostic products for the diabetes, woman's health and infectious
disease markets. Their products are marketed in the United States under
Selfcare's own brands and private label brand names.

The Boots Company, PLC is permitted to market and distribute products
competitive with those of the Company; none of the Company's other corporate
partners are permitted to do so. There can be no assurance that the foregoing
corporate partner alliances, or any such future arrangements, will not be
terminated prematurely by the Company's corporate partners, or that the
Company's corporate partners will purchase products or that such corporate
partners will successfully market and sell the Company's products.

RESEARCH AND DEVELOPMENT

- - As of December 31, 1996, the Company employed 10 full time research,
development, clinical and regulatory affairs professionals, two of whom hold
Ph.D.s. The research and development group focuses on the development of new
technologies, application of these technologies to new products, manufacturing
process development and manufacturing scale-up. In addition, the research and
development group carries out clinical trials and prepares appropriate
regulatory filings.

PATENTS AND PROPRIETARY TECHNOLOGY

The Company has aggressively pursued a patent portfolio to protect its
technology. As of the date of this report, the Company had 15 United States
patents, with expiration dates between 2007 and 2010, and five patent
applications pending. As of December 31, 1996, the Company had received eight
foreign patents. The issued patents cover inventions relating to the basic
principles of the AccuMeter(R) technology, including blood separation and sample
metering, as well as the physical components of the AccuMeter(R) cassette
system. The pending patent applications cover additional technologies and
applications of the AccuMeter(R) system. The Company's policy is to file patent
applications to protect technology, inventions and improvements that are
important to the development of its business. The Company also relies upon trade
secrets, know-how, continuing technological innovation and licensing
opportunities to develop and maintain its competitive position.

The patent position of medical device manufacturers, including
ChemTrak, is uncertain and may involve complex legal and factual issues.
Consequently, the Company does not know whether any of its patent applications
will result in the issuance of any further patents, or whether issued patents
will provide significant proprietary protection or will not be circumvented or
invalidated. Since patent applications in the United States are maintained in
secrecy until patents issue, and since publications of discoveries in the
scientific or patent literature tend to lag behind actual discoveries by several
months, ChemTrak cannot be certain that it was the first creator of inventions
covered by pending patent applications or that it was the first to file patent
applications for such inventions. Moreover, the Company may have to participate
in interference proceedings declared by the U.S. Patent and Trademark Office to
determine the priority of inventions, which could result in substantial cost to
the Company as well as commitment of management resources. There can be no
assurance that the Company's patent applications will result in further issued
patents or that such issued patents will offer protection against competitors
with similar technology.

Because the Company's AWARE(R) home HIV test service utilizes existing
laboratory technology in analyzing blood samples, it lacks patent protection.
While there may be patent protection sought for the proprietary technology of
some of the test components, ChemTrak does not expect that this protection would
preclude others from marketing similar tests for HIV.

ChemTrak has royalty bearing, non-exclusive licenses from Miles
Laboratories and Boehringer Mannheim GmbH to practice the AccuMeter(R)
technology and is fulfilling its obligations under these licenses. These
licenses

9
10
are terminable by ChemTrak with 60 and 90 days written notice, respectively.
The Company has also entered into a royalty bearing non-exclusive agreement
with AKZO Nobel to practice the sol particle immunoassay technology. The
licenses were entered into without any admission that these licenses are
required by ChemTrak.

ChemTrak requires its employees, consultants and advisors to execute
confidentiality agreements upon the commencement of an employment or consulting
relationship with the Company. Each agreement provides that all confidential
information developed or made known to the individual during the course of the
relationship will be kept confidential and not disclosed to third parties except
in specified circumstances. In the case of employees, the agreements provide
that all inventions conceived of by an individual shall be the exclusive
property of the Company, other than inventions unrelated to the Company's
business and developed entirely on the employee's own time. There can be no
assurance, however, that these agreements will provide meaningful protection for
or adequate remedies for misappropriation of the Company's trade secrets in the
event of unauthorized use or disclosure of such information.

COMPETITION

Currently, ChemTrak's competition in the physician office market
consists mainly of clinical laboratories and companies offering instrumented
tests. Several major diagnostic companies market instruments to physicians and
hospitals that are capable of testing for whole blood cholesterol with accuracy
similar to that of ChemTrak's CholesTrak(TM) Total Cholesterol Test. The Company
believes, however, that such instruments possess significant disadvantages in
that they are expensive to purchase, operate and maintain. In the consumer
retail market, the Company is not aware of any existing competing quantitative
instrument-free cholesterol tests.

The Company knows of a number of United States companies that are
developing products that may be used by the physician office or consumer retail
markets, some of which may be competitive with the Company's current and
proposed products. Specifically, the Company is aware of other United States
companies, such as Quidel Corp., Meridien and others that have developed tests
for H. pylori that have received FDA marketing clearance for the physician
office market. The Company is not aware of any companies that have received FDA
marketing clearance for a cholesterol test for the United States consumer retail
market other than its own. ChemTrak has knowledge of two other companies that
have received FDA approval on home HIV test products similar to the Company's
home HIV test service. At least one of these companies, Direct Access
Diagnostics, a Johnson & Johnson company, has significantly greater resources
than ChemTrak. Both of these companies have launched and advertised their
products nationwide. There can be no assurance that the Company's products will
be competitive with existing or future products, or that the Company will be
able to establish and maintain a profitable price structure for its products.

MANUFACTURING

ChemTrak currently utilizes an automated production line in its 58,000
square foot facility for the manufacture, assembly and packaging of its Total
Cholesterol Test, including approximately 36,000 square feet dedicated to
manufacturing. The Company believes that this facility will meet its production
requirements at least through 1997 and that suitable additional space will be
available when and as needed.

The manufacturing process employs chemical and packaging supplies that
are generally available from several suppliers. The Company has registered its
facility with the FDA and with the Department of Health Services of the State of
California and has passed federal and state inspections, confirming the
Company's compliance with the current Good Manufacturing Practices regulatory
requirements for its products. However, there can be no assurance that the
Company's facility will continue to satisfy cGMP regulations. In addition, the
manufacture, sale or use of the Company's products are also subject to
regulation by other federal entities, such as the Occupational Safety and
Health Agency and the Environmental Protection Agency, and by various state
agencies. Federal and state regulations regarding the manufacture, sale or use
of the Company's products are subject to future change, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

ENVIRONMENTAL REGULATION

Due to the nature of its current and proposed manufacturing processes,
the Company is subject to stringent federal, state and local laws, rules,
regulations and policies governing the use, generation, manufacture, storage,
air emission, effluent discharge, handling and disposal of certain materials and
wastes. Although the Company believes that it has complied with these laws and
regulations in all material respects and has not been required to take any
action to correct any noncompliance, there can be no assurance that the Company
will not be required to incur significant costs to comply with environmental and
health and safety regulations as it continues to increase production to
commercial levels. In addition, the landlord of the Company's facility in
Sunnyvale, California has advised the Company that the groundwater may be
affected by contaminants migrating from an off-site source.

10
11
Although the Company has been indemnified by its landlord as to claims brought
by third parties with respect to this contamination and no claims have been
asserted, in the event remedial action is required, there can be no assurance
that the Company will not have to incur significant costs if the landlord is not
adequately funded.

REIMBURSEMENT

Third party payors can indirectly affect the pricing or the relative
attractiveness of the Company's products by regulating the maximum amount of
reimbursement they will provide for diagnostic testing services. For example,
the reimbursement of fees for diagnostic testing services for Medicare patients
in hospitals or in physician offices is included under Medicare's prospective
payment system diagnosis related group regulations. If the reimbursement amounts
for diagnostic testing services are decreased in the future, it may decrease the
amount that physicians are able to charge Medicare patients for such services
and consequently the price the Company can charge physicians for its products.
The Company cannot predict the reimbursement of fees for diagnostic testing
services for Medicare patients, or any other types of patients. Any decreases in
reimbursement fees could have a material adverse effect on the Company.

EMPLOYEES

As of December 31, 1996, the Company had 48 full-time employees with 12
employees devoted to research and development, 22 employees in manufacturing
operations, five employees devoted to sales and marketing, and nine devoted to
general and administration. None of the employees is covered by a collective
bargaining agreement, and management considers relations with its employees to
be good.

The Company is highly dependent upon a small group of management,
manufacturing, marketing and scientific executives, the loss of any of whose
services could have a material adverse effect on the Company. The Company has
obtained key man life insurance for $1,000,000 on the life of Dr. Prithipal
Singh, the Company's co-founder and Chief Technical Officer. Recruiting and
retaining qualified manufacturing, marketing and sales personnel and scientists
to perform research and development work in the future will also be critical to
the Company's success, although there can be no assurance that the Company will
be able to do so.

TECHNICAL AND BUSINESS ADVISORS

The Company periodically draws on the expertise of several advisors and
consultants in fields related to the Company's technology and business. The
Company's technical and business advisors consult with the Company on a frequent
basis.

As of January 1, 1997, the following persons were serving as technical
and business advisors to the Company:

Richard Bastiani, Ph.D., has served as an advisor to the Company since
August 1995. Dr. Bastiani is the President of Activated Cell Therapy, Inc. in
Mountain View, California. Prior to joining Activated Cell Therapy, Inc. Dr.
Bastiani was with Syva Co. for over 23 years where he held various management
positions as Vice President, Health Diagnostics Product Division, Vice
President, Worldwide Marketing and Sales, and also as President from 1991 to
1994.

Ronald Breslow, Ph.D., has served as an advisor to the Company since
May 1988. Dr. Breslow, a Professor of Chemistry at Columbia University, is a
winner of the Arthur C. Cope and the National Medal of Science awards. Dr.
Breslow's research focuses on organic chemistry and synthetic enzymology. Dr.
Breslow advises the Company on various aspects of diagnostic technology.

Allen D. Cooper, M.D., has served as an advisor to the Company since
June 1990. Dr. Cooper is the Director of the Palo Alto Medical Foundation
Research Institute and a Professor of Medicine at Stanford University. Dr.
Cooper is a specialist in internal medicine and lipid disorders. Dr. Cooper
advises the Company regarding patient treatment issues.

11
12
Robert S. Galen, M.D., M.P.H., has served as an advisor to the Company
since April 1990. Dr. Galen is a member of the faculty at Case Western Reserve
and has served as the Chairman of the Biochemistry Department at the Cleveland
Clinic Foundation, Chairman of the American Society of Clinical Pathologists and
Chairman of the NCCLS Committee on General Laboratory Practices. Dr. Galen is on
the board of directors of a number of companies, including MetPath Investment
Company. Dr. Galen advises the Company regarding clinical chemistry issues.

John Kaiser has served as an advisor to the Company since 1991. Mr.
Kaiser is the President and Chief Executive Officer of Biocircuits Inc., a
public company ("Biocircuits"). Prior to joining Biocircuits, Mr. Kaiser was
employed by Boehringer Mannheim as President of the Physician's Laboratory
Products Division where his responsibilities included cholesterol screening
activities. Mr. Kaiser advises ChemTrak on strategic marketing issues.

Bertram Rowland, Ph.D., J.D., has served as an advisor to the Company
since 1987. Dr. Rowland was a patent attorney with the law firm of Flehr,
Hobach, Test, Albritton & Herbert. Dr. Rowland advises the Company on
intellectual property matters.

Ernest M. Tucker, III, M.D. has served as an advisor to the Company
since September 1992. Dr. Tucker is Chairman of the Department of Pathology for
the Scripps Clinic and Research Foundation in La Jolla, California. He advises
the company regarding technical and clinical issues.

In addition to serving as a member of the Board of Directors of
ChemTrak, Malcolm Jozoff has served as business advisor since December 1993.

EXECUTIVE OFFICERS

The executive officers of the Company and their ages as of January 1,
1997 are as follows:

PRITHIPAL SINGH, PH.D.... 57
Chairman of the Board and Chief Technical Officer

Dr. Singh is a founder of the Company and served as President, Chief
Executive Officer and Chairman of the Board of the Company from September 1988
to June 1993 and as Chief Executive Officer and Chairman of the Board from June
1993 to January 1997. He was appointed Chairman of the Board and Chief Technical
Officer of the Company in January 1997. From February 1985 to August 1988, Dr.
Singh was a Senior Vice President of Idetek, Inc., an animal health care
company. Dr. Singh is also a director of Abaxis, Inc., a biopharmaceutical
company.

EDWARD F. COVELL....52
President and Chief Executive Officer

Mr. Covell was appointed President and Chief Executive Officer of
ChemTrak in January 1997, after having served as President and Chief Operating
Officer from May 1996 when he joined the Company. He was elected a Director of
the Company in August 1996. Prior to joining ChemTrak, Mr. Covell was a
management consultant from 1994 to 1996, focusing on the OTC medical device
market. From 1992 to 1994 he was President and Chief Operating Officer of
Medchem Products, Inc., a manufacturer of medical devices serving customers
worldwide. Mr. Covell held a series of increasingly responsible positions with
Tambrands Inc. from 1980 through 1990, including Corporate Vice President and
General Manager of the Diagnostics Division. Tambrands is a consumer healthcare
products company. From 1968 to 1980, he served in domestic and international
management and product development positions with the Kendall Company, a
diversified manufacturing company with worldwide sales of $500 million.

12
13
RODGER RICHEAL.... 51
Senior Vice President

Mr. Richeal joined ChemTrak in November 1995. He had been with Abaxis
as Vice President of Business Development from 1991 through 1995, having
previously been Vice President of Operations, Clinical and Regulatory Affairs.
He was employed as an Industry Consultant by Advanced Bioresearch Associates.
Prior to 1986, he was Vice President of Operations at Primary Diagnostic Systems
and Vice President of Technical Operations and Quality Assurance at Syva Co.,
(formerly a unit of Syntex Corp., now part of the Behring Diagnostics, Inc.,
unit of Hoechst AG), where he was employed for more than 11 years.

NIQUETTE HUNT....32
Vice President

Ms. Hunt jointed ChemTrak in December, 1996 to lead the Company's
domestic OTC marketing effort. Prior to joining ChemTrak, she served as a
Category Manager for Warner Lambert Company in its Upper Respiratory product
group which includes the Sudafed, Benadryl and Actifed franchises. Prior to
that she served as the Team Leader/Senior product Manager for the Lubriderm and
Benadryl brands. From 1987 to 1993 she was a brand manager for Procter and
Gamble in the Health and Beauty Care sector where she managed several leading
products including Pantene, Pert Plus, Head & Shoulders and Prell. Prior to
joining Procter and Gamble, Ms. Hunt began her career in banking, working for
J.P. Morgan.

RISK FACTORS

This section summarizes certain risks that should be considered by
stockholders and prospective investors in the Company. Many of these risks are
discussed in other sections of this report.

HISTORY OF LOSSES AND ACCUMULATED DEFICIT

The Company has incurred operating losses since its inception, largely
because of the limited number of revenue-generating products and the high cost
of developing and marketing consumer medical devices. At December 31, 1996,
ChemTrak had an accumulated deficit of $36.3 million. The Company currently has
only one product on the market and expects to launch its H. pylori test and its
ColoCare(R) products for public sale in 1997. The extent of revenues generated
by these new products is highly uncertain. There can be no assurance that the
Company will achieve profitability in 1997, or that profitability, if achieved,
can be sustained on an ongoing basis.

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

The development and marketing of consumer medical devices is capital
intensive. The Company has funded its operations to date through product sales
and public and private equity and debt financings. The Company will require
substantial additional funding in order to complete the development and
marketing activities in which it is currently engaging, and to launch these
products in the consumer marketplace. The Company intends to seek additional
funding through collaborative agreements with corporate partners or through
additional equity or debt financings. There can be no assurance that the
Company will be able to enter into such arrangements on acceptable terms, or at
all.

GOVERNMENT REGULATION

The Company's ongoing product development activities, and any future
production and marketing of products, are subject to extensive regulation by
government authorities in the United States and other countries. The regulatory
process can be lengthy and requires the expenditure of substantial resources.
There can be no assurances that any product developed by the Company will meet
all of the applicable regulatory requirements necessary to receive marketing
approval. Moreover, Food and Drug Administration ("FDA") policy may change and
additional government regulations may be established that could prevent or
delay regulatory approval of the Company's potential products. In addition, a
marketed product and its manufacturer are subject to continual review, and later
discovery of previously unknown problems with a product or manufacturer may
result in restrictions on such product or manufacturer, including withdrawal of
the product from the market.

In order to market its products abroad, the Company also must comply
with foreign regulatory requirements, implemented by foreign health
authorities, governing marketing approval. The foreign regulatory approval
process includes all of the risks associated with FDA approval set forth above,
and may introduce additional requirements or risks. There is no assurance that
a foreign regulatory body will accept the data developed by the Company for any
of its products and approved by the FDA does not ensure approval in other
countries.

RELIANCE ON SMALL PRODUCT LINE; UNCERTAINTY OF MARKET ACCEPTANCE

To date the Company has generated revenue only from sales of the
AccuMeter(R) Total Cholesterol Test, and, more recently, the ColoCare(R) test.
The Company has generated no sales revenue from its H. pylori test, which is
expected to be launched in 1997. Factors which will affect the Company's
success include ChemTrak's ability to obtain regulatory clearance for marketing
its products and its ability to develop, manufacture and market future products
on a timely basis. There can be no assurance that the Company's current product
development efforts will be successfully completed, or that products can be
manufactured in commercial quantities or marketed successfully. In addition,
there can be no assurance that any of the Company's products will gain
significant market acceptance among physicians or the general public. With its
small product line, development, regulatory or market failures for even a
single product are likely to have a material adverse effect on Company
operations.

RAPID TECHNOLOGICAL CHANGE; HIGHLY COMPETITIVE INDUSTRY

Rapid and substantial technological change are expected to continue in
the health care industry generally and the diagnostic device industry in
particular. There can be no assurance that the Company's products will not
become obsolete or that the Company will be able to keep pace with
technological developments. The consumer retail and physician office markets
are expected to attract a large number of competitors, many of whom have
substantially greater resources than ChemTrak. Numerous other companies are
developing alternative strategies for cholesterol management, HIV diagnostics,
and other areas in which the Company is marketing or intends to market
products. These alternative strategies could compete with the Company's
programs. There can be no assurance that the Company's competitors will not
develop more effective or more affordable products or achieve earlier or more
efficient product commercialization than the Company.

RELIANCE ON CORPORATE PARTNERS FOR PRODUCT DISTRIBUTION

ChemTrak has a broker sales force and also relies on a number of
collaborative arrangements with corporate partners for the distribution of its
products. Many of these arrangements are terminable by corporate partners at
the discretion of those partners. Termination of one or more of these
arrangements could have a material adverse effect on the Company's business and
financial condition and its results of operations. There can be no assurance
that the Company will be able to maintain these arrangements with its corporate
partners or, it such arrangements are terminated, that the Company would be
able to enter into arrangements with other corporate partners on satisfactory
terms, or at all. In addition, there can be no assurance that these corporate
partners will meet their projected sales volumes.

PATENTS AND PROPRIETARY TECHNOLOGY

The patent position of medical device manufacturers, including
ChemTrak, is uncertain and may involve complex legal and factual issues.
Consequently, the Company does not know whether any of its patent applications
will result in the issuance of any further patents, or whether issued patents
will provide significant proprietary protection or will not be circumvented or
invalidated. Since patent applications in the United States are maintained in
secrecy until patents issue, and since publications or discoveries in the
scientific or patent literature tend to lag behind actual discoveries by
several months, ChemTrak cannot be certain that it was the first creator of
inventions covered by pending patent applications or that it was the first to
file patent applications for such inventions. Moreover, the Company may have to
participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine the priority of inventions, which could result in
substantial cost to the Company as well as commitment of management resources.
There can be no assurance that the Company's patent applications will result in
further issued patents or that such patents will offer protection against
competitors with similar technology.

Because the Company's AWARE(R) home HIV test service utilizes existing
laboratory technology in analyzing blood samples, it lacks patent protection.
While there may be patent protection sought for the proprietary technology of
some of the test components. ChemTrak does not expect that this protection
would preclude others from marketing similar tests for HIV.

ENVIRONMENTAL REGULATION

Due to the nature of its current and proposed manufacturing processes,
the Company is subject to stringent federal, state and local laws, rules,
regulations and policies governing the use, generation, manufacture, storage,
air emission, effluent discharge, handling and disposal of certain materials
and wastes. Although the Company believes that it has compiled with these laws
and regulations in all material respects and has not been required to take any
action to correct any noncompliance, there can be no assurance that the Company
will not be required to incur significant costs to comply with environmental
and health and safety regulations as it continues to increase production to
commercial levels. In addition, the landlord of the Company's facility in
Sunnyvale, California has advised the Company that the groundwater may be
affected by contaminants migrating from an off-site source. Although the
Company has been indemnified by its landlord as to claims brought by third
parties with respect to this contamination and no claims have been asserted, in
the event remedial action is required, there can be no assurance that the
Company will not have to incur significant costs if the landlord is not
adequately funded.

DEPENDENCE ON KEY PERSONNEL

The Company is highly dependent upon a small group of management,
manufacturing, marketing and scientific executives, the loss of whose services,
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company has obtained key man life
insurance for $1,000,000 on the life of Prithipal Singh, the Company's
co-founder and chief technical officer. Recruiting and retaining qualified
manufacturing, marketing and sales personnel and scientists to perform research
and development work in the future will also be critical to the Company's
success, although there can be no assurance that the Company will be able to do
so.

POTENTIAL IMPACT OF REIMBURSEMENT POLICIES

Third party payors can indirectly affect the pricing or the relative
attractiveness of the Company's products by regulating the maximum amount of
reimbursement they will provide for diagnostic testing services. Fro example,
the reimbursement of fees for diagnostic testing services for Medicare patients
in hospitals or physician offices is include under Medicare's prospective
payment system diagnosis-related group regulations. If the reimbursement
amounts for diagnostic testing services are decreased in the future, it may
decrease the amount which hospitals or physicians are able to charge Medicare
patients for such services and consequently the price the Company can charge
physicians for its products. The Company cannot predict the reimbursement of
fees for diagnostic testing services for Medicare patients, or any other
patients. Any decreases in reimbursement fees could have a material adverse
effect on the Company's business, financial condition and results of
operations.

VOLATILITY OF STOCK PRICE

The market price of the shares of Common Stock, like that of other
medical technology companies, has been highly volatile. Factors such as
fluctuations in the Company's operating results, announcements of technological
innovations or new commercial products by the Company or its competitors,
changes in governmental regulation, including changes in the current structure
of the health care financing and reimbursement systems in the U.S. and abroad,
developments in or disputes regarding patent or other proprietary rights,
economic and other external factors and general market conditions may have a
significant effect on the market price of the Common Stock.

MANUFACTURING

The Company is required to manufacture its products in compliance with
the FDA's cGMP regulations and to register its manufacturing facility and its
products. The Company has registered its facility and its products with the
FDA. The Company has also registered its manufacturing facility with the
Department of Health Services of the State of California, as required, and has
passed federal and state inspections confirming the Company's compliance with
cGMP regulatory requirements for its products. However, there can be no
assurance that the Company's facility will continue to satisfy GMP
regulations. In addition, the manufacture, sale or use of the Company's
products are also subject to regulation by other federal entities, such as the
Occupational Safety and Health Agency and the Environmental Protection Agency,
and by various state agencies. Federal and state regulations regarding the
manufacture, sale or use of the Company's products are subject to future
change, which could have a material adverse effect on the Company's business,
financial condition and results of operation.

ITEM 2 - PROPERTIES.

The Company's corporate offices and principal laboratories are in an
approximately 58,000 square foot facility located in Sunnyvale, California. The
Company currently occupies the facility under a ten-year lease which commenced
in July 1992. The Company believes that its existing facilities will be adequate
to meet the Company's needs at least through 1997 and that suitable additional
space will be available when and as needed.

ITEM 3 - LEGAL PROCEEDINGS.

Not applicable.

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

Not applicable.

13
14
PART II

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

Since February 19, 1992, ChemTrak's Common Stock, par value $.001, has
been traded on the Nasdaq National Market under the symbol CMTR. The following
table sets forth the range of high and low closing sales prices for ChemTrak
Common Stock on the Nasdaq National Market for the periods indicated.

High Low
-------- ---------

1996
First Quarter.................. $5.44 $1.25
Second Quarter................. $5.31 $3.94
Third Quarter.................. $4.38 $1.91
Fourth Quarter................. $2.56 $1.34

1995
First Quarter.................. $3.25 $1.81
Second Quarter................. $3.50 $2.13
Third Quarter.................. $2.50 $1.75
Fourth Quarter................. $2.13 $0.75

The approximate number of record holders of the Company's Common Stock as of
February 15, 1997 was 600. ChemTrak has not paid any cash dividends since its
inception and does not anticipate paying cash dividends in the foreseeable
future.

On May 13, 1996, the Company sold $5,000,000 of convertible debentures
for cash to certain investment firms located outside the United States. The
debentures bear a coupon interest rate of 7.5% per annum, payable in cash or
shares of the Company's Common Stock, at the Company's option. The debentures
are convertible into Common Stock, at the debenture holder's option (subject to
certain volume limitations), at a conversion price equal to the lower of 110%
of the average daily closing bid price of the Common Stock on the Nasdaq
National Market for the ten trading days prior to May 13, 1996 or 82.5% of the
average daily closing bid price of the Common stock on the Nasdaq National
Market for the ten trading days prior to the conversion date. The Company paid
a fee of $300,000 to the Shemano Group, the placement agent. In addition, the
Company issued warrants to purchase 78,500 shares of the Company's Common Stock
to The Shemano Group, and warrants to purchase 5,000 shares of the Company's
Common Stock to Oxhead Advisory Group, Ltd., which assisted in the placement,
all exercisable at $5.00 per share. The offering was made in reliance on
Regulation S promulgated under the Securities Act of 1933, as amended. During
1996, approximately 1,800,000 shares of the Company's common stock were issued
to debenture holders in connection with the conversion of $3,082,000 face
amount of debentures, and approximately 100,000 shares of Common Stock were
issued to debenture holders in lieu of cash payments of interest on the
debentures. These transactions were made in reliance on Section 3(a)(9) of the
Securities Act of 1933, as amended.

14
15
ITEM 6 - SELECTED FINANCIAL DATA.

The following selected financial data should be read in conjunction with the
financial statements and the notes thereto included elsewhere herein.

Years Ended December 31,
------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
(In thousands, except per share data)

STATEMENT OF OPERATIONS DATA:
Net revenues:
Product revenues .................... $ 2,463 $ 2,171 $ 7,780 $ 2,662 $ 4,559
Funded research and other revenues .. 598 4,725 2,540 2,048 1,390
------------------------------------------------------
Total revenues ................... $ 3,061 $ 6,896 $ 10,320 $ 4,710 $ 5,949
Operating loss ...................... (7,010) (3,529) (1,308) (9,820) (6,506)
Net loss ............................ (7,826) (3,269) (1,065) (9,240) (5,696)
Net loss per share .................. $ (.77) $ (.34) $ (.12) $ (1.01) $ (.65)
Shares used in computing net loss per
share ............................ 10,228 9,649 9,225 9,192 8,712

December 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------

BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments .. $ 4,692 $ 6,254 $ 7,773 $ 6,821 $ 13,646
Working capital .............. 4,656 5,944 7,816 7,990 15,276
Total assets ................. 8,841 10,383 13,308 13,304 22,322
Convertible Debentures........ 2,135 -- -- -- --
Accumulated deficit .......... (36,308) (28,482) (25,213) (24,148) (14,908)
Total stockholders' equity (1) 5,030 9,018 11,345 12,232 21,202

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

(1) Since its inception the Company has not declared any cash dividends.

15
16
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

ChemTrak began marketing the AccuMeter(R) Cholesterol Self-Test through
United States consumer catalogs in January 1994. In January 1994, the Company
signed a license and supply agreement with Direct Access Diagnostics ("DAD") to
market the Company's Total Cholesterol Test to over-the-counter retail outlets
in the United States, Canada, Mexico and Puerto Rico. In June 1994, DAD began
shipping the AccuMeter(R) Total Cholesterol Test to United States pharmacies
under the Johnson & Johnson Advanced Care(TM) Cholesterol Test brand name. In
December 1995 the Company concluded its relationship with DAD and regained the
North American retail marketing rights for its Total Cholesterol Test and
received a one-time payment of $3.6 million from DAD. The fiscal year 1996
completed the first full year in which the Company directly marketed and
distributed its cholesterol product in the United States.

The Company received, in July 1996, clearance from the FDA to market
its H. pylori test for use in the physician office laboratory. The first
shipment to Astra Merck, as part of the 1995 agreement, is expected to be
delivered in April 1997.

In 1995, the Company filed, with the FDA, its pre-market approval
application ("PMA") for the Company's AWARE(R) home HIV test service. The
Company acquired technology from Coonan Clinical Labs for a home HIV test
service. The Company expects that the AWARE(R) home HIV test service will add to
the Company's strategy to be a leader in the over-the-counter testing market.

As of December 31, 1996, ChemTrak had an accumulated deficit of
approximately $36,308,000. The ability of the Company to achieve profitability
is highly dependent upon numerous factors including, but not limited to, the
Company's ability to directly market and distribute its cholesterol product in
the United States, successful completion of the Company's regulatory approval
process to market in the United States products under development, principally
its AWARE(R) home HIV test service, and the Company's ability to provide product
in sufficient, cost effective quantities. Due to the uncertainty of these
factors, it is difficult to reliably predict when such profitability may occur,
if at all. Until such time as it achieves profitability, the Company is likely
to require additional capital to finance it operations.

The development and marketing of consumer medical devices is capital
intensive. The Company has funded its operations to date through product sales
and public and private equity and debt financings. The Company will require
substantial additional funding in order to complete the development and
marketing activities in which it is currently engaging, and to launch these
products in the consumer marketplace. The Company intends to seek additional
funding through collaborative agreements with corporate partners or through
additional equity or debt financings. There can be assurance that the Company
will be able to enter into such arrangements on acceptable terms, or at all.

The Company has historically experienced significant fluctuations in
its operating results and anticipates that these fluctuations may continue. The
market price of the shares of the Company's common stock, like that of other
emerging medical technology companies, has been highly volatile. Various factors
including, but not limited to, fluctuations in the Company's operating results,
technical and regulatory developments, and general market and economic factors,
may have a significant effect on the market price of the Company's common stock.

In March 1997, the Company has determined that its previously reported
operating results and balance sheet data for the three-month periods ended June
30, 1996 and September 30, 1996 require adjustment. Revisions to these quarters
have been made to reflect recent SEC guidance relating to debt that is
convertible to equity at a discount to market. As a result of the SEC's recent
position, the Company is adjusting it quarterly reports subsequent to the
completion of its May 1996 private placement of $5,000,000 of convertible
debentures that are convertible into common stock at the lower of 100% of the
common stock price at the time of closing or 82.5% of the common stock price at
certain defined conversion dates. The Company is adjusting its quarterly and
annual results of operations to reflect deemed non-cash interest expense of
$875,000 ($656,250 and $218,750 in the quarters ended June 30, 1996 and
September 30, 1996, respectively).

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

NET REVENUES

Net revenues were $3,061,000 in 1996, consisting of $2,463,000 from
product sales and $598,000 from funded research and other revenue, compared with
net revenues of $6,896,000 in 1995, consisting of $2,171,000 from product sales
and $4,725,000 from funded research and other revenue. The decrease in net
revenues in 1996

16
17
from 1995 was due to a reduction in funded research and other revenue as a
result of the 1995 one time cancellation payment from DAD of $3,600,000.

Net revenues for 1994 were $10,320,000, consisting of $7,780,000 from
product sales and $2,540,000 from funded research and other revenue. The
decrease in net revenues in 1995 compared with 1994 was primarily due to reduced
product unit sales consisting of shipments of the Total Cholesterol Test to DAD
for sale in the U.S. over-the-counter retail market.

In December 1995, ChemTrak concluded its agreement with DAD and
ChemTrak regained the exclusive North American retail marketing rights for its
home cholesterol test. Under the terms of the agreement, ChemTrak received a
one-time payment of $3,600,000 and also regained the marketing rights to its
test for the High Density Lipoprotein (HDL) or "good cholesterol" which had been
cleared for professional use by the FDA. DAD ceased shipments in December 1995
and ChemTrak resumed shipment of its CholesTrak(TM) test to the same drug
chains, mass merchandisers and wholesalers in January 1996.

Cost of Product Sales

In 1996, the cost of product sales was $3,201,000 compared with
$3,191,000 in 1995 and $5,441,000 in 1994. The increase in the cost of product
sales in 1996 compared with 1995 was principally due to an increase in
production resulting from higher levels of product shipments. As a result of low
product sales in 1996 and 1995, the cost of product sales in those years
exceeded product sales due to fixed costs associated with the Company's
production facilities and equipment. The larger cost of product sales in 1994
compared to 1995 and 1996 was due primarily to significantly higher production
as a result of the launch of the Total Cholesterol Test in the United States by
DAD.

Research and Development

The Company incurred research and development expenses of $2,439,000 in
1996 and $4,293,000 in 1995, compared to $2,299,000 in 1994. The decrease in
research and development expenses in 1996 compared with 1995 was primarily due
to costs associated with the acquisition of Coonan Clinical Laboratories, Inc.
The Company recorded a $1,500,000 charge in 1995 for in-process research and
development effort associated with CCL's technology.

Marketing, General and Administrative

Marketing, general and administrative expenses increased to $4,431,000
in 1996, from $2,941,000 in 1995 and $3,888,000 in 1994. The increases in 1996
were primarily due to increased marketing activities to support the Company's
efforts to support its products on a direct to wholesaler basis. The decreases
in 1995 compared with 1994 were primarily the result of decreased personnel
costs.

Interest Expense

Interest expense in 1996 is the result of the Company's issuance of
convertible debentures that allow holders to convert their debentures into
common stock at a 17.5% discount to the then fair market value of the Company's
common stock. The Company has accounted for this non-cash charge in accordance
with recent SEC guidance.

Interest Income

Interest income was $59,000 in 1996 compared to $260,000 in 1995 and
$243,000 in 1994. The decrease in 1996 compared to 1995 and 1994 was primarily
due to lower effective interest rates and lower cash balances.

LIQUIDITY AND CAPITAL RESOURCES

From August 1985 through January 1992 ChemTrak was financed through
private placements of equity securities. In February 1992, the Company completed
an initial public offering of Common Stock, raising net proceeds of
approximately $23,536,000. In 1996, approximately $4.7 million in net proceeds
was obtained from the sale of convertible debentures.

As of December 31, 1996, including the receipt of approximately $4.7
million of proceeds from the debenture sales, the Company had cash, cash
equivalents and short-term investments of $4,692,000. During 1996, the Company
had a net decrease of $6.1 million of cash and cash equivalents associated with
its operations primarily as a result of the Company's operating loss during
1996.

The development and marketing of medical devices is capital intensive.
The Company currently has funded its operations to date through product sales
and public and private equity and debt financings. The Company will require
substantial additional funding in fiscal 1997 in order to complete development
and marketing activities in which its is currently engaging and to launch these
products in the consumer marketplace. The Company intends to seek additional
funding through collaborative agreements with corporate partners or through
additional equity or debt financing.

17
18
The Company believes that its existing capital resources, together with
internally generated funds and funded research, will need to be augmented by
funds received through collaboration agreements or equity or debt financing to
meet its current budgeted operating needs as well as requirements for property,
plant and equipment until at least the end of 1997 (see "Risk Factors: Future
Capital Needs; Uncertainty of Additional Funding"). If such funding cannot be
obtained, the Company will implement cost cutting measures to ensure the
continuity of operations through at least the end of 1997. The Company's success
is dependent on its ability to achieve profitable operations, reduce
discretionary operating expenses and to obtain additional funds to support its
operations. There can be no assurance that the Company will achieve profitable
operations or successfully reduce discretionary expenses by a sufficient amount
on a timely basis or that additional funds will be available when and as
required by the Company on acceptable terms or at all.

The Company does not believe that inflation has had a material impact
on its business.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Company's Financial Statements and notes thereto appear on pages
F-1 to F-16 of this Form 10-K Annual Report.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not applicable.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS.

The information required by this item (with respect to Directors) is
incorporated by reference from the information under the caption "Election of
Directors" contained in the Company's Definitive Proxy Statement which will be
filed with the Securities and Exchange Commission in connection with the
solicitation of proxies for the Company's 1997 Annual Meeting of Stockholders
(the "Proxy Statement").

The required information concerning Executive Officers of the Company
is contained in Item 1, Part I of this Report.

ITEM 11 - EXECUTIVE COMPENSATION.

The information required by this item is incorporated by reference from
the information under the caption "Executive Compensation" contained in the
Proxy Statement.

18
19
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by this item is incorporated by reference from
the information under the caption "Security Ownership of Certain Beneficial
Owners and Management" contained in the Proxy Statement.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this item is incorporated by reference from
the information under the caption "Certain Transactions" contained in the Proxy
Statement.

PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) (1) Index to Financial Statements.

The Financial Statements required by this item are submitted in
a separate section beginning on page F-1 of this report.

Page

Report of Ernst & Young LLP F-1
Balance Sheets at December 31, 1996 and 1995 F-2
Statements of Operations --
Years ended December 31, 1996, 1995 and 1994 F-3
Statements of Stockholders' Equity --
Years ended December 31, 1996, 1995 and 1994 F-4
Statements of Cash Flows --
Years ended December 31, 1996, 1995 and 1994 F-5
Notes to Financial Statements F-6

(2) All other schedules are omitted because they are not applicable
or the required information is shown in the Financial
Statements or the notes thereto.

(3) Exhibits --

Number

2.1 Agreement and Plan of Reorganization among the Registrant,
ChemTrak Acquisition Subsidiary, Inc., Coonan Clinical
Laboratories, Inc. and Stephen J. Coonan, dated December 21,
1994, as amended January 20, 1995. (6)

3.1 Amended and Restated Certificate of Incorporation of the
Registrant. (1)

3.2 Bylaws of the Registrant. (1)

4.1 Reference is made to Exhibits 3.1 and 3.2.

10.1 Form of Indemnification Agreement entered into between the
Registrant and its directors and officers, with related
schedule. (1)

10.2+ 1988 Stock Option Plan, as amended. (2)

19
20
10.3+ Form of Incentive Stock Option under the Option Plan, as amended. (1)

10.4+ Form of Non-Qualified Stock Option under the Option Plan, as amended.
(1)

10.5 Form of Notice of Exercise under the Option Plan, as amended. (1)

10.6 Investor Rights Agreement between the Registrant and the Series A
Purchasers, the Series C Purchasers, the Series D Purchasers,
Interhealth, and two of the Registrant's founders, dated June 4,
1991. (1)

10.10* Distribution Agreement between the Registrant and A. Menarini SRL,
dated as of July 1991. (1)

10.11* Letter from the Registrant to The Boots Company PLC, dated December
5, 1991, and letter from The Boots Company PLC to the Company, dated
October 24, 1991. (1)

10.15 Lease Agreement between the Registrant and PM-DE, dated as of January
23, 1992. (1) (7)

10.16+ 1991 Employee Stock Purchase Plan. (1)

10.17+ 1992 Non-Employee Directors' Stock Option Plan ("Directors' Plan").
(3)

10.18+ Form of Non-Statutory Option under the Directors' Plan. (3)

10.24* Agreement between the Registrant and Miles Inc., dated April 22,
1993. (4)

10.31 1993 Equity Incentive Plan. (5)

10.35* Distribution and Supply Agreement, dated as of March 1, 1995 between
the Registrant and Astra Merck Inc. (8)

20
21
10.36** Distribution Agreement between ChemTrak and Helena
Laboratories (Canada) Ltd. dated April 25, 1996 (the "Helena
Agreement").

10.37** Agreement between ChemTrak and Organon Teknike B.V., dated
December 1, 1996 (the "Teknika Agreement").

10.38** Development and Distribution Agreement between ChemTrak and
Selfcare, Inc., dated December 31, 1996 (the "Selfcare
Agreement").

23.1 Consent of Ernst & Young LLP, Independent Auditors.

25.1 Power of Attorney. Reference is made to page 24. (3)

27.1 Financial Data Schedule

- ---------------
* Confidential treatment granted for portions of this document.

** Confidential treatment has been requested for portions of this
document.

+ Compensatory Plan.

(1) Incorporated by reference to the indicated exhibit in the
Registrant's Registration Statement on Form S-1 (File No.
33-44673), as amended.

(2) Incorporated by reference to the indicated exhibit in the
Registrant's Registration Statement on Form S-8 (File No.
33-55326).

(3) Incorporated by reference to the indicated exhibit in the
Registrant's Registration Statement on Form S-8 (File No.
33-55324).

(4) Incorporated by reference to the indicated exhibit in the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1993.

(5) Incorporated by reference to the indicated exhibit in the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992.

(6) Incorporated by reference to the indicated exhibit in the
Registrant's Registration Statement on Form S-3 (File No.
33-90324).

(7) Lease assigned to MP Arques, Inc. as part of the purchase of
the property from PM-DE.

(8) Incorporated by reference to the indicated exhibit in the
Registrant's Registration Statement on Form 10-K for the
fiscal year ended December 31, 1995.

21
22
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized on the
31st day of March 1997.

CHEMTRAK INCORPORATED

By: /s/ Prithipal Singh, Ph.D.
-------------------------------
Prithipal Singh, Ph.D.
Chairman of the Board

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Prithipal Singh, Ph.D. his
attorney-in-fact, with the power of substitution, for him in any and all
capacities, to sign any amendments to this Report, and to file the same, with
exhibits thereto and other documents in connections therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.

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

Signature Title Date
- ---------------------------------- ---------------------- --------------

/s/ Prithipal Singh, Ph.D. Chairman of the Board March 31, 1997
- ----------------------------------
Prithipal Singh, Ph.D.

/s/ Edward F. Covell President, Chief Executive Officer March 31, 1997
- ---------------------------------- and Chief Accounting Officer
Edward F. Covell (Principal executive officer and
principal financial and accounting officer)

/s/ Malcolm Jozoff Director March 31, 1997
- ----------------------------------
Malcolm Jozoff

/s/ Robert P. Kiley Director March 31, 1997
- ----------------------------------
Robert P. Kiley

/s/ David Rubinfien Director March 31, 1997
- ----------------------------------
David Rubinfien

/s/ Gordon Russell Director March 31, 1997
- ----------------------------------
Gordon Russell

22
23
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
ChemTrak Incorporated

We have audited the accompanying balance sheets of ChemTrak Incorporated as of
December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits 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 ChemTrak Incorporated at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.

ERNST & YOUNG LLP

Palo Alto, California
January 17, 1997

F-1

24
CHEMTRAK INCORPORATED

BALANCE SHEETS
ASSETS

December 31,
----------------------------
1996 1995
------------ ------------

Current assets:
Cash and cash equivalents $ 4,125,000 $ 4,251,000
Short-term investments 567,000 2,003,000
Accounts receivable, net of allowance for
doubtful accounts of $44,000 in 1996 and
$49,000 in 1995 485,000 136,000
Inventories 540,000 434,000
Prepaid expenses and other current assets 320,000 245,000
------------ ------------
Total current assets 6,037,000 7,069,000
Property and equipment, net 2,738,000 3,248,000
Other assets 66,000 66,000
------------ ------------
Total assets $ 8,841,000 $ 10,383,000
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 289,000 $ 632,000
Accrued payroll and benefits 199,000 121,000
Other accrued liabilities 788,000 258,000
Accrued royalties 105,000 114,000
------------ ------------
Total current liabilities 1,381,000 1,125,000

Accrued rent 295,000 240,000

Convertible debentures 2,135,000 --

Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value:
5,000,000 authorized; none issued
and outstanding -- --
Common stock, $.001 par value; 40,000,000
shares authorized, 11,707,051 and 9,724,343
shares issued and outstanding in 1996 and
1995, respectively 12,000 10,000
Additional paid-in capital 41,375,000 37,528,000
Deferred compensation (49,000) (38,000)
Accumulated deficit (36,308,000) (28,482,000)
------------ ------------
Total stockholders' equity 5,030,000 9,018,000
------------ ------------
Total liabilities and stockholders' equity $ 8,841,000 $ 10,383,000
============ ============

See accompanying notes.

F-2
25
CHEMTRAK INCORPORATED

STATEMENTS OF OPERATIONS

Years Ended December 31,
----------------------------------------
1996 1995 1994
----------- ----------- -----------

Net revenues:
Product sales $ 2,463,000 $ 2,171,000 $ 7,780,000
Funded research and other revenues 598,000 4,725,000 2,540,000
----------- ----------- -----------
Total net revenues 3,061,000 6,896,000 10,320,000
----------- ----------- -----------

Cost and expenses:
Cost of product sales 3,201,000 3,191,000 5,441,000
Research and development 2,439,000 4,293,000 2,299,000
Marketing, general and administrative 4,431,000 2,941,000 3,888,000
----------- ----------- -----------
Total costs and expenses 10,071,000 10,425,000 11,628,000
----------- ----------- -----------

Operating loss (7,010,000) (3,529,000) (1,308,000)
Interest income, net 59,000 260,000 243,000
Interest expense (875,000) -- --
----------- ----------- -----------
Net loss $(7,826,000) $(3,269,000) $(1,065,000)
=========== =========== ===========
Net loss per share $ (0.77) $ (0.34) $ (0.12)
=========== =========== ===========
Shares used in calculating
per share amounts 10,228,000 9,649,331 9,225,267
=========== =========== ===========

See accompanying notes.

F-3

26
CHEMTRAK INCORPORATED

STATEMENTS OF STOCKHOLDERS' EQUITY

COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN DEFERRED ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY
---------- ------- ----------- ------------ ------------ -----------

Balance at January 1, 1994.................. 9,210,809 9,000 36,471,000 (100,000) (24,148,000) 12,232,000
Shares issued upon exercise of stock
purchase plan and stock options......... 31,259 128,000 128,000
Amortization of deferred compensation..... 50,000 50,000
Net loss.................................. (1,065,000) (1,065,000)
---------- ------- ----------- --------- ------------ -----------
Balance at December 31, 1994................ 9,242,068 9,000 36,599,000 (50,000) (25,213,000) 11,345,000

Shares issued in conjunction with the
acquisition of CCL...................... 449,986 1,000 900,000 901,000
Shares issued upon exercise of stock
purchase plan and stock options......... 32,289 63,000 63,000
Amortization of deferred compensation and
net issuances/cancellations of certain
stock options........................... (34,000) 12,000 (22,000)
Net loss.................................. (3,269,000) (3,269,000)
---------- ------- ----------- --------- ------------ -----------
Balance at December 31, 1995................ 9,724,343 10,000 37,528,000 (38,000) (28,482,000) 9,018,000

Shares issued upon conversion of
convertible debentures ................. 1,880,718 2,000 3,145,000 3,147,000
Additional paid in capital
related to discount conversion
feature on convertible debentures....... -- -- 539,000 -- -- 539,000
Shares issued upon exercise of stock
purchase plan and stock options......... 101,990 148,000 148,000
Amortization of deferred compensation
and net issuances/cancellations of
certain stock options................... 15,000 (11,000) 4,000
Net loss (7,826,000) (7,857,000)
---------- ------- ----------- --------- ------------ -----------
Balance at December 31, 1996................ 11,707,051 $12,000 $41,375,000 $(49,000) $(36,308,000) $5,030,000
========== ======= =========== ========= ============ ===========

See accompanying notes.

F-4

27
CHEMTRAK INCORPORATED

STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------

Operating activities:
Net loss .............................................. $(7,826,000) $(3,269,000) $(1,065,000)
Adjustments to reconcile net loss to net cash and
cash equivalents used in operating activities:
Interest expense and financing charges on
Debentures....................................... 1,121,000 -- --
Depreciation and amortization...................... 832,000 1,055,000 817,000
Loss on disposal of fixed assets................... -- 137,000 --
Accrued rent....................................... 55,000 54,000 78,000
Stock option compensation and other................ 4,000 (22,000) 50,000
Purchase of in-process research and development
for common stock................................. -- 901,000 --
Changes in operating assets and liabilities:
Accounts receivable................................ (349,000) 462,000 (316,000)
Inventories........................................ (106,000) 554,000 666,000
Prepaid expenses and other current assets.......... (75,000) (11,000) (37,000)
Other assets....................................... -- -- (9,000)
Accounts payable................................... (343,000) (186,000) 479,000
Accrued payroll and benefits....................... 78,000 (399,000) 210,000
Other accrued liabilities.......................... 521,000 (67,000) 224,000
Deferred revenue................................... -- -- (100,000)
----------- ----------- -----------
Net cash and cash equivalents provided
by (used in) operating activities................ (6,088,000) (791,000) 997,000
----------- ----------- -----------
Investing activities:
Purchase of available for sale securities.......... -- (506,000) (1,486,000)
Proceeds from available for sale securities........ 1,436,000 3,996,000 1,651,000
Acquisition of property and equipment, net......... (322,000) (791,000) (173,000)
----------- ----------- -----------
Net cash and cash equivalents provided
by (used in) investing activities................ 1,114,000 2,699,000 (8,000)
----------- ----------- -----------
Financing activities:
Proceeds from issuance of common stock, net........ 148,000 63,000 128,000
Proceeds from sale of convertible debentures, net.. 4,700,000 -- --
----------- ----------- -----------
4,848,000 63,000 128,000
----------- ----------- -----------

Net increase (decrease) in cash and cash equivalents... (126,000) 1,971,000 1,117,000
Cash and cash equivalents at beginning of period....... 4,251,000 2,280,000 1,163,000
----------- ----------- -----------
Cash and cash equivalents at end of period............. $ 4,125,000 $ 4,251,000 $ 2,280,000
=========== =========== ===========
Supplemental disclose of non-cash financing
activities:

Conversion of convertible debentures and accrued
interest to common stock........................... $ 3,686,000 $ -- $ --
=========== =========== ===========

See accompanying notes.

F-5

28
CHEMTRAK INCORPORATED

NOTES TO FINANCIAL STATEMENTS

December 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

ChemTrak operates in one industry segment and is engaged in the
development, manufacturing and marketing of easy-to-use diagnostic tests for the
worldwide point-of-care markets.

The Company has funded its operations to date through product sales and
public and private equity and debt financings. The Company will require
substantial additional funding during 1997 in order to meet its current budgeted
operating needs and to complete the development and marketing activities in
which it is currently engaging, and to launch these products in the consumer
marketplace. The Company intends to seek additional funding through
collaborative agreements with corporate partners or through additional equity or
debt financings. If the Company is not able to enter into such arrangements
management believes that certain discretionary spending cuts can be implemented
to ensure the continuity of operations through at least the end of 1997. There
can be no assurance that the Company will be able to enter into such
arrangements on acceptable terms, or at all or will be able to successfully
reduce discretionary spending by a sufficient amount on a timely basis.

REVENUES

Product revenues are generally recognized at the time of shipment to
customers or distributors. License revenues are recorded when earned. Funded
research and other revenues are recorded upon the completion of specific
milestones or when associated performance obligations are complete.

CASH AND CASH EQUIVALENTS

Cash equivalents are highly liquid investments consisting primarily of
investment grade commercial paper placed with high-quality financial
institutions with original maturities of less than 90 days at the date of
acquisition and insignificant interest rate risks.

SHORT-TERM INVESTMENTS

The Company invests cash in excess of current operating requirements
primarily in highly rated investments. Such investments have maturities of more
than 90 days and yield interest at prevailing interest rates at the time of
acquisition. The Company has classified its entire investment portfolio
including cash equivalents as available-for-sale. Although the Company may not
dispose of all of the securities in its investment portfolio within one year,
the Company's investment portfolio is available for current operations and,
therefore, has been classified as a current asset. Investments in the
available-for-sale category are carried at fair value. At December 31, 1996 and
1995, short-term investments consisted of U.S. government and
agency securities of $567,000 and $2,003,000, respectively.

The Company adopted Statement of Financial Accounting Standards
No. 115 (FAS 115), "Accounting for Certain Investments in Debt and Equity
Securities" for investments held as of or acquired after January 1, 1994. In
accordance with the Statement, prior period financial statements have not been
restated to reflect the change in accounting principle.

F-6
29
CHEMTRAK INCORPORATED

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SHORT-TERM INVESTMENTS (CONTINUED)

Gross unrealized gains and losses and net realized gains and losses
were not significant at December 31, 1996 or 1995. The cost basis of investments
is adjusted for amortization of premiums and discounts to maturity, which is
included in interest income. The cost of securities sold is based on the
specific identification method.

The maturities of the Company's short-term investments at December 31,
1996 and 1995 are shown as follows:

1996 1995
---------- ----------

Due in 1 year or less $ 567,000 $1,498,000
Due after 1 year through 3 years -- 505,000
---------- ----------
Total debt securities $ 567,000 $2,003,000
========== ==========

INVENTORIES

Inventories are stated at the lower of standard cost (which
approximates actual cost on a first-in, first-out basis) or market.

DEPRECIATION AND AMORTIZATION

Property and equipment are depreciated using the straight-line method
over the estimated useful lives of the assets (principally five years).
Effective January 1, 1994, the Company changed the amortization period for
leasehold improvements from five years or life of the lease, whichever is
shorter, to 10 years or life of the lease, whichever is shorter. The impact of
the change in estimated useful lives for leasehold improvements results in
decreased annual amortization of $324,000 for periods ending in mid-1998.

NET LOSS PER SHARE

Net loss per share is based on the weighted average number of shares of
common stock outstanding. Stock options and warrants are not included in the
computation since their inclusion would be antidilutive.

STOCK BASED COMPENSATION

The Company grants stock options for a fixed number of shares to
employees. In most cases the exercise price is equal to the fair value of the
shares at the date of the grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and generally recognizes no compensation expense for the stock option grants.

F-7
30
CHEMTRAK INCORPORATED

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

2. ACQUISITION OF IN-PROCESS RESEARCH AND DEVELOPMENT

On February 3, 1995, the Company completed the acquisition of Coonan
Clinical Laboratories, Inc. ("CCL") through a merger of CCL into a wholly owned
subsidiary of ChemTrak, which was later dissolved by ChemTrak, in which all of
the outstanding shares of capital stock of CCL were exchanged for 449,986 newly
issued shares of ChemTrak common stock plus $400,000 in cash. The Company
recorded a $1,500,000 charge in 1995 for in-process research and development
which is included in research and development in the Company's statement of
operations. CCL's technology was comprised of efforts associated with a future
filing with the FDA for a home HIV test. CCL was a development stage company
with insignificant net assets and operations which consisted of approximately
$100,000 of research and development expense incurred during 1994 and until the
time of the acquisition.

3. INVENTORIES

Inventories consist of the following:

December 31,
---------------------------
1996 1995
-------- --------

Raw materials $289,000 $145,000
Work-in-process 63,000 41,000
Finished goods 188,000 248,000
-------- --------
$540,000 $434,000
======== ========

F-8
31
CHEMTRAK INCORPORATED

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 1996

4. CUSTOMER INFORMATION

The Company has entered into distribution arrangements with certain
corporate partners. The Company granted certain corporate partners exclusive
distribution rights for select markets, including through December 15, 1995, the
U.S. consumer retail market for the Company's cholesterol products. The Company
has agreed to supply the corporate partners with their product requirements at
contracted selling prices. Under two such agreements the Company has received
funded research payments.

The Company had an arrangement with Direct Access Diagnostics, a
division of Johnson & Johnson, for distribution of the Total Cholesterol Test in
the domestic over-the-counter market in 1994 and most of 1995. This arrangement
was terminated in December of 1995 and the Company received a final payment of
$3.6 million from Direct Access Diagnostics which is included in funded research
and other revenues in the statements of operations. Net sales to Direct Access
Diagnostics represented 71% and 77% of total net sales for the years ended
December 31, 1995 and 1994, respectively. With this agreement terminated, the
Company has directly entered the U.S. retail market and relaunched its Total
Cholesterol Test under the trade name CholesTrak(TM).

Total export sales, primarily to European customers, were approximately
$360,000, $417,000 and $1,850,000 in 1996, 1995 and 1994 respectively.

The Company performs ongoing credit evaluations of its customers and
in some cases requires letters of credit for its export sales. Generally, no
collateral is required and credit losses have historically been within
managements' expectations. The Company recorded bad debt provisions of $4,000 in
1996, zero in 1995 and $63,000 in 1994.

F-9
32
CHEMTRAK INCORPORATED

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 1996

5. PROPERTY AND EQUIPMENT

Property and equipment balances are stated at cost and comprise the following:

December 31,
-------------------------------
1996 1995
----------- -----------

Machinery and equipment $ 3,830,000 $ 3,826,000
Furniture and fixtures 173,000 170,000
Leasehold improvements 2,798,000 2,799,000
Construction-in-progress 946,000 629,000
----------- -----------
7,747,000 7,424,000

Less accumulated depreciation and amortization (5,009,000) (4,176,000)
----------- -----------
$ 2,738,000 $ 3,248,000
=========== ===========

6. COMMITMENTS AND CONTINGENCIES

LICENSES

The Company has entered into license agreements that allow the Company
to use certain technologies in its products. The agreements require the Company
to pay royalties based upon sales of the subject products with aggregate
royalties ranging from 5.5% to 6.0% of sales of the subject products. The
agreements expire upon the expiration of the related patents and are cancelable
by the Company upon six to twelve months written notice.

LITIGATION

The Company is a party to various legal actions (including patent
claims) that have occurred in the normal course of business. In the opinion of
management, the outcomes of these actions will not have a material effect on the
financial position, cash flows or results of operations of the Company.

F-10
33
CHEMTRAK INCORPORATED

NOTES TO FINANCIAL STATEMENTS

December 31, 1996

6. COMMITMENTS AND CONTINGENCIES (CONTINUED)

LEASES

The Company leases facilities and equipment under noncancelable lease
agreements. The Company's facility lease expires in June 2002. Future minimum
lease payments at December 31, 1996, were as follows:

Operating Lease
-------------------

1997 $ 650,000
1998 683,000
1999 683,000
2000 789,000
2001 789,000
Thereafter 394,000
----------
Total minimum lease payments $3,988,000
==========

In August 1996, the Company subleased a portion of its facilities to a third
party through September 1997. Sublease rental income was $64,000 for the year
ended December 31, 1996. Aggregate future minimum rentals to be received under
the noncancelable sublease total approximately $128,000 at December 31, 1996.
Rent expense was approximately $667,000, in each 1996 and 1995 and $634,000 for
the year ended December 31, 1994.

F-11
34
CHEMTRAK INCORPORATED

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 1996

7. CONVERTIBLE DEBENTURES

In May 1996, the Company issued $5,000,000 of convertible debentures
resulting in net proceeds to the company of $4,700,000 after deducting selling
commissions. The debentures, which are due in May 1998, are convertible into
Common Stock at the lower of 110% of the average closing prices during the
ten-day trading period ending with the initial debenture funding date, or 82.5
percent of the similarly-defined average ten-day market price ending with the
conversion date. The Company has the option to convert the amount of periodic
interest due on the convertible debentures, computed at the rate of 7.5% per
annum, into common stock of the Company in lieu of cash payments. Through
December 31, 1996, all interest obligations on the debentures have been settled
by the issuance of common stock.

As of December 31, 1996, total principal of $3,082,000 had been
converted into approximately 1,800,000 shares of common stock and approximately
100,000 shares were issued to settle interest obligations. As part of its
compensation for the sale of the convertible debentures, the placement agent
received $300,000 and a warrant to purchase 83,500 shares of the Company's
common stock at $5.00 per share. The Company attributed a value of $67,000 to
the Warrant which has been recorded as additional interest paid in capital.

The Company has determined that its previously reported operating
results and balance sheet data for the three-month periods ended June 30, 1996
and September 30, 1996 require adjustment. Revisions to these quarters have
been made to reflect recent Securities and Exchange guidance relating to debt
that is convertible to equity at a discount to market. The accompanying
financial statements reflect deemed non-cash interest expense of $875,000
($656,250 and $218,750 in the quarters ended June 30, 1996 and September 30,
1996, respectively).

F-12
35
CHEMTRAK INCORPORATED

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 1996

8. STOCKHOLDERS' EQUITY

STOCK OPTIONS

The 1988 Stock Plan authorizes the Board of Directors to grant options
for the purchase of the Company's common stock to directors, officers, employees
and consultants. The Company has authorized 983,333 shares of common stock for
grant under the plan. Options are generally granted at an exercise price of no
less than the fair market value per share on the date of grant. The options
generally become exercisable over a three-year period and have a maximum term of
ten years from date of grant.

In 1992, the Board of Directors, with the approval of the Shareholders
of ChemTrak Incorporated, adopted the 1992 Non-Employee Directors' Stock Option
Plan authorizing 50,000 shares of common stock for grant on a formula basis to
members of the Board of Directors. Options are granted at an exercise price that
is no less than the fair market value per share on the date of grant. The
options are exercisable ratably over a four-year period.

The 1993 Equity Incentive Plan approved 450,000 shares of common stock
for options, generally to be granted at no less than the fair market value per
share on the date of grant. The options will generally become exercisable over a
three year period commencing one year from the grant date and may remain
outstanding for a ten year period. The Company may also grant stock bonuses and
stock appreciation rights under the plan.

The options outstanding, as well as the options granted, exercised and
canceled, are summarized for each of the above plans in the table below. In
addition, the weighted average prices for options outstanding each year and the
option prices for shares granted, exercised and cancelled are shown.

Shares
Available Number of Weighted Avg.
for Grant Shares Exercise Price
---------- --------- --------------

Balance December 31, 1993 514,873 763,231 $4.70
Granted (263,500) 263,500 $5.07
Exercised -- (9,992) $2.20
Canceled 25,250 (25,250) $4.36
-----------------------------------------------------
Options at December 31, 1994 276,623 978,989 $4.84

Granted (821,600) 821,600 $1.83
Exercised -- (2,888) $2.08
Canceled 750,088 (750,088) $4.52
-----------------------------------------------------
Options at December 31, 1995 205,111 1,047,613 $2.71

Granted (450,941) 450,941 $2.99
Exercised -- (69,287) $1.35
Canceled 297,226 (297,226) $2.95
-----------------------------------------------------
Options at December 31, 1996 51,396 1,132,041 $2.84
=====================================================

F-13
36
CHEMTRAK INCORPORATED

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 1996

8. STOCKHOLDERS' EQUITY (CONTINUED)

STOCK OPTIONS (CONTINUED)

The range of exercise prices for options outstanding at December 31,
1996 was $0.75 to $9.75. The range of exercise prices for options is wide due
primarily to fluctuations in the price of the Company's stock over the period of
grants.

The following table summarizes information about stock options
outstanding at December 31, 1996:

Weighted
Average Weighted
Number Remaining Average
Range of Outstanding at Contractual Life Exercise Number Weighted
Exercise Prices 12/31/96 (Yrs) Price Exercisable Average
- --------------- -------------- ---------------- -------- ----------- --------

$0.75 - $2.125 521,325 8.77 $1.47 301,485 $1.38
$2.25 - $4.75 564,716 7.82 $3.81 272,132 $3.83
$5.00 - $9.75 46,000 6.68 $6.69 25,713 $8.82
--------- ----- ------- -----
1,132,041 $2.84 599,330 $2.81

STOCK-BASED COMPENSATION

As permitted under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FASB 123), the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) in accounting for stock-based awards to employees. Under APB 25, the
Company generally recognizes no compensation expense with respect to such
awards.

Pro forma information regarding net income and earnings per share is
required by FASB 123 for awards granted after December 31, 1994 as if the
Company had accounted for its stock-based awards to employees under the fair
value method of FASB 123. The fair value of the Company's stock-based awards to
employees was estimated using a Black-Scholes option pricing model. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, the Black-Scholes model requires the input of highly
subjective assumptions including the expected price volatility. Because the
Company's stock-based awards to employees have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based awards to employees. The fair
value of the Company's stock-based awards to employees was estimated assuming
no expected dividends and the following weighted-average assumptions:
37
CHEMTRAK INCORPORATED

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 1996

8. STOCKHOLDERS' EQUITY (CONTINUED)

STOCK OPTIONS (CONTINUED)

Options ESPP
---------------- --------------
1996 1995 1996 1995

Expected life (years) 5.0 5.0 0.5 0.5
Risk-free interest rate 6.5% 6.6% 5.6% 6.0%
Expected volatility 0.85 0.85 0.85 0.85

For pro forma purposes, the estimated fair value of the Company's
stock-based awards to employees is amortized over the options' vesting period
(for options) and the six-month purchase period (for stock purchases under the
ESPP). The Company's pro forma information follows:

Net loss As reported $7,826,000 $3,269,000
Pro forma 8,053,000 3,471,000
Primary loss per share As reported $(0.77) $(0.34)
Pro forma (0.79) (0.36)

Because FASB 123 is applicable only to awards granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until
approximately 1999.

The weighted-average fair value of options whose exercise price equals
the market price on the date of grant was $2.04 and $1.10 per share during 1996
and 1995, respectively. The weighted-average fair value of options whose
exercise price is less than the market price on the grant date was $3.40 and
$1.90 per share during 1996 and 1995, respectively.

EMPLOYEE STOCK PURCHASE PLAN

In December 1991, the Company adopted the 1991 Employee Stock Purchase
Plan (the "Purchase Plan") and 200,000 shares of common stock were reserved for
issuance under the Purchase Plan. The Purchase Plan is intended to qualify under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").

F-15
38
CHEMTRAK INCORPORATED

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 1996

8. STOCKHOLDERS' EQUITY (CONTINUED)

STOCK OPTIONS (CONTINUED)

The Purchase Plan is administered by the Board of Directors or a
committee appointed by the Board of Directors. The Purchase Plan permits
eligible employees to purchase common stock through payroll deductions not to
exceed 15% of an employee's compensation and at a price equal to 85% of the
lower of the fair market value of the common stock as of the first day or as of
the last day of each six-month offering period. Under the Purchase Plan, 32,703,
29,401, and 21,399 shares were issued in 1996, 1995 and 1994, respectively.

DEFERRED COMPENSATION

For certain options granted, the Company recognizes as compensation for
accounting purposes, the excess of the deemed value of the common stock issuable
upon exercise of such options over the aggregate exercise price of these
options. The deferred compensation is being amortized ratably over the vesting
period of such options. The amount charged to operations was $19,000, $61,000
and $50,000 in 1996, 1995 and 1994, respectively.

9. INCOME TAXES

The Company has no tax provision for the years ended December 31, 1996,
1995 and 1994. A reconciliation of the income tax provision at the U.S. federal
statutory rate (34%) to the income tax provision at the effective tax rate is as
follows:

Years Ended December 31,
-------------------------------------------
1996 1995 1994
----------- ----------- ---------

Income taxes computed at the
federal statutory rate $(2,661,000) $(1,111,000) $(880,000)
Operating losses not utilized 2,661,000 1,111,000 880,000
----------- ----------- ---------
$ -- $ -- $ --
=========== =========== =========

As of December 31, 1996, the Company has federal and state net
operating loss carryforwards of approximately $31,000,000 and $9,000,000,
respectively. The federal net operating loss carryforwards will expire in the
years 2002 through 2011, and the state net operating loss carryforwards will
expire in the years 1997 through 2000. The Company has federal and state
research and experimentation credits of approximately $700,000 and $300,000,
respectively, that will expire in the years 2004 through 2011.

Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.

F-16
39
CHEMTRAK INCORPORATED

NOTES TO FINANCIAL STATEMENTS (continued)

December 31, 1996

9. INCOME TAXES (CONTINUED)

Deferred taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred taxes consisted of the following at:

December 31,
------------------------------------------------
1996 1995 1994
------------ ------------ ------------

Deferred tax assets:
Net operating losses $ 11,093,000 $ 9,270,000 $ 7,910,000
Research credit carryforwards 991,000 1,022,000 837,000
Other individually immaterial items 2,193,000 1,559,000 2,077,000
------------ ------------ ------------
Total deferred tax assets 14,277,000 11,851,000 10,824,000
Valuation allowance (14,277,000) (11,851,000) (10,824,000)
------------ ------------ ------------
Total net deferred tax assets $ -- $ -- $ --
============ ============ ============

F-17
40
EXHIBIT INDEX

EXHIBIT
NUMBER

2.1 Agreement and Plan of Reorganization among the Registrant, ChemTrak
Acquisition Subsidiary, Inc., Coonan Clinical Laboratories, Inc. and
Stephen J. Coonan, dated December 21, 1994, as amended January 20,
1995. (6)

3.1 Amended and Restated Certificate of Incorporation of the Registrant.
(1)

3.2 Bylaws of the Registrant. (1)

4.1 Reference is made to Exhibits 3.1 and 3.2.

10.1 Form of Indemnification Agreement entered into between the Registrant
and its directors and officers, with related schedule. (1)

10.2+ 1988 Stock Option Plan, as amended. (2)

10.3+ Form of Incentive Stock Option under the Option Plan, as amended. (1)

10.4+ Form of Non-Qualified Stock Option under the Option Plan, as amended.
(1)

10.5 Form of Notice of Exercise under the Option Plan, as amended. (1)

10.10* Distribution Agreement between the Registrant and A. Menarini SRL,
dated as of July 1991. (1)

10.11* Letter from the Registrant to The Boots Company PLC, dated December
5, 1991, and letter from The Boots Company PLC to the Company, dated
October 24, 1991. (1)

10.15 Lease Agreement between the Registrant and PM-DE, dated as of January
23, 1992. (1) (7)

10.16+ 1991 Employee Stock Purchase Plan. (1)

10.17+ 1992 Non-Employee Directors' Stock Option Plan ("Directors' Plan").
(3)

10.18+ Form of Non-Statutory Option under the Directors' Plan. (3)

10.24* Agreement between the Registrant and Miles Inc., dated April 22,
1993. (4)
41
10.31 1993 Equity Incentive Plan. (5)

10.35* Distribution and Supply Agreement, dated as of March 1, 1995 between
the Registrant and Astra Merck Inc. (8)

10.36** Distribution Agreement between ChemTrak and Helena laboratories
(Canada) Ltd. dated April 25, 1996 (the "Helena Agreement").

10.37** Agreement between ChemTrak and Organon Teknika B.V., dated
December 1, 1996 (the "Teknika Agreement").

10.38** Development and Distribution Agreement between ChemTrak and
Selfcare, Inc., dated December 31, 1996 (the "Selfcare Agreement").

23.1 Consent of Ernst & Young LLP, Independent Auditors.

25.1 Power of Attorney. Reference is made to page 24. (3)

27.1 Financial Data Schedule

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

* Confidential treatment granted for portions of this document.

** Confidential treatment has been requested for portions of this
document.

+ Compensatory Plan.

(1) Incorporated by reference to the indicated exhibit in the
Registrant's Registration Statement on Form S-1 (File
No. 33--44673), as amended.

(2) Incorporated by reference to the indicated exhibit in the
Registrant's Registration Statement on Form S-8 (File No. 33-55326).

(3) Incorporated by reference to the indicated exhibit in the
Registrant's Registration Statement on Form S-8 (File No. 33-55324).

(4) Incorporated by reference to the indicated exhibit in the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993.

(5) Incorporated by reference to the indicated exhibit in the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.

(6) Incorporated by reference to the indicated exhibit in the
Registrant's Registration Statement on Form S-3 (File No. 33-90324).

(7) Lease assigned to MP Arques, Inc. as part of the purchase of the
property from PM-DE.

(8) Incorporated by reference to the indicated exhibit in the
Registrant's Registration Statement on Form 10-K for the fiscal
year ended December 31, 1995.