July 21, 1997 - SB-2: Optional form for registration of securities to be sold to the public by small business issuers | Inhibitor Therapeutics, Inc. (INTI)

As filed with the Securities and Exchange Commission on July 21, 1997

REGISTRATION NO. 333-_______

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------------------
COMMONWEALTH BIOTECHNOLOGIES, INC.
(Name of small business issuer in its charter)

---------------
COMMONWEALTH BIOTECHNOLOGIES, INC.
911 EAST LEIGH STREET, SUITE G-19
RICHMOND, VIRGINIA 23219
ATTENTION: RICHARD D. FREER, PH.D., CHAIRMAN
(804) 648-3820
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

COPIES OF COMMUNICATIONS TO:

J. BENJAMIN ENGLISH, ESQ. JAMES J. WHEATON, ESQ.
LECLAIR RYAN, A PROFESSIONAL CORPORATION WILLCOX & SAVAGE, P.C.
707 EAST MAIN STREET, SUITE 1100 1800 NATIONSBANK CENTER
RICHMOND, VIRGINIA 23233 NORFOLK, VIRGINIA 23510
(804) 783-2003 (757) 628-5619

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE ON OR AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.

IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO
BE OFFERED ON A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE
SECURITIES ACT OF 1933, CHECK THE FOLLOWING BOX: [X]

IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN
OFFERING PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE
FOLLOWING BOX AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE
EARLIER EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
______________________

IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE
462(C) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES
ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION
STATEMENT FOR THE SAME OFFERING. [ ] ______________________

IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO
RULE 434, PLEASE CHECK THE FOLLOWING BOX. [ ]

(1) The proposed maximum price is estimated solely for the purpose of
computing the amount of the registration fee.

(2) In connection with the Registrant's sale of the shares of Common Stock
registered hereby, the Registrant shall sell to Anderson & Strudwick,
Incorporated (the "Underwriter") warrants to purchase 83,400 shares of
Common Stock (the "Underwriter's Warrants"). The price to be paid by
the Underwriter for the Underwriter Warrants is $.001 per warrant. The
exercise price of the Underwriter's Warrants is $9.90 per share.

(3) Represents the shares of Common Stock (including those representing
interest payments) (the "Conversion Shares") issuable by the Registrant
upon conversion of those certain subordinated convertible notes (the
"Notes"). The Notes were issued by the Registrant in a private
placement on June 25, 1997, and the Conversion Shares will be issued in
a private placement simultaneously with the completion of the Offering
(the "Private Placement"). The resale of the Conversion Shares is
registered hereunder.

(4) In connection with the Private Placement, the Registrant sold to the
Underwriter warrants to purchase an aggregate of 50,000 shares of
Common Stock (the "Private Placement Warrants"). The price paid by the
Underwriter for the Private Placement Warrants was $.001 per warrant.
The exercise price of the Private Placement Warrants is $9.90 per
share.

(5) In connection with the Private Placement, the Registrant sold to the
Registrant's executive officers warrants to purchase an aggregate of
100,000 shares of Common Stock (the "Management Warrants"). The
price paid by the executive officers for the Management Warrants was
$.001 per warrant. The exercise price of the Management Warrants is
$9.90 per share.

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

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SUBJECT TO COMPLETION, DATED JULY 21, 1997

PROSPECTUS

[LOGO--COMMONWEALTH BIOTECHNOLOGIES, INC.]

834,000 Shares of Common Stock

Commonwealth Biotechnologies, Inc. ("CBI" or the "Company")
hereby offers (the "Offering") 834,000 shares of the Company's common stock, no
par value per share (the "Common Stock"). Prior to the Offering, no public
market for the Common Stock existed and no assurance can be given that any such
market will develop after the completion of the Offering or, that if developed,
such market will be sustained. It is currently anticipated that the initial
public offering price will be $6.00 per share of Common Stock. For the method of
determining the initial public offering price of the Common Stock, see "RISK
FACTORS" and "UNDERWRITING." In addition, resales of (a) an aggregate of 541,370
shares of Common Stock (the "Conversion Shares"), issuable in a private
placement upon the automatic conversion of certain subordinated convertible
notes (the "Notes") issued by the Company in a private placement on June 25,
1997 (the "Private Placement"), (b) warrants to purchase an aggregate of 83,400
shares of Common Stock (the "Underwriter's Warrants"), each of which has a term
of five years and an exercise price equal to 165% of the initial public offering
price of a share of Common Stock offered hereby, issued to Anderson & Strudwick,
Incorporated (the "Underwriter") as additional underwriting compensation, (c)
warrants to purchase an aggregate of 50,000 shares of Common Stock (the "Private
Placement Warrants"), each of which has a term of five years and an exercise
price equal to 165% of the initial public offering price of a share of Common
Stock offered hereby, issued to the Underwriter as additional compensation for
placement services rendered to the Company during the Private Placement, (d)
warrants to purchase an aggregate of 100,000 shares of Common Stock (the
"Management Warrants"), each of which has a term of ten years and an exercise
price equal to 165% of the initial public offering price of a share of Common
Stock offered hereby, issued to certain executive officers of the Company and
(e) an aggregate of 233,400 shares of Common Stock issuable upon the exercise of
the Underwriter's Warrants, the Private Placement Warrants and the Management
Warrants (collectively, the "Resale Securities") are being registered hereby.
The Resale Securities are not being sold concurrently with the Common Stock
offered by the Company to the public and are not underwritten. Such securities
may, however, be sold at a later time. See "RISK FACTORS--Shares Eligible for
Future Sale." The Company intends to apply for inclusion of the shares of Common
Stock on the Nasdaq SmallCap Market under the symbol "CBTE."

The Company provides sophisticated research and development
support services on a contract basis to the biotechnology industry. See
"BUSINESS--Overview."

THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY
A HIGH DEGREE OF RISK. INVESTORS SHOULD BE ABLE TO
SUSTAIN A COMPLETE LOSS OF THEIR INVESTMENT. SEE
"RISK FACTORS" ON PAGES ___ THROUGH ___

THESE SECURITIES HAVE NOT BEEN APPROVED OF DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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Price to Public Underwriting Discount(1) Proceeds to Company(2)
- ------------------------------------------------------------------------------
Per Share.... $ 6.00 $ 0.48 $ 5.52
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Total........ $5,004,000 $ 400,320.00 $4,603,680.00
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(1) Does not reflect the issuance of the Underwriter's Warrants
as additional underwriting compensation. In addition, the Company has agreed to
indemnify the Underwriters against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities Act").
See "UNDERWRITING."

(2) Before deducting additional expenses of the Offering payable
by the Company, estimated at $200,000.

(Alternate Cover)

COMMONWEALTH BIOTECHNOLOGIES, INC.

SHARES OF COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS

This Prospectus relates to the resale by the holders thereof (the
"Selling Securityholders") of (a) an aggregate of 541,370 shares of common
stock, no par value per share ("Common Stock") of Commonwealth Biotechnologies,
Inc. (the "Company"), issuable upon the automatic conversion of certain
subordinated convertible notes (the "Notes") issued by the Company in a private
placement on June 25, 1997 (the "Private Placement"), (b) warrants to purchase
an aggregate of 83,400 shares of Common Stock (the "Underwriter's Warrants"),
each of which has a term of five years and an exercise price equal to 165% of
the initial public offering price of a share of Common Stock offered hereby,
issued to Anderson & Strudwick, Incorporated (the "Underwriter") as additional
underwriting compensation, (c) warrants to purchase an aggregate of 50,000
shares of Common Stock (the "Private Placement Warrants"), each of which has a
term of five years and an exercise price equal to 165% of the initial public
offering price of a share of Common Stock offered hereby, issued to the
Underwriter as additional compensation for placement services rendered to the
Company during the Private Placement, (d) warrants to purchase an aggregate of
100,000 shares of Common Stock (the "Management Warrants"), each of which has a
term of ten years and an exercise price equal to 165% of the initial public
offering price of a share of Common Stock offered hereby, issued to certain
executive officers of the Company, and (e) an aggregate of 233,400 shares of
Common Stock issuable upon conversion of the Underwriter's Warrants, the Private
Placement Warrants and the Management Warrants. The offering of such securities
by the Selling Securityholders may occur contemporaneously with the separate
offering of 834,000 shares of Common Stock by the Company in an underwritten
public offering (the "Offering"). In the event the Underwriter's Warrants, the
Private Placement Warrants and the Management's Warrants are exercised, the
shares being registered on behalf of the Selling Securityholders will constitute
53.6% of the outstanding shares of Common Stock upon completion of the Offering.
The resale of the securities of the Selling Securityholders is subject to
Prospectus delivery and other requirements of the Securities Act of 1933, as
amended (the "Securities Act"). Sales of such securities or the potential of
such sales at any time may have an adverse effect on the market prices of the
securities offered hereby. See "SELLING SECURITYHOLDERS" and "RISK
FACTORS--Shares Eligible for Future Sale."

The Company has applied for inclusion of the Common Stock, the
Underwriter's Warrants and the Private Placement Warrants on The Nasdaq SmallCap
Market although there can be no assurance that an active trading market will
develop. See "RISK FACTORS--No Prior Market for Common Stock," and "--Volatility
of Stock Price."

The Common Stock offered by this Prospectus may be sold from time to
time by the Selling Securityholders, or by their transferees. No underwriting
arrangements have been entered into by the Selling Securityholders. The
distribution of the securities by the Selling Securityholders may be effected in
one or more transactions that may take place in the market, including ordinary
brokerage transactions, privately-negotiated transactions or sales to one or
more dealers for resale of such shares as principals at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage
prices or commissions may be paid by the Selling Securityholders in connection
with sales of such securities.

The Selling Securityholders and intermediaries through whom such
securities may be sold may be deemed "underwriters" within the meaning of the
Securities Act, with respect to the securities offered and any profits realized
or commissions received may be deemed underwriting compensation. The Company has
agreed to indemnify certain of the Selling Securityholders against liabilities,
including liabilities under the Securities Act.

The Company will not receive any of the proceeds from the sale of the
securities by the Selling Securityholders. All costs incurred in the
registration of the securities of the Selling Securityholders are being borne by
the Company. See "SELLING SECURITYHOLDERS."

The Company provides sophisticated research and development analytical
services on a contract basis to the biotechnology industry. See "BUSINESS."

THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY
INVOLVE A HIGH DEGREE OF RISK. INVESTORS SHOULD BE ABLE TO
SUSTAIN A COMPLETE LOSS OF THEIR INVESTMENT. SEE
"RISK FACTORS" ON PAGES ___ THROUGH ___

THESE SECURITIES HAVE NOT BEEN APPROVED OF DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

The Date of this Prospectus is , 1997.

The Common Stock is being offered by the Company through the
Underwriter on a "best efforts, all-or-none" basis, when, as and if issued and
subject to approval of certain legal matters by the Underwriter and certain
other conditions. Unless sooner withdrawn or canceled by either the Company or
the Underwriter, the Offering will continue until the earlier of the date on
which all of the Common Stock offered hereby is sold or November 21, 1997 (the
"Offering Termination Date"). Pending the sale of all of the shares of Common
Stock offered hereby, all proceeds will be deposited into an escrow account with
__________ (the "Escrow Agent"). If the Offering is withdrawn or canceled or if
all of the shares offered hereby are not sold by the Offering Termination Date,
the Offering will terminate and all proceeds will be returned by the Escrow
Agent to the persons from which they are received, without any deduction
therefrom or interest thereon, within five business days after such termination
or withdrawal.

ANDERSON & STRUDWICK
INCORPORATED

The date of this Prospectus is _________________, 1997.

PRIOR TO THE OFFERING, THE COMPANY WAS NOT A REPORTING COMPANY
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").
SUBSEQUENT TO THE OFFERING, THE COMPANY INTENDS TO FURNISH TO ITS SHAREHOLDERS
ANNUAL REPORTS CONTAINING FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT
ACCOUNTANTS, AND SUCH OTHER PERIODIC REPORTS AS IT MAY DETERMINE TO FURNISH OR
AS MAY BE REQUIRED BY LAW.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the
more detailed information, including "RISK FACTORS" and the Company's financial
statements and related notes thereto appearing elsewhere in this Prospectus. The
shares of Common Stock offered hereby involve a high degree of risk. Investors
in the Offering should be able to sustain a complete loss of their investment.
See "RISK FACTORS." This Prospectus contains certain forward-looking statements
that involve risks and uncertainties. See "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS." The Company's actual results and the timing of
certain events could differ materially from those discussed in or projected by
the forward-looking statements. Factors that could cause or contribute to such
differences include those discussed under "RISK FACTORS." Certain terms used
herein are defined in the Glossary section of this Prospectus.

The Company

The Company was founded in 1992 by four experienced research scientists
to provide sophisticated research and development analytical services on a
contract basis to the biotechnology industry. The Company's customers consist of
private companies, academic institutions and government agencies, all of which
use biological and biochemical strategies to develop products for health care,
agricultural and other purposes.

Much of the revenue in biotechnology is derived from innovative
products based on research into the fundamental biological processes that
support life. These fundamental processes depend on the interrelationships of
basic components of cells in living organisms, including enzymes, proteins,
peptides, DNA and RNA, an understanding of which enables scientists to develop
new compounds having commercial applications. The Company's services assist
customers in understanding these relationships and developing commercial
products based on that understanding.

The Company provides services to customers on a contract basis and
derives its revenues from these services, and not from sales of commercial
products resulting from the research. This arrangement distinguishes the Company
from many other biotechnology companies in that the Company's revenues are not
directly dependent on successfully commercializing a new biotechnology product.

The Company has established a reputation for providing a wider range of
services than many of its competitors and in 1996 had revenues of $989,925 and
net income of $179,146. The Company has identified a growth strategy which
involves expansion of facilities and marketing and development of related lines
of business having significant potential for growth. The Company intends to
focus its efforts on the maintenance and expansion of long term relationships
with customers in the biotechnology industry as well as the establishment of new
customer relationships. See "BUSINESS--Growth Strategy."

In addition to its analytical services, the Company is also developing
several of its own proprietary new technologies in the areas of anti-coagulation
and genomic sequence analysis. The Company has a patent application pending for
a heparin antagonist compound which may lead to a new drug having fewer adverse
effects than existing drugs. The development of these technologies has been
funded by grants from government agencies, and the Company anticipates that this
portion of its operations will continue to be funded in this manner. These
technologies are in the early stage of development and should be considered
highly speculative at this time. See "BUSINESS--Proprietary Research and
Research Grants," "--Intellectual Property," "--Government Regulation" and "RISK
FACTORS--Risks Associated with Development of Proprietary Technologies."

The Company's Offices

The Company was incorporated in Virginia in September 1992. The
Company's principal executive offices are located at 911 East Leigh Street,
Suite G-19, Richmond, Virginia 23219 and its telephone number is (804) 648-3820.

The Offering

Securities Offered by the Company 834,000 shares of Common Stock. See
"DESCRIPTION OF SECURITIES."

Shares of Common Stock Outstanding
before Offering 612,643

Common Stock to be Outstanding
after the Offering 1,446,643 shares of Common Stock

Use of Proceeds The net proceeds of this Offering
will be used for working capital,
capital expenditures and general
and administrative purposes. See
"USE OF PROCEEDS."

Risk Factors Investment in the Common Stock
involves a high degree of risk.
See "RISK FACTORS."

Proposed Nasdaq SmallCap Symbol (1) CBTE

- -----------------------------------
(1) No assurance can be given that an active trading market for the Common
Stock will develop or be maintained. See "RISK FACTORS--No Prior Market for
Common Stock."

Except as otherwise indicated, all share and per share data in
this Prospectus (a) assume the conversion of the Notes into the Conversion
Shares upon completion of the Offering (including an assumed payment of interest
in the amount of 41,370 shares--interest accrues from June 25, 1997 through the
date of conversion at a rate of 20% per annum and is payable in shares of Common
Stock at a rate of $6.00 per share through the Offering Termination Date); (b)
give no effect to the aggregate of 233,400 shares of Common Stock issuable upon
the exercise of the Underwriter's Warrants, the Private Placement Warrants and
the Management Warrants; and (c) assume no issuance of an aggregate of 376,667
shares of Common Stock which may be issued pursuant to incentive awards that may
be granted under the Company's 1997 Stock Incentive Plan (the "Incentive Plan"),
of which the Company intends to grant options to purchase an aggregate of
236,667 shares of Common Stock to the Company's founders upon the completion of
the Offering. See "CAPITALIZATION", "MANAGEMENT--Incentive Plan," "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS," "DESCRIPTION OF CAPITAL
STOCK--Warrants" and "UNDERWRITING."

SUMMARY FINANCIAL INFORMATION

The following table sets forth certain historical financial information
of the Company.

Balance Sheet Data as of:

(1) The above financial data gives retroactive effect to conversion from S
Corporation to C Corporation.

(2) The above financial data gives retroactive effect to the 93.78-for-one stock
split effective June 24, 1997.

(3) As adjusted to reflect (i) the sale of 834,000 shares of common stock
offered hereby (at the Price to Public of $6.00 per share) and the
application of the estimated net proceeds therefrom and (ii) the conversion
of convertible subordinated notes to common stock at a conversion price of
$6.00 per share. See "Description of Capital Stock."

RISK FACTORS

The shares of Common Stock offered pursuant to this Prospectus are
speculative and involve a high degree of risk, and an investment in the Common
Stock should be considered only by investors who are capable of affording an
entire loss of the amount invested. Prospective investors should carefully
consider, along with the other information contained in this Prospectus, the
following considerations and risks in evaluating an investment in the Company.

Variability of Operating Results

The Company's revenues are derived through provision of analytical
services to the pharmaceutical, biotechnology and related industries. The
Company has experienced and may continue to experience significant quarterly
fluctuations in revenues due to variations in contract status with several large
customers. In addition, the majority of other customer projects are individual
orders for specific projects. Engagement for successive work is highly dependent
upon the customer's satisfaction with the services provided to date, and upon
factors beyond the Company's control such as the timing of product development
and commercialization programs of the Company's customers. The Company is unable
to predict for more than a few months in advance the number and size of future
projects in any given period. Thus, timing of significant projects could have a
significant impact on financial results in any given period. The combined impact
of several large contracts and the unpredictable project fluctuations from other
customers can result in very large fluctuations in financial performance from
quarter to quarter or year to year. In addition, the biotechnology industry is
currently progressing through a consolidation phase of development. As a result,
many large competitors may internalize their biotechnology research services. If
this occurs, the Company's future customers will likely be smaller companies
without captive research capabilities. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULT OF OPERATIONS."

Dependence on Government Grants

A significant portion of the Company's revenue (approximately 31% in
the year ended December 31, 1996 and 21% for the quarter ended March 31, 1997),
and substantially all of its financing for proprietary research projects, is
funded by grants from federal government agencies. The Company must compete for
these grants with a large number of other companies and academic institutions,
many of which have substantially greater resources than the Company. There can
be no assurance that the Company will be able to compete successfully for these
grants, or that the agencies making the grants will continue to make grants at
levels sufficient to provide funding for the Company's proprietary research. In
the absence of these grants, the Company would be forced to seek alternative
sources of funding for its proprietary research and development projects, and
there can be no assurance that such funding would be available. See
"BUSINESS--Proprietary Research and Research Grants."

Dependence on and Need to Hire Personnel

The Company is highly dependent on its senior management and scientific
staff, and the loss of their services would adversely affect the Company. In
addition, the Company must hire and retain a number of additional highly
qualified and experienced management and scientific personnel, consultants and
advisors. The Company's ability to attract and retain qualified personnel is
critical to the Company's continued success. Competition for qualified
individuals is intense, and the Company faces competition from numerous
pharmaceutical and biotechnology companies, universities and other research
institutions. There can be no assurance that the Company will be able to attract
and retain such individuals on acceptable terms or at all, and the failure to do
so would have a material adverse effect on the Company. Additionally, the hiring
of personnel after the Offering will increase the Company's expenses. See
"BUSINESS--Employees."

Lack of Sales and Marketing Capabilities

The Company currently has no full-time marketing or sales personnel.
The Company will have to develop a sales force or rely on marketing partners or
other arrangements with third parties for the marketing and sale of its
services. There can be no assurance that the Company will be able to establish
sales and marketing capabilities or make arrangements with third parties to
perform those activities on terms satisfactory to the Company, or that any
internal capabilities or third party arrangements will be cost-effective. See
"BUSINESS--Employees."

In addition, any third parties with which the Company establishes sales
and marketing arrangements may have significant control over important aspects
of these operations, including market identification, marketing methods,
pricing, composition of sales force and promotional activities. There can be no
assurance that the Company will be able to control the amount and timing of
resources that any third party may devote to the Company's services or prevent
any third party from pursuing alternative services which compete with those of
the Company. See "BUSINESS--Marketing."

Competition

The Company encounters, and expects to continue to encounter, intense
competition in the development and sale of its current and future services. Many
of the Company's competitors and potential competitors have substantially larger
laboratory facilities, marketing capabilities and staff than those of the
Company. In order to remain competitive, the Company will need to make available
to its customers new analytical technologies as they become available in the
Company's rapidly changing, technology driven business. Substantial future
capital expenditures may be required to acquire these technologies. See
"BUSINESS--Competition."

Reliance on Significant Customer Retention

The Company's future success will depend, in part, upon its ability to
maintain relationships with its key customers. In 1996, approximately 20% of the
Company's revenues were attributable to one private industry customer. The loss
of this customer would adversely affect the Company.

Hazardous Materials

The Company's operations involve the controlled use of hazardous
materials, chemicals, recombinant biological molecules, biohazards (infectious
agents) and various radioactive compounds. Although the Company believes that
its safety procedures for handling and disposing of such materials comply with
the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the resources of
the Company. See "BUSINESS--Government Regulation."

Risks Associated with Development of Proprietary Technologies

The Company is conducting initial research into several new potential
technologies which may result in new pharmaceutical products, the intellectual
property rights to which the Company would control. These technologies are in
very early stages of development and are highly speculative due to the
substantial risks and considerable uncertainties associated with their
development, which include but are not limited to the following:

Commercial Viability. The development of the Company's technologies may
fail to yield products which are effective or offer advantages over other
products, resulting in the products having little commercial value. Other
companies having substantially greater research, development and marketing
resources than the Company may develop competing products which would preclude
the Company's products from gaining acceptance in the marketplace.

Uncertainty of Intellectual Property Rights. The Company must secure
and defend patent and other intellectual property rights to the technologies,
and avoid infringing the intellectual property rights of third parties. The
patent positions of biotechnology companies are uncertain and involve complex
legal and factual questions. There can be no assurance that the Company will
develop intellectual property rights that are protectable or that the protection
afforded by patents or otherwise will be sufficient to protect the commercial
value of the Company's technologies. In addition, there can be no assurance that
any patent rights issued to the Company will not be challenged, invalidated,
infringed or circumvented.

Extensive Government Regulation. Commercialization of any products
resulting from the Company's research generally will require government
approvals and be subject to extensive government regulation. In the case of
human pharmaceutical products, the approval of the United States Food and Drug
Administration requires extensive pre-clinical and clinical trials involving
considerable costs and uncertainties. Failure to receive government approvals
would preclude commercialization of products based on the Company's research and
development programs.

Dependence on Third Parties. Because the Company does not have and does
not anticipate having the resources necessary to develop products beyond the
initial research stage, the Company anticipates licensing any valuable
technologies resulting from its research to third parties for development into
commercial products. As a result, the Company will surrender control over the
development and marketing processes and will be dependent on the efforts and
resources of third parties.

There can be no assurance that the Company's proprietary research
programs will result in any commercial products, and prospective investors
considering an investment in the Common Stock are discouraged from attributing
significant value to the Company's proprietary research programs. See "BUSINESS
- -- Intellectual Property" and "-- Government Regulation."

No Dividends

The Company does not intend to pay any cash dividends in the
foreseeable future and intends to retain its earnings, if any, for the operation
of its business. See "DIVIDEND POLICY."

Anti-Takeover Provisions

The Company's Amended and Restated Articles of Incorporation
("Articles") and Amended and Restated Bylaws ("Bylaws") provide for a classified
Board of Directors, the removal of Directors only with cause, advance notice
requirements for director nominations and actions to be taken at annual meetings
of the Company's shareholders and a requirement that affiliated transactions be
approved by at least two-thirds of the outstanding shares of each voting group.
The Company is subject to certain provisions of the Virginia Stock Corporation
Act (the "Virginia Act") which, in general, (i) prevent an Interested
Shareholder (defined generally as a person owning more than 10% of any class of
the Company's voting securities) from engaging in an "Affiliated Transaction"
(as defined herein) with the Company unless certain conditions are met and (ii)
deny voting rights to shares acquired by a person in a Control Share Acquisition
(defined generally as an acquisition resulting in voting power which exceeds
one-fifth, one-third or a majority) unless such rights are granted by the
Company's shareholders, and permit the Company, under certain circumstances, to
redeem the shares so acquired.

Such provisions could impede any merger, consolidation, takeover or
other business combination involving the Company or discourage a potential
acquirer from making a tender offer or otherwise attempting to obtain control of
the Company. In addition, certain provisions of the Company employee benefit
plans, employment agreements and severance agreements may also render any such

business combination more costly and therefore less probable. See "DESCRIPTION
OF CAPITAL STOCK--Certain Provisions of the Company's Articles of Incorporation
and Bylaws," "--Certain Corporate Governance Provisions of the Virginia Act,"
"--Effect of Certain Provisions Upon an Attempt to Acquire Control of the
Company," "MANAGEMENT--Incentive Plan," and "--Change in Control Protections."

Limitation on Officers' and Directors' Liabilities Under Virginia Law

Pursuant to the Company's Articles, as authorized under applicable
Virginia law, directors of the Company are not liable for monetary damages for
breach of fiduciary duty, except in connection with a breach of the duty of
loyalty, for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, for dividend payments or stock
repurchases illegal under Virginia law or for any transaction in which a
director has derived an improper personal benefit. In addition, the Company's
Articles provide that the Company must indemnify its officers and directors to
the fullest extent permitted by Virginia law for all expenses incurred in the
settlement of any actions against such persons in connection with their having
served as officers or directors of the Company. See "MANAGEMENT--Liability and
Indemnification of Officers and Directors."

Related Party Transactions

The Company has entered into certain transactions with parties who were
stockholders of the Company at the time of the transactions. A summary of the
terms and conditions of these transactions may be found under the heading
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." These transactions involve
inherent conflicts between the interest of the Company and the interests of the
other parties to the transactions.

Substantial Shares of Common Stock Reserved for the Exercise of Options and
Warrants

The Company has reserved 376,667 shares of Common Stock for issuance
upon the exercise of incentive awards granted or available for grant to
employees, officers, directors, advisors and consultants pursuant to the
Incentive Plan, of which the Company anticipates granting options to purchase an
aggregate of 236,667 shares of Common Stock to the Company's founders upon the
completion of the Offering. In addition, the Company has reserved an aggregate
of 233,400 shares of Common Stock for issuance upon exercise of (a) the
Underwriter's Warrants, (b) the Private Placement Warrants, and (c) the
Management Warrants. These options and warrants may adversely affect the
Company's ability to obtain financing in the future. The holders of such options
and warrants can be expected to exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company. See "UNDERWRITING," "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" and "MANAGEMENT--Management Option Grants."

Shares Eligible for Future Sale

Future sale of substantial amounts of Common Stock in the public market
following the Offering could adversely affect the market value for the Common
Stock. The 834,000 shares sold by the Company in this Offering will be freely
tradable unless acquired by an affiliate of the Company. The holders of the
Notes (which automatically convert into an aggregate of 541,370 shares of Common
Stock (including assumed interest) upon the completion of the Offering) are not
subject to any "lock-up" agreements restricting disposition of their shares, and
therefore, the holders of the Notes who are not affiliates of the Company may
sell such shares of Common Stock in accordance with the resale provisions of
this Prospectus. In addition, resales of 233,400 shares of the Company's Common
Stock (to be issued when and if the Underwriter's Warrants, the Private
Placement Warrants and the Management Warrants are exercised), none of which are
subject to any "lock-up" agreements, are being registered concurrent with the
Offering. Such shares may be resold in accordance with the resale provisions
contained in this Prospectus. Notwithstanding the foregoing, however, transfer
of the Underwriter's Warrants, the Private Placement Warrants and the shares
underlying these warrants is restricted to bona fide officers of the Underwriter
for a one-year period following the grant thereof in accordance with the rules
of the National Association of Securities Dealers, Inc. Upon the completion of
the Offering, the Company anticipates issuing options to purchase an aggregate
of 236,667 shares of Common Stock to certain of the Company's executive officers
pursuant to the Incentive Plan. These shares are not being registered in
connection with the Offering, but may be resold in accordance with the
provisions of Rule 144 promulgated under the Securities Act ("Rule 144").
Similarly, certain of the Company's executive officers and directors own an
aggregate of 71,273 shares of Common Stock. While these shares are not
registered in the Offering, they may be resold in accordance with the provisions
of Rule 144. See "SELLING SECURITYHOLDERS" and "PLAN OF DISTRIBUTION FOR SELLING
SECURITYHOLDERS."

Arbitrary Determination of Offering Price

The offering price of the shares of Common Stock has been determined
through negotiations between the Company and the Underwriter. Among the factors
considered in determining the price were prevailing market conditions, the
general economic environment, estimates of the prospects of the Company, the
background and capital contributions of management and current conditions of the
securities markets and the Company's industry. The initial public offering price
may bear no relationship to the price at which the Common Stock will trade in
the market upon completion of the Offering. See "UNDERWRITING."

No Prior Market for Common Stock

Prior to the Offering, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop
or be sustained after the Offering or that investors will be able to sell the
Common Stock should they desire to do so. See "UNDERWRITING."

Volatility of Stock Price

The market price of the Common Stock is likely to be highly volatile
and could be subject to wide fluctuations in response to factors concerning the
Company or its competitors. The Company's operating results may also be below
the expectations of market analysts and investors, which would likely have a
material adverse effect on the prevailing market price of the Common Stock.

Further, the stock market has experienced extreme price and volume
fluctuations that have affected the market prices of equity securities of many
biotechnology companies. These price fluctuations often have been unrelated or
disproportionate to the operating performance of such companies. Market
fluctuations, as well as general economic, political and market conditions such
as recessions or international currency fluctuations, may adversely affect the
market price of the Common Stock. The realization of any of the risks described
in these "RISK FACTORS" could have a dramatic and adverse impact on the market
price of the Common Stock.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements herein regarding the development of the Company's
proprietary technologies and potential changes in the Company's customer base
and the impact of those changes in the variability of the Company's results of
operations constitute forward-looking statements under the federal securities
laws. Such statements are subject to certain risks and uncertainties that could
preclude the Company from developing revenue-generating commercial products
based on its proprietary research or result in the Company's failure to realize
decreased variability of operating results. Risks and uncertainties relating to
proprietary technologies are outlined under the caption "RISK FACTORS - Risks
Associated with development of Proprietary Technologies." With respect to
variability of operating results, the changes in the biotechnology industry
anticipated by the Company may fail to occur, or even if they occur, they may
fail to have the anticipated effect on the Company's revenues.

USE OF PROCEEDS

After deducting selling commissions and other expenses of the Offering,
the net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be $4,403,680. The Company currently plans to
use the net proceeds from the Offering, and any interest generated therefrom,
for working capital, capital expenditures and general and administrative
purposes. The information below constitutes the Company's best estimate as to
the specific uses of such funds:

Equipment Purchases - $2,000,000
Lease of Facilities - $ 500,000
Sales & Marketing - $ 803,680
Personnel - $ 400,000
Working Capital - $ 700,000

The amounts actually expended for each purpose may vary. Pending the use of the
net proceeds, the Company may invest the funds in short-term money market,
government and federal agency obligations, bank certificates of deposit and
savings deposits.

DIVIDEND POLICY

The Company currently intends to retain all future earnings, if any, to
finance growth and development of its business and, therefore, does not expect
to declare or pay any cash dividends in the foreseeable future. The declaration
of dividends, however, is within the discretion of the Company's Board. See
"RISK FACTORS--No Dividends."

DILUTION

At March 31, 1997, the net tangible book value of the Company was
$2,978,692. "Net tangible book value" per share of Common Stock represents the
amount of the Company's total assets, less the amount of its total liabilities,
divided by the number of shares of Common Stock outstanding. Dilution represents
the difference between the amount per share of Common Stock paid by the new
investors purchasing in the Offering and the pro forma net tangible book value
per share of Common Stock after the Offering. After giving effect to the sale by
the Company of the 834,000 shares of Common Stock offered hereby at $6.00 per
share and the payment of the estimated expenses related to the Offering of
$600,320, the pro forma net tangible book value of the Company at March 31, 1997
would have been $7,382,732, or $5.60 per share of Common Stock. This represents
an immediate increase in net tangible book value of $.39 per share of Common
Stock to existing shareholders and an immediate dilution of $.40 per share of
Common Stock to new investors purchasing Common Stock in the Offering, as
illustrated in the following table:

Price Per Share in the Offering $ 6.00
Net tangible book value per share before the Offering $ 5.21
Increase per share attributable to new investors $ .79
Pro forma net tangible book value per share after the Offering $ 5.60
Dilution to new investors $ .40

The following table sets forth, at July 18, 1997, (i) the number
of shares of Common Stock purchased from the Company by its founders and by
holders of the Conversion Shares to be issued upon completion of the Offering,
(ii) the total consideration paid and the average price per share paid for such
shares by such shareholders; and (iii) the number of shares of Common Stock to
be sold by the Company in the Offering, the total consideration to be paid and
the average price per share:

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

(1) Prior to the deduction of expenses related to the issuance thereof.

CAPITALIZATION

The following table sets forth the actual capitalization of the
Company at March 31, 1997, and the capitalization of the Company as adjusted to
reflect the sale by the Company of the Notes in the Private Placement, the sale
by the Company of the Common Stock offered hereby and the initial application of
the estimated proceeds of thereof. See "USE OF PROCEEDS." This table should be
read in conjunction with the Company's Financial Statements and the Notes
thereto included elsewhere herein.

Balance Sheet Data as of:

(1) Reflects the (i) conversion of the convertible subordinated notes into
500,000 shares of common stock, and (ii) the sale 834,000 shares of common
stock offered hereby (at the Price to Public of $6.00 per share) and the
application of the estimated net proceeds therefrom.

(2) Does not include: (i) 100,000 shares reserved for issuance upon exercise of
Management Warrants; (ii) up to 376,667 shares reserved for issuance under
the Company's Incentive Plan; (iii) 83,400 shares issuable upon exercise of
the Underwriter's Warrants for the Offering and (iv) 50,000 shares issuable
issuable upon exercise of the Underwriter's Private Placement Warrants.

(3) Reflects the June 25, 1997 conversion from S Corporation to C Corporation
status and the reclassification of $328,320 in retained earnings, net of
$59,612 in distributions payable to the S Corporation shareholders to cover
their respective share of tax liability resulting from the Company's
earnings up to the date of conversion.

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

The following should be read in conjunction with "SELECTED FINANCIAL
DATA" and the Company's Financial Statements and Notes thereto appearing
elsewhere in this Prospectus.

Overview

The Company's revenues are derived principally from providing
protein/peptide and DNA/RNA chemistries and related analytical services to
researchers in the biotechnology industry. The biotechnology industry has
experienced rapid growth in recent years based on the development of innovative
technologies. The development process requires sophisticated laboratory
analysis. Many participants in the industry do not have the facilities or
personnel necessary to perform this analysis, and contract it out to the Company
and other organizations.

Since commencing operations in 1992, the Company has experienced
significant growth in revenues as the biotechnology industry, and the Company's
reputation in the industry, has grown. The Company experiences quarterly
fluctuations in revenues which arise primarily from variations in contract
status with its large customers. In addition, the majority of other customer
projects are individual orders for specific projects ranging from $6,000 to
$200,000. Engagement for subsequent projects is highly dependent upon the
customer's satisfaction with the services previously provided, and upon factors
beyond the Company's control such as the timing of product development and
commercialization programs of the Company's customers. The Company is unable to
predict for more than a few months in advance the volume and dollar amount of
future projects in any given period. Therefore, the timing of significant
projects could have a significant impact on the financial results of any given
period. The combined impact of several large contracts from customers and the
unpredictable project fluctuations can result in very large fluctuations in
financial performance from quarter to quarter.

The biotechnology industry is currently progressing through a
consolidation stage in its development. A number of large customers may desire
to develop captive biotechnology research departments, thereby reducing their
dependence on outsource research providers such as the Company. If this trend
continues, the Company expects that it may derive a large portion of its
revenues from smaller customers which do not have the expertise or facilities to
perform the analytical services provided by the Company.

The Company believes that its growth initiatives to increase its
customer base discussed herein will reduce the significance of sales
fluctuations. See "BUSINESS--Growth Strategy." In addition, the Company has
initiated several steps to mitigate the effects of these fluctuations where
possible. The Company has formalized team-based, project management programs to
increase efficiency in laboratory operations, and has developed and implemented
a customized database for project tracking. The Company has also instituted cost
containment measures where possible without negatively impacting project
completion. These measures include more efficient labor scheduling, the use of
temporary employees to decrease overhead costs and negotiating with suppliers to
decrease supply costs.

The Company also derives revenues from government grants which fund the
Company's research on its proprietary technologies. Unlike its analytical
research services business, in which the Company provides services to customers
on a contract basis and has no ownership or other interest in any intellectual
properties resulting from the research, in its proprietary research business the
Company attempts to develop products based on intellectual property rights which
the Company owns or licenses from third parties. This research has been financed
almost entirely through government grants, although the Company has also used a
small portion of its retained earnings to finance this business. The Company's
proprietary research business uses the same personnel, equipment and facilities
as its service business.

Years Ended December 31, 1995 and December 31, 1996

Results of Operations

Revenues

Gross revenue increased $620,624, or 168.0%, from $369,301 in 1995 to
$989,925 in 1996. This increase in revenue was primarily attributable to an
increase in new customer accounts and to larger orders with existing customers
for all types of services provided by the Company in 1996, except for peptide
synthesis which experienced a nominal decrease of $6,380, or 1.7% of total 1995
revenue. See "BUSINESS--Services." This decrease was more than offset by an
increase in revenues from DNA sequencing services in the amount of $109,298, or
254.4%, from $42,958 in 1995 to $152,256 in 1996. Revenue earned from
governmental grants also increased approximately threefold from $109,820 in 1995
to $304,987 (30.8% of total revenue) in 1996. All of the aforementioned grant
revenue was used to fund research on the Company's proprietary technologies. The
beneficial increase in revenue for 1996 was achieved with minimal advertising
and marketing effort.

Management believes that increases in revenues are attributable to the
Company's enhanced reputation in the industry and to more effective advertising
activities. These activities included the introduction of a tiered pricing
structure with services billed at lower rates and initial price concessions made
as a component of the Company's aggressive entry into the government and
academic sectors. Quarterly fluctuations in gross revenues during 1995 and 1996
were primarily a result of substantial automated sequencing services performed
for the initial contract with a single customer. Revenues from this contract
were recognized during the second and third quarters of 1995 and the first
quarter of 1996. Operations for an additional contract were substantially
completed during the first quarter of 1997, significantly increasing revenues
for that quarter as compared to any prior quarters. An extension of this
contract may be granted during the third quarter of 1997. This extension or lack
thereof will have a significant material impact on the Company's revenue in the
third and possibly fourth quarters of 1997.

Expenses

Cost of services consists primarily of labor and laboratory supplies.
Cost of services increased 197.3% from $79,948 to $237,726 for the years ended
December 31, 1995 and 1996, respectively. This increase was consistent with the
increased growth experienced in revenue. Cost of services as a percentage of
revenue was 21.6% and 24.0% in 1995 and 1996, respectively. Cost of services is
subject to fluctuation and can cause results of operations to fluctuate from
quarter to quarter, particularly if the Company purchases supplies but does not
record the revenue from the performance of services until a subsequent quarter.

Sales, general and administrative expenses consist primarily of
compensation and related costs, depreciation and amortization, professional fees
and advertising. Sales, general and administrative expenses increased from
$161,014 to $260,791, or 62.0%, in 1995 and 1996, respectively. Sales, general
and administrative expenses as a percentage of revenue were 43.6% and 26.3% in
1995 and 1996, respectively. The decrease in the percentage relationship of
sales, general and administrative expenses to revenue is primarily attributable
to cost containment measures and economies of scale realized with the growth in
revenues.

Research and development costs in 1995 were primarily related to
developing and improving protocols for the automated sequencing group. Research
and development costs in 1996 were related to the development of new and
expanded services. Research and development costs were $64,134 and $302,455, or
17.4% and 30.6% of revenue, in 1995 and 1996, respectively. The increase of
$238,321 in 1996 research and development costs represented an increase of
371.6% over the amount reported for 1995. Most of these costs, however, were
funded by grant awards from government sources. Research and development
expenses are likely to continue to increase as the Company's expansion efforts
continue. The Company will need increased capital in order to expand its
research and development efforts. The Company intends to apply for more grants,
and is eligible to compete for additional categories of grants.

Three Months Ended March 31, 1996 and March 31, 1997

Results of Operations

Revenues

Gross revenues increased 210.8% from $193,054 to $599,916 for the three
month periods ended March 31, 1996 and 1997, respectively. This increase in
revenue was attributable to an increase in new customer accounts for both the
automated sequencing services and cell culture and protein purification services
provided by the Company. Management believes that the increase in automated
sequencing revenue is attributable to increased sales, reputation in the
industry and advertising activities while the increase in the cell culture and
protein purification services is due to the increased advertising as well as
increased management involvement in promotional activities.

Expenses

Cost of services increased 350.4% from $31,615 to $142,383 for the
three months ended March 31, 1996 and 1997, respectively. Increases in
personnel, supply usage and equipment costs as a result of the increase in
services rendered comprised the increase in operating costs. Cost of services as
a percentage of revenue was 16.4% and 23.7% for the three month periods ending
March 31, 1996 and 1997, respectively.

Sales, general and administrative expenses increased from $34,743 to
$98,822, or 184.7%, for the three months ended March 31, 1996 and 1997,
respectively. Sales, general and administrative expenses as a percentage of
revenue was 18.0% and 16.5% for the three months ended March 31, 1996 and 1997,
respectively. The decrease in the percentage relationship of sales, general and
administrative expenses to revenue is primarily attributable to cost containment
measures and economies of scale realized with the growth in revenues.

Research and development costs for the three months ended March 31,
1997 were primarily related to developing and improving protocols for the
automated sequencing efforts. Research and development costs for this period
were related to the receipts of new grants and contracts. Research and
development costs were $41,618 and $104,602, or 21.6% and 17.4% of revenue, for
the three months ended March 31, 1996 and 1997, respectively. The increase of
$62,984 in research and development costs for the three months ended March 31,
1997 represented an increase of 151.3% over the amount reported for the same
period a year earlier. Research and development expenses are likely to continue
to increase as the Company's expansion efforts continue. The Company will need
additional capital in order to expand its research and development efforts.

Variability of Future Operating Results

The Company experienced another significant revenue increase in the
latter half of 1996, due mostly to the commencement of another contract with a
large customer. This contract is expected to be completed during the last
quarter of 1997. Presently, the Company is expecting an additional contract with
this customer for services to begin in the last quarter of 1997 and to be
completed sometime in 1998. Renewal of another contract completed in the first
quarter of 1997 would have a material impact on the Company's revenue in the
third and fourth quarters of 1997. Completion of these contracts without a
replacement source of revenue from this or another large customer could have a
material adverse impact on the Company.

Liquidity and Capital Resources

The Company has experienced significant fluctuating demands on its
working capital due to actual and anticipated growth in all current services.
Operating cash flow provided (used) was $4,135 and $229,990 for 1995 and 1996,
respectively, and $77,261 and ($10,244) for the three months ended March 31,
1996 and 1997, respectively. Net working capital (deficit) at December 31, 1995
and 1996 was ($34) and $91,637, respectively, and $243,928 at March 31, 1997.
Capital expenditures were $961 and $194,798 in 1995 and 1996, respectively. The
Company's liquidity was increased substantially during the fourth quarter of
1996 by the receipt of a research contract and the related cash receipt in the
amount of $200,000 from a significant customer. Additionally, the Company's
liquidity was increased during the second quarter of 1996 by the expansion of
its revolving credit line to purchase a DNA sequencer for $131,116. In August
1996, the revolving credit line converted to a term note that had an outstanding
balance of $200,800 upon conversion. This term note provides for equal monthly
payments of principal and interest through October 2001. The Company received
$30,000 in July 1996 pursuant to an Enterprise Zone incentive loan with the City
of Richmond. During 1996, the Company made principal payments on its existing
debt of $33,378. The Company also retired its capital lease obligation in the
amount of $63,860. The Company's liquidity was increased substantially during
the first quarter of 1997 from the proceeds of a term loan from a financial
institution in the amount of $102,800. The Company also financed the purchase of
vehicle under a term loan in the amount of $23,682.

In June 1997, the Company completed the Private Placement of the Notes.
The net proceeds of the Private Placement were $2,629,269.

The Company, as an S Corporation, also made distributions to its
shareholders. These distributions totaled an aggregate of $79,533 in 1996 and
$82,136 for the first six months of 1997. In June 1997, the Company altered its
taxable status to that of a corporation governed by Subchapter C of the Internal
Revenue Code of 1986, as amended (the "Code").

Recent Accounting Pronouncements

In October 1995, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 123, Accounting for Stock-Based Compensation Arrangements.
FASB No. 123 permits a company to choose either a new fair value-based method of
accounting for stock-based compensation, or retain the current intrinsic
value-based method of accounting for stock-based compensation provided for in
Accounting Principles Board Opinion No. 25, Accounting for Stock-Based
Compensation. FASB Statement No. 123 requires pro forma disclosures of net
income and earnings per share computed as if the fair value-based method had
been applied in financial statements of companies that continue to follow the
intrinsic value-based method of accounting. APB No. 25 would generally only
require the recognition of compensation expense for the difference, if any,
between the fair value of the underlying Common Stock and the grant price of the
option of the date of the grant. As the Company intends to utilize stock options
in the future, these accounting pronouncements could have a material effect on
its financial condition and on results of operation in the future. The Company
is currently considering the potential effect of these pronouncements, but is
unable, at the current time, to determine the effect on its financial condition
and results of operation with any degree of certainty.

For a discussion of the Company's plan of operation, see "USE OF
PROCEEDS."

BUSINESS

Overview

The Company was founded in 1992 by four experienced research scientists
to provide sophisticated research and development support services on a contract
basis to the biotechnology industry. The Company's customers consist of private
companies, academic institutions and government agencies all of which use
biological processes to develop products for health care, agricultural and other
purposes. Much of this revenue is derived from innovative products based on
research into the fundamental biological processes that support life. These
fundamental processes depend on the interrelationships of basic components of
cells in living organisms, including enzymes, proteins, peptides, DNA and RNA,
an understanding of which enables scientists to develop new compounds having
commercial applications.

The Company provides these services to customers on a contract basis
and derives its revenues from these services, and not from sales of commercial
products resulting from the research. This arrangement distinguishes the Company
from many other biotechnology companies in that the Company's revenues are not
directly dependent on successfully commercializing a new biotechnology product.
The Company has developed a strong reputation as a leading provider of
biotechnology research and development analytical services which positions the
Company for growth with the availability of additional capital. The Company
intends to focus its expansion efforts on the maintenance and expansion of long
term relationships with customers in the biotechnology industry as well as
establishing new customer relationships. The Company will seek to identify
trends that impact its customers and develop new products and services to meet
the changing needs of its clients.

In addition to its analytical services, the Company is developing
several of its own proprietary new technologies in the areas of anti-coagulation
and genomic sequence analysis, and has a patent application pending in the
anti-coagulation area. The development of these technologies has been funded by
grants from government agencies, and the Company anticipates that this portion
of its operations will continue to be funded in this manner. These technologies
are in the early stage of development and should be considered highly
speculative at this time.

Growth Strategy

The Company's strategy for growth consists of the following elements:

o Expansion of Capacity in its Existing Service Business. The Company
believes there is significant demand for additional services of the type the
Company currently offers. The Company's capacity to service this demand has been
constrained by the limitations of its facilities and need to make significant
capital expenditures on equipment. By securing a significantly larger laboratory
facility and additional research equipment, the Company will have the capacity
to generate substantially greater revenues from its core services and to improve
profit margins through more efficient operations.

o Expansion of Marketing Capabilities. The Company believes that it can
increase revenues and profits through greater presence in the biotechnology
industry. The Company's marketing to date has consisted largely of customer
referrals, limited advertisements in trade publications and participation at
trade shows. The Company intends to significantly expand its marketing
operations to attract new customers and to receive more business from existing
customers.

o Expansion into New Service Businesses. By enhancing its facilities and
expertise, the Company believes it will be positioned to expand its service
offerings to existing customers and to attract new customers. For example, the
Company does not currently provide services to companies seeking FDA approval
for pharmaceutical products because the Company's laboratory does not meet FDA
requirements, and it does not offer services in various genetic and forensic
testing areas because it does not have personnel who possess the necessary
expertise. The Company intends to address these needs, which will open up new
markets. The Company believes there is a substantial opportunity to offer
analytical services related to the human genome project, and its genetic and
forensic applications. See "--The Biotechnology Industry."

The Biotechnology Industry

The biotechnology industry consists of a broad range of companies that
use biological processes to develop products for the human health care,
agricultural productivity, food safety and nutrition, environmental improvement
and animal health markets. The industry began to develop in the early 1970s,
with much of its activity focusing on fundamental research and initial
development of new products based on that research. The development cycle for
products derived from biotechnology research and development has typically been
quite long, with many new technologies taking ten or more years to yield
products with significant commercial potential.

The promise of the research and development efforts of the previous
decades is now being realized, and the result is a stream of new products ready
for commercialization and renewed interest in further basic research into new
technologies and extensions of existing technologies. Much of the success of the
biotechnology industry can be traced to advancements in "foundation"
technologies which define the basic structures and relationships of biologically
relevant compounds. Elucidation of these structures and relationships has led to
the development of commercial scale quantities of pure, custom designed
macromolecules.

There are two stages in the development of foundation technologies. In
the first stage, the building block components of a macromolecule (amino acids,
nucleotides, etc.) are determined and defined. In the second stage, these
components are altered in a precise fashion to meet the user's needs. Once
analyzed, sequences of peptides and proteins and of RNA and DNA are used to
create or enhance a wide range of products and applications, including
pharmaceuticals, genetically altered freeze- and pest-resistant crops, DNA
"fingerprints" of criminals, paternity testing, infectious disease diagnosis and
prognosis, genetic disease detection, identification of cancer-prone individuals
and other applications.

Due to the relatively short history of the biotechnology industry and
the complexity of most macromolecules, researchers have only recently begun to
unravel the sequences of DNA, RNA, peptides, and proteins, and research and
development expenditures in this area are expected to grow rapidly in the
future. For example, in the early 1990's the federal government budgeted $15
billion on the human genome project, a multi-government agency sponsored project
to sequence the entire human gene sequence (comprised of approximately three
billion individual nucleotides), and the completion of this project is estimated
to take another 10 years and $15 billion. The recent success in cloning a sheep
from maternal cells has generated significant new interest in cloning. The
ability to use DNA sequence analysis to precisely categorize the lineage of
domestic animals, or to diagnose genetic pathologies, or to create new
biopharmaceuticals, has the potential to become a major industry of the 21st
century. The Company believes that the expansion of existing biotechnology
industries and the development of new ones will lead to an increased demand for
sophisticated analytical research services. The Company believes that it will
become well positioned to participate in these new service areas.

Analytical Support Services

In order to analyze and experiment with cell components and
macromolecules, researchers need to analyze, sequence, purify, synthesize, and
characterize those components. The cost of creating an in-house laboratory with
the equipment and personnel to perform all these functions is well in excess of
$3 million. The Company's business is dependent upon the use of sophisticated,
analytical equipment. The Company intends to use a portion of the proceeds of
the Offering to purchase additional equipment necessary to provide a wider range
of services. The biotechnology industry is rapidly developing and the need for
more sophisticated equipment will increase significantly as the technology
develops. In light of increasing cost pressures, many companies, universities,
and research institutions seek to avoid incurring the costs to equip and staff
such a laboratory. Instead, they contract with biotechnology support companies
for many of these analytical services. They are increasingly outsourcing routine
procedures to maximize the innovative aspects of their internal efforts. Many
players in the biotechnology sector have developed according to the "virtual
company" model, which supports outsourcing of routine research and development
efforts. In response to this demand, a number of foundation biotechnology
support companies have emerged to supply the emerging companies in this growing
field.

The Company was founded in September 1992 by four internationally
recognized investigators with expertise in the general areas of protein/peptide
and nucleic acid chemistries to provide a high degree of expertise and a wide
range of analytical services to the biotechnology industry. The Company is a
fee-for-service contractor and typically takes no ownership position in the
intellectual property rights of the services it performs under contract. A key
to the growth of the Company has been to integrate a number of foundation
technologies and provide a broad range of capabilities to customers who
otherwise must go to several different sources for their needs. Since commencing
operations, the Company has become noted for providing a wide range of services
relating to design, synthesis, purification, and analysis of peptides, proteins,
and oligonucleotides.

Providing a wide range of services is an important element of the
Company's competitive strategy. Virtually all of its closest competitors provide
either DNA level technologies or protein/peptide level technologies. There are
few major competitors which offer integrated DNA/RNA and protein/peptide
technologies and none that offer these technologies combined with sophisticated
biophysical analytical techniques, such as RNA synthesis, DNA synthesis,
calorimetry, spectroscopy, and mass spectral analysis. Thus, the Company can
provide complete research programs to its customers. "One stop biotechnology
shopping" has proved attractive in securing long-term contracts with customers
ranging from major players in the pharmaceutical industry to major government
sponsors of research, such as the National Institutes of Health. The Company
believes it has earned a reputation as a leading provider of high quality DNA
sequencing -- a reputation which has enabled it to obtain key contracts with
major pharmaceutical and biotechnology companies throughout the world.

Services

The following are the major categories of services the Company
provides.

Oligonucleotide Synthesis. Nucleotides are the building blocks of DNA
and RNA. Investigators synthesize oligonucleotides in order to build new, or
clone existing, DNA strands. Some applications of synthesis include gene
therapies, recombinant DNA technologies, pharmaceuticals, infectious disease
detection and prognosis, hereditary disease detection and prognosis and cancer
detection and predilection, insecticides, test vaccines and anti-viral agents.
The Company provides both routine syntheses, for which the average sale is $150,
and custom synthesis chemistries for design of special nucleotide derivatives.
Very few commercial companies offer custom RNA synthesis or synthesis of RNA/DNA
hybrid molecules, and the Company has been successful in supplying these
specialized products to academic and commercial customers. An average order for
an RNA oligonucleotide is $ 1,000. In addition, the Company has recently
negotiated a broad license for the synthesis and distribution of a new type of
highly specific, high performance oligonucleotide referred to as "PNA's" or
Protein Nucleic Acids.

Protein/Peptide Synthesis. Assembly of amino acids into chains creates
synthetic peptides which can act as effective substitutes for their
physiological counterparts. For example, synthetic peptide hormones are
molecules carried through the blood that can affect cell functions. There are
many types of peptides including therapeutics, anti-diuretics, anti-coagulants,
and anti-hypertensives. Still other peptides are used as specific substrates or
inhibitors of enzyme function. Peptides are used primarily for research,
clinical therapeutics, and for counteracting the biological activities of other
peptides. The Company now has the ability to produce 36 peptides simultaneously,
or to produce libraries of peptides containing literally millions of different
peptide sequences. New equipment expected to be purchased with the proceeds of
the Offering will enable the Company to produce an additional 96 peptides
simultaneously. An average order is about $1,500 per peptide.

DNA Sequencing. Sequencing is essentially the reverse process of
synthesis. An investigator who wants to know the precise order of constituent
nucleotides of a DNA or RNA strand would use sequencing to perform that
analysis. Examples of uses of DNA sequencing include gene therapy, cloning,
identity testing, mutation analysis, and disease and cancer detection. A
customer often will require development of novel sequencing protocols and
analysis of the data resulting from sequencing, services which the Company has
the expertise to provide. In a typical experiment, a customer will require 10-20
sequencing reactions which are priced at $60 to $100 per reaction. However, a
number of customers require thousands of sequencing reactions, for which the
Company offers aggressive discounts in pricing.

Peptide/Protein Sequencing. DNA arranges amino acids into the proteins
and enzymes of the body, such as hemoglobin or gamma globulin. Analysis of the
order of amino acids in proteins and enzymes is an important analytical tool.
For example, to clone a protein, a researcher must know the precise sequence of
amino acids that make up a protein, and in creating DNA, a researcher must
verify the sequence of amino acids in the new protein resulting from the DNA.
The Company provides these analytical services, with a typical sequence
experiment costing $800, although the Company has attracted customers who send
the Company hundreds of peptides and proteins for sequence analysis.

Peptide/Protein Compositional Analysis. Analysis of the amino acids
that compose a protein or peptide is used to verify purity of synthesized
peptides and to determine the make-up of newly discovered proteins or enzymes.
Each sample submitted for analysis is $50 and usually two or three analyses are
required for a complete compositional determination.

Other Technologies. The Company offers a number of even more complex
and sophisticated services that are based on the foundation technologies and
interdigitate the current and ongoing biotechnology revolution stimulated by the
development of recombinant DNA gene cloning technology. Thus, the marriage in
the Company of the gene cloning and recombinant DNA technologies with the
protein, DNA, and macromolecular analysis foundation technologies provides a
strong strategic capability for services for prospective customers. The breadth
and depth of the Company's expertise, therefore, provides a wide range of
potential approaches to research and developmental contracts.

Operations

Requests for quotes from potential customers are received via phone,
e-mail, from the Company's World Wide Web page, or by hard copy and directed to
the Company's business coordinator or laboratory manager. All inquiries are
answered by direct mail of the Company brochure and price lists, with follow up
phone calls, where appropriate. Price quotes for small projects or routine
analytical procedures are generated by scientists who possess the expertise
necessary to respond appropriately. Quotes for more complex projects are
developed collaboratively by the Company personnel having the requisite
expertise. Most quotations are sent back to the inquiring scientist within one
working day.

Incoming orders are logged onto the Company's project management
system, assigned a work order number, and delivered to the appropriate scientist
designated to oversee and coordinate all aspects of the particular project. The
work to be done is scheduled on the appropriate instruments, and all necessary
reagents or other supplies needed to complete the project are ordered as needed.
Every customer is required to sign a service agreement prior to the Company
initiating any requested work.

As a prolonged project is completed, progress reports are usually sent
to the customer detailing the results found to date, and the conclusions to be
drawn. If the project is relatively straight-forward, such as an amino acid
analysis, spectroscopy, or DNA sequence analysis, the results are faxed or
e-mailed to the customer prior to sending the customer the hard copy of his
results. If the project entails a synthesis of a peptide or oligonucleotide, for
example, the product is sent to the customer by express mail service. Every
product is accompanied by a data sheet, which details the physiochemical
properties of the compound, including the results of all analytical tests
performed which support the claimed purity and composition. The customer is
invoiced upon completion of the work, or at particular points in the work
program. The customer pays for the analytical services provided in accordance
with the Company's standard fee structure and retains all rights to any
developments resulting from the analysis.

All data generated at the Company are archived for the customer. Where
appropriate, the data are archived on selected storage media, such as back up
tapes or computer disks. A file is maintained for every customer, and these
files are also archived. The Company employs appropriate security measures to
ensure the confidentiality of customer information.

The Company operates under strict Standard Operating Protocols ("SOPs")
which detail the particular technologies used to complete the work in progress.
SOPs are made available to the customer upon request. In addition, the Company's
technical team follows standard operating procedures which help to produce
consistent, high quality results.

Customers

The Company currently provides similar products and support to more
than 300 individual customers in university and/or government laboratories, and
to customers in private companies. The composition of the Company's customer
base in terms of numbers of customers is approximately 60% private industry, 20%
government agencies and 20% academic institutions. In 1996, one private industry
customer accounted for approximately 20% of the Company's revenues.

Competition

The Company faces several types of competition. The Company believes
there are between 12 and 15 companies concentrating on peptide synthesis and
about 20 other companies offering DNA related services in the United States.
Very few companies offer both DNA/RNA and protein/peptide analysis. Other
competition comes from divisions of larger research oriented companies or
university core facilities. The Company believes that the principal competitive
factors are pricing, expertise, and range of services offered. See "RISK
FACTORS--Competition."

Marketing

The Company has expanded its customer base primarily through
word-of-mouth referrals and attendance at a limited number of trade shows,
seminars and meetings. Because of its ability to offer a wide range of
biotechnology research services, the Company enjoys a favorable reputation among
its customers, and many new customers come to the Company by word-of-mouth
recommendation. The Company has constructed its own World Wide Web Home Page
(www.cbi-biotech.com) and is listed with several biotechnical and biomedical
oriented sites on the World Wide Web. See "RISK FACTORS--Lack of Sales and
Marketing Capabilities."

Facilities

The Company currently occupies 5,000 square feet of laboratory and
office space and has executed a lease to continue to occupy its present space
through the year 2000. This lease is subject to cancellation by the Company upon
nine months' notice. The Company sponsors a research program at the Medical
College of Virginia ("MCV") campus of Virginia Commonwealth University ("VCU")
which allows its employees access to certain laboratories and facilities of MCV.
As part of its growth strategy, the Company anticipates the need for substantial
additional space and is investigating a 18,000 square foot facility which,
together with options to lease at least 10,000 square feet of adjoining space,
would accommodate the Company's needs for the foreseeable future.

Relationship with Virginia Commonwealth University

Three of the Company's founders were faculty members at VCU, and the
Company benefited from certain agreements with VCU in the early stage of its
development. The Company and VCU are parties to one license agreement under
which VCU licenses certain intellectual property rights to the Company. See
"MANAGEMENT--Relationship with VCU."

Proprietary Research and Research Grants

In addition to customer billings, the Company has attracted federal
contracts and grants which are used to fund the Company's development of its own
proprietary technologies. See "--Intellectual Property." The Company has
completed three $25,000 contracts from the National Institutes of Health, has
completed two different Phase I Small Business Technology Transfer Research
("SBTTR") grants from the National Institutes of Health ($100,000 each), is in
the first year of a Phase II SBTTR grant ($500,000), and has been awarded a

third Phase I SBTTR grant ($100,000), and Small Business Innovative Research
Award ("SBIR") ($55,000), from the United States Department of Agriculture.
Revenues from federally funded contracts are recognized on a cost reimbursement
basis. See "RISK FACTORS--Dependence on Government Grants."

Intellectual Property

The Company's principal intellectual property rights consist of a
patent application relating to an anti-coagulation technology it is developing
and one exclusive license from VCU relating to technologies for catalytic RNA
molecules, which has not been the subject of any patent filings. The Company's
anti-coagulation technology is an experimental new compound that counteracts the
effects of heparin, which is used to prevent blood clotting during open heart
surgery and other surgical procedures involving significant intervention into
the circulatory system. The only drug currently available to counteract heparin
exhibits toxicity and other adverse side effects, so its use is primarily
restricted to open heart surgery and emergencies. However, the inability to
counteract the effects of heparin can result in bleeding complications. Initial
tests indicate that compounds the Company has developed can neutralize heparin's
anticoagulant activity without displaying the toxicity associated with the
existing drug. This anti-coagulation technology, and all other proprietary
technologies under development at the Company, are at a very early stage of
development. To yield commercial products, these technologies will require
extensive additional research and development, testing and government approval.
The Company does not anticipate undertaking this work itself, but instead will
license the technologies to third parties which would pursue commercialization
and pay the Company license fees and royalties based on sales of products, if
any. As a result, there can be no assurance that commercial products will result
from these technologies, all of which should be considered highly speculative.

The Company anticipates that its ability to secure and protect patents
and other intellectual property rights will be increasingly important to the
business of the Company in the event its proprietary research programs yield
technologies which can be commercialized. There can be no assurance that the
Company will be successful in securing and protecting intellectual property
rights, or that its activities will not infringe on the intellectual property
rights of others.

The Company takes appropriate steps to protect its intellectual
property rights and those of its customers. The Company's practice is to require
its employees and consultants to execute non-disclosure and proprietary rights
agreements upon commencement of employment or consulting arrangements with the
Company. These agreements acknowledge the Company's exclusive ownership of all
intellectual property developed by the individual during the course of his work
with the Company and require that all proprietary information disclosed to the
individual by the Company or its customers remain confidential.

Government Regulation

The Company does not require government regulatory approvals to provide
its current services. Numerous federal, state and local agencies, such as
environmental, working condition and other similar regulators, have jurisdiction
to take actions that could have a material adverse effect upon the Company's
ability to do business. The Company believes that it is in general compliance
with existing federal, state and local laws and regulations and does not
anticipate that continuing compliance will have any material effect upon the
capital expenditures, earnings or competitive position of the Company.

The Company anticipates that its pursuit of its growth strategy will
subject the Company to a heightened level of government regulation of its
operations. For example, in pursuing opportunities to provide analytical
services to customers seeking the approval of the United States Food and Drug
Administration (the "FDA") of products, the Company's operations will become
subject to compliance with standards established by the FDA, including
inspections by the FDA and other federal, state and local agencies regarding
work performed by the Company on specific FDA submission projects. If
significant violations are discovered during an inspection, the Company may be
restricted from undertaking additional work on FDA submission projects until the
violations are remedied. The Company will also require a new license from the
Nuclear Regulatory Commission for the operation of a new laboratory facility.
See "RISK FACTORS--Government Regulation."

The commercialization of the Company's proprietary technologies would
also be subject to extensive government regulation and approval requirements,
including the need for pre-clinical laboratory and animal tests and human
clinical trials for FDA approval of human pharmaceutical products. The Company
does not have, and does not anticipate developing, the facilities and expertise
necessary to obtain FDA approval for or to manufacture any pharmaceutical
products that may result from its technologies. Instead, the Company would
license these technologies to third parties having the necessary facilities and
expertise, which would assume responsibility for and control of regulatory
matters.

Employees

The Company currently employs 30 full-time and 3 part-time employees.
The Company believes its relations with its employees to be very good. See "RISK
FACTORS--Dependence on and Need to Hire Personnel" and "--Lack of Sales and
Marketing Capabilities."

Legal Proceedings

The Company is not involved in any legal proceedings.

MANAGEMENT

Executive Officers and Directors

The executive officers and directors of the Company and their ages, as
of July 15, 1997, are as follows:

Name Age Position

Richard J. Freer, Ph.D. 55 Chairman of the Board,
Director and Founder
Robert B. Harris, Ph.D. 45 President, Director and
Founder

Gregory A. Buck, Ph.D. 46 Senior Vice-President, Chief
Scientific Officer, Secretary,
Director and Founder

Thomas R. Reynolds 34 Senior Vice President, Director
and Founder

Chester M. Trzaski 51 Chief Operating Officer
Charles A. Mills, III 50 Director
Peter C. Einselen 57 Director

The following is a brief summary of the background of each
executive officer and director of the Company:

Richard J. Freer, Ph.D., Chairman of the Board, Director and Founder.
Since founding the Company in 1992, Dr. Freer has served as the Chairman of the
Board and a Director of the Company. From 1977 until 1997, Dr. Freer was
employed by VCU, first as an Associate Professor and then a Professor, in the
Department of Pharmacology and Toxicology. In addition, from 1988-1995, Dr.
Freer was first Director and then Chair of the Biomedical Engineering Program.
Dr. Freer received a bachelor's degree in Biology from Marist College and a
doctorate in Pharmacology from Columbia University.

Robert B. Harris, Ph.D., President, Director and Founder. Since
founding the Company in 1992, Dr. Harris has served as the President and a
Director of the Company. Until 1997, Dr. Harris was employed in the
Department of Biochemistry and Molecular Biophysics at VCU, first as an
Assistant, then Associate and finally a full Professor. Dr. Harris received
a joint bachelor's degree in Chemistry and Biology from the University of
Rochester, and a master's degree and a doctorate degree in
Biochemistry/Biophysical Chemistry from New York University.

Gregory A. Buck, Ph.D., Senior Vice President, Chief Scientific
Officer, Secretary, Director and Founder. Since founding the Company in 1992,
Dr. Buck has served as Senior Vice President, Chief Scientific Officer,
Secretary and a Director of the Company. In addition, from 1996 until 1997, Dr.
Buck was employed as a Professor in the Department of Microbiology and
Immunology at VCU. From 1991 through 1996, Dr. Buck served as an Associate

Professor in the Department of Microbiology and Immunology at VCU. Dr. Buck
received a bachelor's degree in Genetics from the University of
Wisconsin-Madison and a doctorate degree in Microbiology and Immunology from the
University of Washington.

Thomas R. Reynolds, Senior Vice President, Director and Founder.
Since founding the Company in 1992, Mr. Reynolds has served as a Senior Vice
President and a Director of the Company. From 1987 until 1997, Mr. Reynolds
served as the Manager of the Nucleic Acids Core Laboratory at The
Massey Cancer Center in the Department of Microbiology and Immunology at
VCU. From 1984 through 1986, Mr. Reynolds served as a research assistant in
Genetics at Carnegie Mellon University. Mr. Reynolds received a bachelor's
degree in Biology from the Pennsylvania State University.

Chester M. Trzaski, Chief Operating Officer. Mr. Trzaski has been
employed by the Company as its Chief Operating Officer since May 1996. From
1993 to 1995, Mr. Trzaski was the Chief Operating Officer and Executive Vice
President of Corning National Packaging, a clinical packaging company.
From 1990 to 1993, Mr. Trzaski served as the Director of Materials Management
for Whitby Pharmaceuticals, a pharmaceutical marketing company. Mr. Trzaski
received a bachelor's degree in Microbiology from Alliance College.

Charles A. Mills, III, Director. Mr. Mills became a director of
the Company in June 1997. Mr. Mills has been employed by the Underwriter as a
Senior Vice President since 1986. He served as Chairman of the Board of the
Underwriter from 1990 to 1992 and from 1994 to the present. He has served as
a director of Humphrey Hospitality Trust, Inc. since 1994 and as a Director
of Virginia Gas Company since 1996.

Peter C. Einselen, Director. Mr. Einselen became a director of
the Company in June, 1997. Mr. Einselen has served as Senior Vice President
of the Underwriter since 1990. From 1983 to 1990, Mr. Einselen was employed
by Scott & Stringfellow, Incorporated, Richmond, Virginia. He has been a
member of the Board of Directors of American Industrial Loan Association
since 1992 and has also been a director of Virginia Gas Company since 1996.

The Company anticipates appointing one additional non-employee Director to the
Board.

Relationship with VCU

Drs. Freer, Harris, and Mr. Reynolds have terminated their
employment with VCU and are now full-time employees of the Company. Dr. Buck
has been granted a one-year leave of absence from VCU and will devote 100% of
his efforts to the Company's business.

Board of Directors

The Articles and the Bylaws provide that the Company's Board of
Directors shall have between five and nine members and shall be divided into
three classes. The members of each class of directors will serve for staggered
three-year terms. Following the completion of the Offering, Messrs. Reynolds and

Mills will be classified as Class I directors to serve until the annual meeting
of the Company's shareholders (the "Annual Meeting") to be held in 1998; Dr.
Harris and Mr. Einselen will be classified as Class II directors to serve until
the 1999 Annual Meeting; and Drs. Freer and Buck will be classified as Class III
directors to serve until the 2000 Annual Meeting. Each successor to a director
whose term expires at an Annual Meeting will be elected to serve until the third
Annual Meeting after his or her election and until his or her successor has been
duly elected and qualified. Any director chosen to fill a vacancy on the Board
shall hold office until the next election of the class for which he or she shall
have been chosen, and until his or her successor has been duly elected and
qualified. Directors may be removed only for cause.

Committees of the Board of Directors

The Company's Audit Committee and Compensation Committee are each
composed of at least two independent directors. The Audit Committee recommends
the annual appointment of auditors, with whom the Audit Committee reviews the
scope of audit and non-audit assignments and related fees, accounting principles
used by the Company in financial reporting, internal auditing procedures and the
adequacy of the internal control procedures of the Company. The Compensation
Committee will administer the Company's Incentive Plan and make recommendations
to the Board of Directors regarding compensation and benefits for the executive
officers. The Compensation Committee also has oversight responsibilities for all
broad-based compensation and benefit programs, including the Incentive Plan.

Director Compensation

All directors receive a fee of $2,500 for each regularly scheduled
quarterly Board meeting attended (the "Director's Fee"). The Director's Fee
shall be adjusted upwards or downwards on an annual basis in an amount equal to
the percentage change in the market price of the Company's Common Stock as
compared to the market price of the Common Stock for the previous fiscal year.
For the first year of this calculation, the prior fiscal year's market price
will be $6.00 per share. In addition to the Director's Fee, all directors
receive reimbursement for travel and other related expenses incurred in
attending Board meetings and committee meetings.

Executive Compensation and Other Information

The following table set forth certain information regarding
compensation earned by Dr. Freer during the fiscal years ended December 31,
1996, December 31, 1995 and December 31, 1994. No executive officer of the
Company, including Dr. Freer, received compensation in excess of $100,000 during
such fiscal years.

Summary Compensation Table

Annual Compensation All Other
Name and Principal Position Year Salary Bonus Compensation

Richard J. Freer, Ph.D., 1996 $8,729 -- $23,024 (1)
Chairman of the Board 1995 -- -- --
1994 -- -- --

(1) Represents distribution to pay income taxes incurred by Dr. Freer as a
result of the Company's status, as of December 31, 1996, as a corporation taxed
in accordance with Subchapter S of the Code.

Incentive Plan

The Company adopted the Incentive Plan on June 24, 1997. The Incentive
Plan provides for the granting to employees, officers, directors, consultants
and certain non-employees of the Company of options to purchase shares of Common
Stock. The maximum number of shares of Common Stock that may be issued pursuant
to options under the Incentive Plan is 376,667, subject to adjustment in the
event of a stock split, stock dividend or other change in the Common Stock or
the capital structure of the Company. Of theses share, 236,667 have been
reserved for incentive awards to be granted to Drs. Freer, Harris and Buck and
Mr. Reynolds. 140,000 shares are reserved for incentive awards to be granted to
other persons. Incentive awards may be in the form of stock options, restricted
stock, incentive stock or tax offset rights. The Incentive Plan is administered
by the Compensation Committee of the Board of Directors. Subject to the
provisions of the Incentive Plan, the Compensation Committee is authorized to
determine who may participate in the Incentive Plan, the number and type of
awards to each participant, the schedules on which each award will become
exercisable, and the terms, conditions, and limitations applicable to each
award. The Compensation Committee has the exclusive power to interpret the
Incentive Plan and to adopt such rules and regulations as it may deem necessary
or appropriate for the purposes of administering the plan. Subject to certain
limitations, the Board of Directors is authorized to amend, modify or terminate
the Incentive Plan to meet any changes in legal requirements or for any other
purpose permitted by law.

Options. Options granted under the Incentive Plan may be either
"incentive stock options" within the meaning of Section 422(a) of the Code, or
non-qualified options. Incentive stock options may be granted only to employees
of the Company (including directors who are employees), while non-qualified
options may be issued to non-employee directors, employees, consultants,
advisors and other independent contractors providing services to the Company.
The per share exercise price of the Common Stock subject to all options granted
pursuant to the Incentive Plan shall be determined by the Compensation Committee
at the time any option is granted. In the case of incentive stock options, the
exercise price shall not be less than 100% of the fair market value of the
shares covered thereby at the time the incentive stock option is granted. "Fair
market value" shall be determined by the Board, or by its designated committee,
in good faith and using any reasonable method. No person who owns, directly or

indirectly, at the time of the granting of an incentive stock option to him, 10%
or more of the total combined voting power of all classes of Common Stock (a
"10% Shareholder"), shall be eligible to receive any incentive stock options
under the Incentive Plan unless the option price is at least 110% of the fair
market value of the Common Stock subject to the option, determined on the date
of grant. Non-qualified options are not subject to this limitation.

No incentive stock option may be transferred by an optionee other than
by will or the laws of descent and distribution, and during the lifetime of an
optionee, the option will be exercisable only by the optionee. In the event of
termination of employment, other than by death or permanent, total disability,
the optionee will have three months after such termination to exercise the
option. Upon termination of employment of an optionee by reason of death or
permanent disability, an option remains exercisable for one year thereafter to
the extent it was exercisable on the date of such termination. No similar
limitation applies to non-qualified options.

Incentive stock options granted under the Incentive Plan cannot be
exercised more than 10 years from the date of grant, except that incentive stock
options issued to a 10% Shareholder are limited to five year terms. All options
granted under the Incentive Plan may provide for the payment of the exercise
price in cash, by cash equivalent acceptable to the Company, or by delivery to
the Company of shares of Common Stock already owned by the optionee having a
fair market value equal to the exercise price of the options being exercised, or
by a combination of such methods of payment. Therefore, a participant may be
able to tender shares of Common Stock to purchase additional shares of Common
Stock and may, theoretically, exercise all of his or her stock options with no
additional investment other than his or her original shares. Any unexercised
options that expire or terminate become available once again for issuance.

Restricted Stock. Restricted stock issued pursuant to the Incentive
Plan is subject to the following general restrictions: (i) none of such shares
may be sold, transferred, pledged or otherwise encumbered or disposed of until
the restrictions on such shares have lapsed or been removed under the provisions
of the Incentive Plan, and (ii) if a holder of restricted stock ceases to be
employed by the Company, he will forfeit any shares of restricted stock on which
the restrictions have not lapsed or been otherwise removed.

The Compensation Committee will establish as to each share of
restricted stock issued under the Incentive Plan the terms and conditions upon
which the restriction on such shares shall lapse. Such terms and conditions may
include, without limitation, the lapsing of such restrictions at the end of a
specified period of time, as a result of the disability, death or retirement of
the participant. In addition, the Compensation Committee may at any time, in its
sole discretion, accelerate the time at which any or all restrictions will lapse
or remove any and all such restrictions.

Incentive Stock. The Compensation Committee may establish performance
programs with fixed goals and designate key employees as eligible to receive
incentive stock if the goals are achieved. Incentive stock will only be issued
in accordance with the program established by the Compensation Committee. More
than one performance program may be established by the Compensation Committee
and they may operate concurrently or for varied periods of time and a

participant may participate in more than one program at the same time. A
participant who is eligible to receive incentive stock under a performance
program has no rights as a shareholder until such incentive stock is received.

Tax Offset Rights. The Compensation Committee may, in its discretion,
award tax offset rights in conjunction with any incentive award. Tax offset
rights entitle the participant to receive an amount of cash from the Company
sufficient to satisfy the income and payroll taxes legally required to be
withheld upon exercise of an option or tax offset right, upon grant of incentive
stock, or upon the lapse of restriction on restricted stock.

Federal Income Tax Consequences. A participant will not incur federal
income tax when he is granted an option, tax offset right, or, in most cases and
depending on the restrictions imposed, restricted stock. Upon receipt of
incentive stock, a participant will recognize compensation income, which is
subject to income tax withholding by the Company, equal to the fair market value
of the shares of incentive stock on the date of transfer to the participant.

Upon exercise of a nonstatutory stock option, a participant generally
will recognize compensation income, which is subject to income tax withholding
by the Company, equal to the difference between the fair market value of the
Common Stock on the date of the exercise and the option price. The Compensation
Committee has authority under the Incentive Plant to include provisions allowing
the participant to deliver Common Stock, or to elect to have withheld a portion
of the shares he would otherwise acquire upon exercise, to cover his tax
liabilities. The election will be effective only if approved by the Compensation
Committee and made in compliance with other requirements set forth in the
Incentive Plan. When an employee exercises an incentive stock option, he
generally will not recognize income, unless he is subject to the alternative
minimum tax.

If the terms of an option permit, a participant may deliver shares of
Common Stock instead of cash to acquire shares under an option, without having
to recognize taxable gain (except in some cases with respect to "statutory
option stock") on any appreciation in value of the shares delivered. However, if
an employee delivers shares of "statutory option stock" in satisfaction of all,
or any part, of the exercise price under an incentive stock option, and if the
applicable holding periods of the "statutory option stock" have not been met
(two years from grant and one year from exercise), he will be considered to have
made a taxable disposition of the "statutory option stock." "Statutory option
stock" is stock required upon the exercise of incentive stock options.

In general, a participant who receives shares of restricted stock will
include in his gross income as compensation an amount equal to the fair market
value of the shares of restricted stock at the time the restriction lapse or are
removed. Such amounts will be included in income in the tax year in which such
event occurs. The income recognized will be subject to income tax withholding by
the Company.

Upon exercise of a tax offset right, a participant generally will
recognize ordinary income, which is subject to income tax withholding by the
Company, equal to the cash received.

The Company generally will be entitled to a business expense deduction,
except as explained below, at the time and in the amount that the recipient of
an incentive award recognizes ordinary compensation income in connection
herewith. As stated above, this usually occurs upon exercise of nonstatutory
options or tax offset rights, upon the lapse or removal of restrictions on
restricted stock, and upon issuance of incentive stock. Generally, the Company's
deduction is contingent upon the Company's meeting withholding tax requirements.
No deduction is allowed in connection with an incentive stock option, unless the
employee disposes of Common Stock received upon exercise in violation of the
holding period requirements. The Company's right to a tax deduction for income
recognized in connection with incentive awards or the exercise of options by
executives whose total compensation is subject to the proxy disclosure rules
will depend upon whether the compensation of such executive in the aggregate
exceeds $1,000,000; if so, the excess over $1,000,000 will not be deductible.

This summary of the federal income tax consequence of nonstatutory
stock options, incentive stock options, tax offset rights, restricted stock and
incentive stock does not purport to be complete. There may also be state and
local income taxes applicable to theses transactions. Holders of incentive
awards should consult their own advisors with respect to the application of the
laws to them and to understand other tax consequences of the awards including
possible income deferral, alternative minimum tax rules, taxes on parachute
payments and the tax consequences of the sale of shares.

Change in Control Provisions. In the event of a "change in control"
transaction, the Company's Compensation Committee may take any one or more of
the following actions either at the time an incentive award is granted or any
time thereafter: (i) provide for an assumption of incentive awards granted under
the Incentive Plan (which a Common Stock assumption may be effected by means of
a payment to each participant in exchange for the cancellation of the incentive
awards held by such participant, of the difference between the fair market value
of the aggregate number of shares of Common Stock subject to the participant's
incentive awards and the aggregate exercise price that would have to be paid to
acquire such shares); (ii) provide for substitution of appropriate new incentive
awards covering stock to a successor corporation or the Company or an affiliate
thereof; or (iii) give notice to participants that no such assumption or
substitution will be made, in which event each incentive award outstanding shall
automatically accelerate to become fully exercisable immediately before the
effective date for the change in control, except that such acceleration will not
occur if, in the opinion of the Company's outside accountants, it would render
unavailable "pooling of interest" accounting for a change in control that would
otherwise qualify for such accounting treatment. All incentive awards will
terminate immediately following consummation of a change in control, except to
the extent assumed by the successor corporation or an affiliate thereof. In
relation to the Incentive Plan, a "change in control" transaction is defined to
constitute any of the following: (i) approval by the shareholders of a merger or
consolidation in which holders of outstanding voting stock of the Company would
receive less than 50% of the voting stock of the surviving or resulting
corporation; (ii) approval by the shareholders of a plan of liquidation or
approval of the dissolution of the Company; (iii) approval by the shareholders
of the sale or transfer of substantially all of the assets of the Company; or
(iv) the acquisition by a person or group of related persons of beneficial
ownership of 50% or more of the outstanding voting securities of the Company.

Management Option Grants

The Company has agreed that simultaneously with the closing of the
Offering, the Company will issue to Drs. Freer, Harris and Buck and Mr. Reynolds
options to acquire a total of 236,667 shares of Common Stock pursuant to the
Incentive Plan. Options to acquire 70,000 shares will have an exercise price of
$6.00 per share and options to acquire 166,667 shares will have an exercise
price of $9.90 per share. All such options will have terms of ten years. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

Employment Agreements

On June 24, 1997, the Company entered into employment agreements with
each of Drs. Freer, Harris and Buck and Mr. Reynolds. Each of these agreements
has a term of five years and will be extended for successive one-year terms
beginning on the first anniversary of its commencement, unless either the
executive officer or the Company shall have given notice to the other of an
election not to extend the term of the employment agreement; provided that the
Company may not give such notice prior to December 31, 1997. The employment
agreements provide for base salaries of $165,000 for Drs. Freer, Harris and Buck
and $120,000 for Mr. Reynolds, which are adjustable annually at the discretion
of the Compensation Committee. In addition, the employment agreements provide
the Company's executive officers with annual bonuses equal to, in the aggregate,
15% of the Company's pre-tax net income for the preceding fiscal year. Such
bonuses will be paid within 30 days following the release of the Company's
annual audited financial statements. Notwithstanding the foregoing, however, the
bonuses for the executive officers for the fiscal year ending December 31, 1997
shall collectively equal the greater of (i) 15% of the Company's pre-tax net
income or (ii) $150,000. Under each of the employment agreements, the Company
may terminate the executive officers employment at any time for "Cause," as such
term is defined in the employment agreement, without incurring any continuing
obligations to the executive officer. If the Company terminates an executive
officer's employment for any reason other than for "Cause" or if an executive
officer terminates his or her employment for "Good Reason," as such term is
defined in the employment agreement, the Company will remain obligated to
continue to provide the compensation and benefits specified in the executive
officers employment agreement for the duration of what otherwise would have been
the term of the employment agreement. In addition, each employment agreement
contains non-competition provisions. These provisions prohibit each executive
officer from competing with the Company or soliciting its employees under
certain circumstances.

Change in Control Protections

The Company has entered into severance agreements with each of its
executive officers. Each severance agreement (all of which are substantially
similar) has an initial term of five years and will be extended for successive

one-year periods beginning on the first anniversary of its commencement, unless
either the executive officer or the Company shall have given notice to the other
of an election not to extend the term of the severance agreement. If the
employment of any of these executive officers is terminated (with certain
exceptions) within 60 months following a "Change in Control," as such term is
defined in the severance agreement, the executive officer will be entitled to
receive a cash payment equal to two times the annual salary for the most recent
twelve-month period and three times the bonus paid with respect to such period.
To the extent the aggregate benefits available to an executive officer, whether
under his respective severance agreement or otherwise, exceed the limit of three
times the executive's average base compensation provided in Section 280G of the
Code, resulting in the executive officer incurring an excise tax under Section
4999 of the Code or any other taxes or penalties (other than ordinary income or
capital gains taxes), the severance agreements require the Company to pay the
executive officer an additional amount to cover any such excise taxes or
penalties incurred. The Company will not be entitled to a deduction for the
amount in excess of this limit. Neither the Offering nor an initial public
offering of the Common Stock will constitute a Change in Control for purposes of
these agreements.

Liability and Indemnification of Officers and Directors

The Articles eliminate all liability of the Company's directors and
officers for monetary damages to the Company or its shareholders except in the
event of willful misconduct or a knowing violation of the criminal law or any
federal or state securities law. Pursuant to such provisions, the Company's
directors or officers will not be liable for monetary damages to the Company or
its shareholders even if they should fail, through negligence or gross
negligence, to satisfy their duty of care to the Company or its shareholders.

The Articles require indemnification of any person against liability
incurred in connection with any proceeding to which that person is made a party
by reason of (i) his service to the Company as a director or officer or (ii) his
service as director, officer, trustee, or partner to some other enterprise at
the request of the Company, except in the event of willful misconduct or a
knowing violation of the criminal law. The Articles also authorize the Company's
Board of Directors to contract in advance to indemnify any director or officer
by a majority vote of a quorum of disinterested directors. In addition, the
Articles authorize the Company's Board of Directors, by a majority vote of a
quorum of disinterested directors, to cause the Company to indemnify, or agree
to indemnify in advance, to the same extent any person who serves as an
employee, agent or consultant of the Company or who serves at the request of the
Company in some other capacity. See "RISK FACTORS--Limitations on Officers' and
Directors' Liabilities Under Virginia Law."

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. Currently there is no pending litigation or
proceeding involving a director or office of the Company as to which
indemnification is being sought, nor is the Company aware of any threatened
litigation that may result in claims for indemnification by any officer or
director.

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of July 15, 1997 (i) each person who
is known by the Company to own of record or beneficially more than five percent
(5%) of the Common Stock, (ii) each director and executive officer of the
Company and (iii) all directors and executive officers of the Company as a
group. Unless otherwise indicated, each of the persons or entities listed below
has sole voting and investment power with respect to all shares shown
beneficially owned by them, except to the extent such power is shared by a
spouse under applicable law.

- ----------
* Less than one percent (1%)
(1) The table above includes shares of the Company's Common Stock which an
individual has the right to acquire upon the exercise of the Management
Warrants within 60 days of July 15, 1997. Such shares are deemed to be
outstanding for the purpose of calculating the percentage ownership of the
individual holding such shares, but are not deemed to be outstanding for
calculating the percentage of any other person shown on the table.
(2) 911 East Leigh Street, Suite G-19, Richmond, Virginia 23219.
(3) Includes 8,333 shares of Common Stock issuable to Dr. Buck and Leon I.
Salzberg, as tenants in common, upon the conversion of the Note held by
them.
(4) Represents shares of Common Stock issuable to Mr. Trzaski and his spouse,
upon the conversion of the Note held by them.
(5) 1108 East Main Street, Richmond, Virginia 23218.
(6) Tupenny House, Tuckerstown, Bermuda
(7) Represents shares of Common Stock issuable upon the conversion of the Note
held by Dr. Martin.
(8) 1776 K Street, N.W., Washington, D.C. 20006-2304
(9) Represents shares of Common Stock issuable upon the conversion of the Notes
held by Mr. Wallace.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Simultaneously with the closing of the Offering, the Company
anticipates issuing to Drs. Freer, Harris and Buck and Mr. Reynolds options to
acquire an aggregate of 236,667 shares of Common Stock pursuant to the Incentive
Plan. Options to acquire 70,000 shares will have an exercise price of $6.00 per
share, and options to acquire 166,667 will have an exercise price of $9.90 per
share. Each of such options will have a term of 10 years. See
"MANAGEMENT--Management Option Grants."

On June 25, 1997, the Company issued the Management Warrants to members
of the Company's management team. The Management Warrants are exercisable for a
period of ten years at an exercise price of $9.90 per share. The Management
Warrants were issued as noted below:

Richard J. Freer, Ph.D. 28,947 Warrants
Robert B. Harris, Ph.D. 28,947 Warrants
Gregory A. Buck, Ph.D. 28,948 Warrants
Thomas R. Reynolds 13,158 Warrants

On June 25, 1997, the Company entered into an agreement with Mr.
Trzaski pursuant to which the Company agreed to pay certain amounts due to Mr.
Trzaski, and Mr. Trzaski agreed to relinquish certain rights to acquire shares
of the capital stock of the Company in exchange for $110,000, which will be paid
in accordance with the terms of a promissory note. The note provides that the
Company will pay Mr. Trzaski $60,000 on demand at any time after the Company has
increased its working capital to not less than $2,000,000, and will pay him an
additional $50,000 at any time after the Company has increased its working
capital by not less than an additional $3,000,000, provided that the second
payment shall not be made prior to January 1, 1998. The note will bear interest
at an annual rate of 8% on any principal amounts due thereunder. On July 2,
1997, the Company paid the first $60,000 installment of the note to Mr. Trzaski.

In connection with the Private Placement, the Company issued the
Private Placement Warrants to the Underwriter. Shortly thereafter, the
Underwriter assigned warrants to purchase 25,000 shares of the Company's Common
Stock to Charles A. Mills, III, a director of the Company and a principal of the
Underwriter.

The Company, as an S Corporation, made distributions to its
shareholders in 1996 and 1997. These distributions totaled an aggregate of
$79,533 in 1996 and $82,136 for the first six months of 1997.

The Company believes that all of the transactions noted above were made
or will be made on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties. All future transactions between the
Company and its officers, directors and principal shareholders will be approved
in accordance with the Virginia law by a majority of the Board, including a

majority of the independent and disinterested directors of the Board, and will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.

DESCRIPTION OF CAPITAL STOCK

The following summary description of the capital stock of the Company
is qualified in its entirety by reference to the Company's Articles.

Common Stock

The Company is authorized to issue up to 10,000,000 shares of Common
Stock. As of the date of this Prospectus, 71,273 shares of Common Stock are
issued and outstanding. Such shares are held by four holders of record. Upon the
completion of the Offering, the Notes will automatically convert into an
aggregate of 500,000 additional shares of Common Stock. Accrued interest on the
Notes payable in the form of additional shares of Common Stock will also be
issued at that time. For purposes of this Prospectus, the interest on the Notes
has been assumed to be 41,370 shares of Common Stock, the amount that would
accrue through November 21, 1997. See "PRINCIPAL SHAREHOLDERS."

The holders of Common Stock are entitled to one vote for each share on
all matters voted on by shareholders, including elections of directors, and
possess exclusively all voting power except as otherwise required by law. The
Articles do not provide for cumulative voting for the election of directors. The
holders of Common Stock are entitled to such dividends as may be declared from
time to time by the Company's Board of Directors from funds available therefor,
and upon liquidation will be entitled to receive pro rata all assets of the
Company available for distribution to such holders. The holders of Common Stock
have no preemptive or other subscription rights, and there are no conversion
rights or redemption or sinking fund provisions with respect to the Common
Stock.

Warrants

As of the date of this Prospectus, the Company has reserved (a) 83,400
shares of Common Stock issuable upon the exercise of the Underwriter's Warrants,
(b) 50,000 shares of Common Stock issuable upon the exercise of the Private
Placement Warrants, and (c) 100,000 shares of Common Stock issuable upon the
exercise of the Management Warrants.

The Underwriter's Warrants, the Private Placement Warrants and the
Management Warrants (and the shares of Common Stock underlying each) are being
registered with the Offering but are not underwritten and will not necessarily
be sold concurrently with the Common Stock being offered through the
Underwriter. It is anticipated that the Underwriter's Warrants and the Private
Placement Warrants will, however, be listed for trading on the Nasdaq SmallCap
Market under the symbol "______." The Underwriter's Warrants, the Private
Placement Warrants and the Management Warrants were issued subject to the terms
and conditions of certain warrant agreements between the Company and the holders

of such warrants. The following description of the Underwriter's Warrants, the
Private Placement Warrants and the Management Warrants is not complete and is
qualified in all respects by the warrant agreements which are filed as exhibits
to the Registration Statement of which this Prospectus is a part.

Each Underwriter's Warrant and Private Placement Warrant entitles the
holder to purchase one share of Common Stock at an exercise price of $9.90 per
share. The number, character, and exercise price of the shares of Common Stock
underlying these warrants are subject to adjustment in certain events, such as
mergers, reorganizations, stock dividends, subdivisions or reclassifications, to
prevent dilution. The Underwriter's Warrants are exercisable at any time after
one year from the date of this Prospectus until five years from the date of this
Prospectus. The Private Placement Warrants are exercisable during the period
from June 25, 1998 through June 24, 2002. Holders of the Underwriter's Warrants
or the Private Placement Warrants will not, as such, have any of the rights of
stockholders of the Company.

Each Management Warrant entitles the holder to purchase one share
of Common Stock at an exercise price of $9.90 per share. The number, character,
and exercise price of the shares of Common Stock underlying these warrants are
subject to adjustment in certain events, such as mergers, reorganizations, stock
dividends, subdivisions or reclassifications, to prevent dilution. The
Management Warrants are exercisable at any time for a period of ten years
following the issuance thereof. Holders of the Management Warrants will not, as
such, have any of the rights of stockholders of the Company.

In certain cases, the sale of securities by the Company upon
exercise of the Underwriter's Warrants, the Private Placement Warrants or the
Management Warrants could violate the securities laws of the United States,
certain states thereof or other jurisdictions. The Company will use its best
efforts to cause a registration statement with respect to such securities under
the Securities Act to continue to be effective during the respective terms of
the warrants and to take such other actions under the laws of various states as
may be required to cause the sale of securities upon the exercise of the
Underwriter's Warrants, the Private Placement Warrants or the Management
Warrants to be lawful. The Company, however, will not be required to cause the
sale of securities upon exercise of such warrants if, in the opinion of counsel,
the sale of securities upon such exercise would be unlawful.

Certain Provisions of the Company's Articles of Incorporation and Bylaws

The Company's Articles and Bylaws contain provisions that make more
difficult the acquisition of control of the Company by means of a tender offer,
a proxy contest, open market purchases or otherwise. The Articles provide for
the Company's Board of Directors to be divided into three classes serving
staggered terms so that directors initial terms will expire at the 1998, 1999 or
2000 Annual Meeting. Starting with the 1998 Annual Meeting, one class of
directors will be elected each year for a three-year term subject to the rights
of the holders of any series or class of Preferred Stock then outstanding. A
director may be removed only for cause.

The Articles follow the Virginia Act by requiring the affirmative vote
of more than two-thirds of the outstanding shares of Common Stock for the

approval of mergers, share exchanges, certain dispositions of assets and other
extraordinary transactions. In addition, the affirmative vote of at least
two-thirds of the outstanding shares of each voting group of capital stock is
required for approval of an Affiliated Transaction (as defined below) with an
Interested Shareholder (as defined below), subject to certain exceptions
comparable to those contained in the Virginia Act. See "--Certain Corporate
Governance Provisions of the Virginia Act." The Articles further require the
affirmative vote of the majority of the outstanding shares of Common Stock for
the approval of amendments to the Articles, except that the affirmative vote of
at least two-thirds of the outstanding shares of Common Stock is required to
approve an amendment to the provisions of the Articles establishing the
classified board and the super majority voting requirement for Affiliated
Transactions.

The Bylaws establish an advance notice procedure for the nomination of
candidates for election as directors, other than by the Board of Directors of
the Company, and for certain matters to be brought before an Annual Meeting of
the Company. A shareholder must give the Company notice not less than 90 days
prior to an Annual Meeting of shareholders to (i) nominate persons to be elected
directors of the Company at such meeting or (ii) propose business matters to be
considered at such meeting.

The purpose of the relevant provisions of the Articles and Bylaws is to
discourage certain types of transactions that may involve an actual or
threatened change of control of the Company and to encourage persons seeking to
acquire control of the Company to consult first with the Company Board of
Directors to negotiate the terms of any proposed business combination or offer.
The provisions are designed to reduce the vulnerability of the Company to an
unsolicited proposal for a takeover of the Company that does not have the effect
of maximizing long-term shareholder value or is otherwise unfair to shareholders
of the Company, or an unsolicited proposal for the restructuring or sale of all
or part of the Company that could have such effects. See "RISK
FACTORS--Anti-Takeover Provisions."

Certain Corporate Governance Provisions of the Virginia Act

The Company is subject to the "affiliated transactions" provisions of
the Virginia Act which restrict certain transactions between the Company and any
person (an "Interested Shareholder") who beneficially owns more than 10% of any
class of the Company's voting securities ("Affiliated Transactions"). These
restrictions, which are described below, do not apply to an Affiliated
Transaction with an Interested Shareholder who has been such continuously since
the date the Company first had 300 shareholders of record or whose acquisition
of shares making such person an Interested Shareholder was previously approved
by a majority of the Company's Disinterested Directors. "Disinterested Director"
means, with respect to a particular Interested Shareholder, a member of the
Company's Board of Directors who was (i) a member on the date on which an
Interested Shareholder became an Interested Shareholder or (ii) recommended for
election by, or was elected to fill a vacancy and received the affirmative vote
of, a majority of the Disinterested Directors then on the Board of Directors.
Affiliated Transactions include mergers, share exchanges, material dispositions
of corporate assets not in the ordinary course of business, any dissolution of
the Company proposed by or on behalf of an Interested Shareholder, or any
reclassification, including reverse stock splits, recapitalization or merger of
the Company with its subsidiaries, which increases the percentage of voting
shares owned beneficially by an Interested Shareholder by more than five
percent.

The "affiliated transactions" statute prohibits the Company from
engaging in an Affiliated Transaction with an Interested Shareholder for a
period of three years after the Interested Shareholder became such unless the
transaction is approved by the affirmative vote of a majority of the
Disinterested Directors and by the affirmative vote of the holders of two-thirds
of the voting shares other than those shares beneficially owned by the
Interested Shareholder. Following the three-year period, in addition to any
other vote required by law or by the Articles, an Affiliated Transaction must be
approved either by a majority of the Disinterested Directors or by the
shareholder vote described in the preceding sentence unless the transaction
satisfies the fair-price provisions of the statute. These fair-price provisions
require, in general, that the consideration to be received by shareholders in
the Affiliated Transaction (i) be in cash or in the form of consideration used
by the Interested Shareholder to acquire the largest number of its shares and
(ii) not be less, on a per share basis, than an amount determined in the manner
specified in the statute by reference to the highest price paid by the
Interested Shareholder for shares it acquired and the fair market value of the
shares on specified dates.

The Company is also subject to the "control share acquisitions"
provisions of the Virginia Act, which provide that shares of the Company's
voting securities which are acquired in a "Control Share Acquisition" have no
voting rights unless such rights are granted by a shareholders' resolution
approved by the holders of a majority of the votes entitled to be cast on the
election of directors by persons other than the acquiring person or any officer
or employee-director of the Company. A "Control Share Acquisition" is an
acquisition of voting shares which, when added to all other voting shares
beneficially owned by the acquiring person, would cause such person's voting
strength with respect to the election of directors to meet or exceed any of the
following thresholds: (i) one-fifth, (ii) one-third or (iii) a majority.
"Beneficial ownership" means the sole or shared power to dispose or direct the
disposition of shares, or the sole or shared power to vote or direct the voting
of shares, or the sole or shared power to acquire shares, including any such
power which is not immediately exercisable, whether such power is direct or
indirect or through any contract, arrangement, understanding, relationship or
otherwise. A person shall be deemed to be a beneficial owner of shares as to
which such person may exercise voting power by virtue of an irrevocable proxy
conferring the right to vote. An acquiring person is entitled, before or after a
Control Share Acquisition, to file a disclosure statement with the Company and
demand a special meeting of shareholders to be called for the purpose of
considering whether to grant voting rights for the shares acquired or proposed
to be acquired. The Company may, during specified periods, redeem the shares so
acquired if no disclosure statement is filed or if the shareholders have failed
to grant voting rights to such shares. In the event full voting rights are
granted to an acquiring person who then has majority voting power, those
shareholders who did not vote in favor of such grant are entitled to dissent and
demand payment of the fair value of their shares from the Company. The control
share acquisitions statute does not apply to an actual or proposed Control Share
Acquisition if the Articles or the Company's Bylaws are amended, within the time
limits specified in the statute, to so provide.

A corporation may, at its option, elect not to be governed by the
foregoing provisions of the Virginia Act by amending its articles of
incorporation or bylaws to exempt itself from coverage; provided, however, any
such election not to be governed by the "affiliated transactions" statute must
be approved by the corporation's shareholders and will not become effective
until 18 months after the date it is adopted. The Company has not elected to
exempt itself from coverage under these statutes. See "RISK FACTORS--Limitation
on Officers and Directors Liabilities Under Virginia Law."

Effect of Certain Provisions Upon an Attempt to Acquire Control of the Company

The foregoing provisions of the Company's Articles and Bylaws, as well
as the provisions of Virginia law described above, make more difficult, and may
discourage certain types of potential acquirers from proposing, a merger, tender
offer or proxy contest, even if such transaction or occurrence may be favorable
to the interests of the shareholders. Similarly, such provisions may delay or
frustrate the assumption of control by a holder of a large block of Common Stock
and the removal of incumbent management, even if such removal might be
beneficial to shareholders. By discouraging takeover attempts, these provisions
might have the incidental effect of inhibiting (i) certain changes in management
and (ii) the temporary fluctuations in the market price of the shares that often
result from actual or considered takeover attempts. See "RISK
FACTORS--Limitations on Officers' and Directors' Liabilities Under Virginia
Law."

Transfer Agent and Registrar

American Securities Transfer & Trust, Inc. will serve as the Company's
transfer agent and registrar.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time. The
availability for sale or sales of substantial amounts of Common Stock of the
Company in the public market could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future.

Upon completion of the Offering, the Company will have 1,446,643 shares
of Common Stock outstanding. Of these shares, the 834,000 shares of Common Stock
sold in this Offering will be freely transferable without restriction or further
registration under the Act, except shares purchased by an affiliate (in general,
a person who is in a control relationship with the Company) which will be
subject to the limitations of Rule 144. Notwithstanding the foregoing, however,
transfer of the Underwriter's Warrants, the Private Placement Warrants and the
shares of Common Stock underlying these warrants is restricted to bona fide
officers of the Underwriter for a one-year period in accordance with the rules
of the National Association of Securities Dealers, Inc. In addition, the 541,370
shares of Common Stock assumed for purposes of this Prospectus to be issuable
upon the conversion of the Notes will be freely transferable without restriction
or further registration in accordance with the resale provisions contained in
this Prospectus.

The remaining 71,273 shares of Common Stock are held by the Company's
executive officers and are "restricted securities" as that term is defined in
Rule 144 ("Restricted Shares"). Restricted Shares may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144 or 144(k), which rules are summarized below. As a result of the
provisions of Rules 144 and 144(k), all 71,273 Restricted Shares will be
available for sale in the public market commencing 90 days after the
effectiveness of the registration statement of which this Prospectus is a part.

In the event the Underwriter's Warrants, the Private Placement Warrants
or the Management Warrants are exercised, the holders of 233,400 shares of
Common Stock, or their permitted transferees, will hold shares that are freely
tradable without restriction under the Securities Act in accordance with the
resale provisions contained in this Prospectus.

See "RISK FACTORS--No Prior Market for Common Stock," "--Volatility of
Stock Price" and "--Shares Eligible for Future Sale."

In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this Prospectus, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least one year
(including the holding period of any prior owner except an affiliate of the
Company) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding or (ii) the average weekly trading
volume of the Common Stock on The NASDAQ SmallCap Market during the four
calendar weeks preceding the sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holding period of any
prior owner except an affiliate), is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144; therefore, unless otherwise restricted, "144(k)
shares" may therefore be sold immediately upon the completion of the Offering.

SELLING SECURITYHOLDERS

In addition to the shares of Common Stock included in the Offering, the
registration statement of which this Prospectus forms a part covers the resale
by the Selling Securityholders (as defined below) of the Resale Securities,
consisting of (a) 541,370 shares of Common Stock issuable upon conversion of the
Notes, (b) the Underwriter's Warrants, (c) the Private Placement Warrants, (d)
the Management Warrants, and (e) an aggregate of 233,400 shares of Common Stock
underlying the Underwriter's Warrants, the Private Placement Warrants and the
Management Warrants. In the event such warrants are exercised, the shares being
registered on behalf of the Underwriter, the holders of Notes and certain
affiliates of the Company noted below (collectively, the "Selling
Securityholders") will constitute 53.6% of the outstanding shares of Common
Stock upon completion of the Offering. The Resale Securities are not being
underwritten as a part of the Offering and may be sold from time to time as
described under the caption "PLAN OF DISTRIBUTION FOR SELLING SECURITYHOLDERS."
The Company will not receive any of the proceeds on the sale of the securities
by the Selling Securityholders (other than the proceeds from the exercise of the
warrants). The resale of the securities of the Selling Securityholders are
subject to prospectus delivery and other requirements of the Securities Act.
Sales of such securities or the potential of such sale at any time may have an
adverse effect on the market prices of the securities offered hereby. See "Risk
Factors -- Shares Eligible for Future Sale."

The following table sets forth the number of shares of Common Stock and
warrants owned by each Selling Securityholder upon completion of the Offering,
the number of warrants and shares of Common Stock being offered and the number
of shares and the percentage of the class to be owned after the Offering is
complete. The information contained in the following table assumes the
conversion of the Notes in accordance with their terms.

- ------------
* Less than one percent (1%)
(1) The warrants offered hereby may be exercised and an identical number of
shares of Common Stock is issuable by the Company.
(2) Excludes shares of Common Stock held by Dr. Buck in an individual capacity.
(3) Officers and directors of the Company
(4) Includes shares of Common Stock held by Dr. Buck and Leon I. Salzberg, as
tenants in common.

PLAN OF DISTRIBUTION
FOR SELLING SECURITYHOLDERS

The securities offered hereby may be sold from time to time directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through underwriters, dealers or agents. The
distribution of securities by the Selling Securityholders may be effected in one
or more transactions that may take place in the market, including ordinary
brokerage transactions, privately-negotiated transactions or sales to one or
more broker-dealers for resale of such shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Securityholders in
connection with such sales of securities. The securities offered by the Selling
Securityholders may be sold by one or more of the following methods, without
limitations: (a) a block trade in which a broker-dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction; (b) purchases by a broker-dealer as
principal and resale by such broker-dealer for its account pursuant to this
Prospectus; (c) ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers, and (d) face-to-face transactions between
sellers and purchasers without a broker-dealer. In effecting sales,
broker-dealers engaged by the Selling Securityholders may arrange for other
broker-dealers to participate. The Selling Securityholders and intermediaries
through whom such securities are sold may be deemed "underwriters" within the
meaning of the Securities Act with respect to the securities offered, and any
profits realized or commissions received may be deemed underwriting
compensation.

At the time a particular offer of securities is made by or on behalf of
a Selling Securityholder, to the extent required, a Prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for sales
purchased from the Selling Securityholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and the proposed selling
price to the public.

Sales of securities by the Selling Securityholders or even the
potential of such sales would likely have an adverse effect on the market
prices of the securities offered hereby. See "Risk Factors -- Shares
Eligible for Future Sale."

UNDERWRITING

The Company has engaged the Underwriter to conduct the Offering on a
"best efforts, all-or-none" basis. The Offering is being made without a firm
commitment by the Underwriter, which has no obligation or commitment to purchase
any of the Common Stock. The Underwriter has advised the Company that it
proposes to offer the Common Stock to the public at the price shown on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $.04 per share.

The shares of Common Stock underlying the Notes, the Underwriter's
Warrants, the Private Placement Warrants the Management Warrants, and the shares
of Common Stock underlying such warrants, are being registered contemporaneously
with the shares of Common Stock being sold by the Company in the Offering, but
are not part of the underwritten offering. See "SELLING SECURITYHOLDERS."

Unless sooner withdrawn or canceled by either the Company or the
Underwriter, the Offering will continue until the earlier of the date on which
all of the Common Stock offered hereby is sold or November 21, 1997 (the
"Offering Termination Date"). Until the closing of the Offering, all proceeds
from the sale of the Common Stock will be deposited in escrow with
______________ (the "Escrow Agent"). Proceeds deposited in escrow with the
Escrow Agent may not be withdrawn by investors prior to the earlier of the
closing of the Offering or the Offering Termination Date. If the Offering is
withdrawn or canceled or if the 834,000 shares of Common Stock offered hereby
are not sold and proceeds therefrom are not received by the Company on or prior
to the Offering Termination Date, all proceeds will be returned by the Escrow
Agent without interest to the persons from which they are received within five
(5) business days after such withdrawal or cancellation.

Pursuant to that certain Underwriting Agreement by and between the
Company and the Underwriter, the obligations of the Underwriter to solicit
offers to purchase the Common Stock and of investors solicited by the
Underwriter to purchase the Common Stock are subject to approval of certain
legal matters by counsel to the Underwriter and to various other conditions
which are customary in transactions of this type, including, that, as of the
closing of the Offering, there shall not have occurred (a) a suspension or
material limitation in trading in securities generally on the New York Stock
Exchange or the publication of quotations on the Nasdaq Stock Market (National
Market System or SmallCap Market); (ii) a general moratorium on commercial
banking activities in the Commonwealth of Virginia or the State of New York;
(iii) the engagement by the United States in hostilities which have resulted in
the declaration of a national emergency or war if any such event would have a
material adverse effect, in the Underwriter's reasonable judgment, as to make it
impracticable or inadvisable to proceed with the solicitation of offers to
consummate the Offering with respect to investors solicited by the Underwriter
on the terms and conditions contemplated herein. The Company has agreed to
indemnify the Underwriter against certain liabilities, including liabilities
under the Securities Act.

Mr. Einselen, Senior Vice President of the Underwriter, and Mr.
Mills, Chairman of the Board of the Underwriter, serve as directors of the
Company. Mr. Einselen and Mr. Mills will each receive a Director's Fee for
services rendered to the Company. In addition, the Company will reimburse
them for any expenses incurred in attending such Board meetings. See
"MANAGEMENT--Director Compensation."

The Underwriter does not intend to sell the Common Stock to any
accounts over which it exercises discretionary authority.

The initial public offering price of the Common Stock along with the
exercise prices of the Underwriter's Warrants and the Private Placement
Warrants, which are being registered with the Common Stock, but are not very
underwritten, have been determined by negotiation between the Company and the
Underwriter and is not necessarily related to the Company's asset value, net
worth or other established criteria of value. Factors considered in determining
the public offering price of the Common Stock and the exercise prices of the
Underwriter's Warrants and the Private Placement Warrants include the business
in which the Company is engaged, the stage of development of the Company's
activities, the Company's financial condition, and assessment of management, the
general condition of the securities markets and the demand for similar
securities of comparable companies.

As additional underwriting compensation, the Company has agreed to sell
the Underwriter's Warrants to the Underwriter at a purchase price of $.001 per
warrant upon completion of the Offering. The exercise price of the Underwriter's
Warrants shall be $9.90 per share. The purchase price of the Underwriter's
Warrants and the exercise price thereof (165% of the initial public offering
price of the Common Stock) was determined by negotiation between the Company and
the Underwriter. The factors considered in determining these values are noted
above.

LEGAL MATTERS

The validity of shares of Common Stock offered hereby will be passed
upon for the Company by LeClair Ryan, A Professional Corporation, Richmond,
Virginia. Willcox & Savage, P.C., Norfolk, Virginia, has acted as counsel for
the Underwriter with respect to certain legal matters relating to the Common
Stock offered hereby.

EXPERTS

The financial statements of the Company as of December 31, 1996 and
1995, and for the years then ended appearing in this Prospectus and Registration
Statement have been audited by Goodman & Company, L.L.P., independent public
accountants, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and have been included herein in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on
Form SB-2 (as amended from time to time and together with all exhibits and
schedules thereto, the "Registration Statement") under the Securities Act with
respect to the Common Stock to be sold in the Offering. This Prospectus
constitutes a part of the Registration Statement and does not contain all the
information set forth therein, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.

For further information regarding the Company and the Common Stock to
be sold in the Offering, reference is hereby made to the Registration Statement.
A copy of the Registration Statement, including the exhibits and schedules
thereto, may be inspected by anyone without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following Regional Offices of the Commission:
New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York
10048; and Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of the Registration Statement and the exhibits
and schedules thereto can be obtained from the Public Reference Section of the
Commission upon payment of prescribed fees. In addition the Commission maintains
a Web site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the Commission. Such
information can be accessed free of charge (other than costs associated with
acquiring access to the Internet) at the Commission's Web site
(http://www.sec.gov).

Prior to filing the Registration Statement of which this Prospectus is
a part, the Company was not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act. Upon effectiveness of the Registration
Statement, the Company will become subject to the informational and periodic
reporting requirements of the Exchange Act, and in accordance therewith, will
file periodic reports, proxy statements and other information with the
Commission. Such periodic reports, proxy statements and other information will
be available for inspection and copying at the public reference facilities and
other regional officers referred to above. The Company intends to register the
securities offered by the Registration Statement under the Exchange Act
simultaneously with the effectiveness of the Registration Statement and to
furnish its shareholders with annual reports containing audited financial
statements and quarterly reports for the first three quarters of each fiscal
year containing unaudited interim financial information.

The Common Stock registered in connection with the Offering will be
listed on The Nasdaq SmallCap Market. Reports and other information required to
be filed with such market may be inspected at the offices of The Nasdaq SmallCap
Market at 1735 K Street, N.W., Washington, D.C. 20006.

GLOSSARY

Amino Acids - The basic building blocks of proteins and peptides. There
are twenty naturally occurring amino acids that differ from each other in
chemical structures and physicochemical properties.

Amino Acid Analysis - The process by which the number or quantity of
amino acids in a particular protein, peptide or physiological fluid are
measured.

Biophysical - Having to do with the intrinsic properties of the
macromolecule.

Calorimetry Studies - A biophysical technique for determining the
relative structural stability of a macromolecule. In some calorimetry
experiments (differential scanning calorimetry), the amount of heat necessary to
unfold (denature) a macromolecule is determined, while in other types of
calorimetry experiments (isothermal titration calorimetry), the amount of heat
that accompanies the binding between two molecules is determined.

Coagulation - The process by which blood clots.

DNA (deoxyribonucleic acid) - Genes are composed of long strands of
DNA, which are, in turn, assembled from individual nucleotides. The particular
arrangement (sequence) of nucleotides in a strand of DNA encodes the sequence of
individual proteins. Each cell of the human body is estimated to contain
approximately 100,000 genes, although not every gene is expressed in each cell.

DNA Sequence Analysis - The process by which the sequence of
nucleotides in a strand of DNA is determined.

Electrolytes - Charged species in the blood, such as sodium or
chloride, that help maintain cell integrity and vascular tone.

Enzymes - Often called "nature's catalysts," enzymes carry out
virtually every critical biological function necessary for life, such as the
conversion of food stuffs into energy, the conversion of inactive proteins into
active peptides, and the synthesis of DNA or RNA. Enzymes are, in effect,
specialized proteins.

Fibrinolysis - The process by which blood clots are dissolved.

Gene - The unit of the genome used to describe the structural and
genetic features of DNA which encode for a functional protein.

Genome Sequencing - Performing DNA sequence analysis of an organism
with the goal of determining all of the sequence contained in its genetic
material.

Gene Therapy - The process by which diseases of hereditary, genetic,
cancer or infectious etiology are treated with products of recombinant DNA.

Hemostasis - The balance between coagulation and fibrinolysis that
maintains normal cardiovascular function and tone.

Heparin - A complex carbohydrate composed of long chains of highly
negatively charged, individual saccharide (sugar) residues of known chemical
structure. Heparin possesses many biological activities, including the ability
to cause anti-coagulation and the ability to inhibit the proliferation of smooth
muscle cells.

Macromolecules - Any of the organic molecules essential for life. DNA,
RNA, and proteins are all considered macromolecules.

Mass Spectral Analysis- A process by which the atomic mass of an
organic molecule can be determined with great precision.

Mutation Analysis- The process by which mutations in genes responsible
for cancer and metabolic and hereditary diseases are identified and
characterized.

Nucleotides - The basic building blocks of DNA and RNA strands. There
are four chemically distinct nucleotides that make up DNA; three of these
nucleotides are also found in RNA along with a fifth structurally distinct
nucleotide.

Oligonucleotide - An assemblage of more than one nucleotide.
Oligonucleotides can be in the deoxy or ribonucleotide families.

Peptide - Peptides are small proteins, usually encompassing fewer than
80 amino acid residues. Different peptides are intimately involved in regulating
most aspects of human physiology, including neurotransmission, regulation of
electrolytes in blood, reproduction and vascular tone.

Physiochemical - Relating to the physical and chemical properties a of
a particular compound.

Physiological Fluid - Fluids such as blood, urine or lymph.

Proteins - Proteins are composed of long strands of amino acids
assembled in particular order, the sequences of all proteins are coded by genes.
There are many specialized classes of proteins, such as enzymes, peptides,
antibodies and structural proteins (e.g., keratin, collagen, and elastin).

Protein Sequence Analysis - The process by which the sequence of
amino acids that make up a protein chain is determined.

RNA (Ribonucleic Acid) - Long strands of RNA are composed of individual
nucleotides, in much the same was as DNA is composed of individual nucleotides.
The order in which the nucleotides of RNA are assembled is dictated by the
sequence of the genomic DNA from which it is transcribed. RNA performs many
physiological functions, and specialized RNA molecules carry out the assembly of
amino acids into proteins.

Solid-Phase Peptide Synthesis - A strategy for chemical synthesis of
amino acids into peptides.

Spectroscopy - Any study which uses electromagnetic radiation (light
waves, X-rays, radio waves, etc.)

INDEX TO FINANCIAL STATEMENTS

INDEX

PAGE

FINANCIAL STATEMENTS:

REPORT OF INDEPENDENT AUDITORS F-2

BALANCE SHEETS F-3

STATEMENTS OF INCOME F-4

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY F-5

STATEMENTS OF CASH FLOWS F-6

NOTES TO FINANCIAL STATEMENTS F-7 - F-14

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Commonwealth Biotechnologies, Inc.

We have audited the accompanying balance sheets of Commonwealth
Biotechnologies, Inc. (the Company) as of December 31, 1996 and 1995, and the
related statements of income, changes in shareholders' equity, and cash flows
for the years then ended. 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 Commonwealth
Biotechnologies, Inc. at December 31, 1996 and 1995, and the results of its
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.

/s/ GOODMAN & COMPANY, L.L.P.

7301 Forest Avenue
Richmond, Virginia
June 10, 1997
(except for Notes 2, 11, 12 and 13,
as to which the date is
June 25, 1997)

COMMONWEALTH BIOTECHNOLOGIES, INC.

BALANCE SHEETS

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

COMMONWEALTH BIOTECHNOLOGIES, INC.

STATEMENTS OF INCOME

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

COMMONWEALTH BIOTECHNOLOGIES, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

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

COMMONWEALTH BIOTECHNOLOGIES, INC.

STATEMENT OF CASH FLOWS

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

COMMONWEALTH BIOTECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION

Commonwealth Biotechnologies, Inc., a Virginia S Corporation (the
"Company"), was formed on September 30, 1992, for the purpose of providing
specialized analytical laboratory services for the life scientist. The Company
provides basic research services in the general areas of protein/peptide and
DNA/RNA chemistries. Such services include synthesis, sequence analysis,
composition analysis, protein purification and biophysical characterization of
biologically relevant materials. The Company also pursues its own research and
development leading to intellectual properties.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Information

The unaudited financial statements as of March 31, 1997, and for the
three months ended March 31, 1997 and 1996, include, in the opinion of
management, all adjustments necessary to present fairly the Company's financial
position, results of operations, changes in shareholders' equity and cash flows.
All such adjustments are of a normal and recurring nature. The results of
operations for the unaudited three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.

Revenue Recognition

The Company recognizes revenue and related profit upon the completion
of laboratory service projects, or upon delivery of biologically relevant
materials that have been synthesized. Research revenues are generally recognized
as the expenses for research and development performed under the terms of the
research contracts and grants are incurred. However, any revenues resulting from
the achievement of objectives would be recognized when the objectives are
achieved. Amounts received in advance of services to be performed are recorded
as deferred revenue.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.

Property and Equipment

Property and equipment are recorded at cost. Depreciation and
amortization expense is recorded over the estimated useful lives of the assets.
The straight-line method is used by the Company in providing depreciation and
amortization for financial reporting purposes. The cost of repairs and
maintenance is expensed as incurred. The estimated useful lives of assets are as
follows:

Laboratory equipment 5 years
Furniture and fixtures 7 years
Computer equipment and improvements 30 months to 5 years

(Notes continued on next page)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Other Assets

Other assets consist of the organizational costs associated with the
formation of the Company and are amortized over five years.

Income Taxes and Subsequent Event

The Company has been an S Corporation since January 1, 1993 for federal
income tax purposes. Accordingly, the taxable income or loss of the Company has
been "passed-through" to its shareholders, and they have been subject to the tax
on any income earned by the Company.

As more fully described in Note 10, the Company organized a private
placement offering of convertible subordinated notes which caused the income tax
status of the Company to change. Management believes that the Company is no
longer eligible for S Corporation status effective June 25, 1997. Therefore, at
June 25, 1997, any undistributed earnings or losses will be treated as a
constructive distribution and reclassified to additional paid-in capital. As a C
Corporation, the Company will be responsible for income taxes payable resulting
from earnings subsequent to June 25, 1997. Additionally, under the provisions of
Financial Accounting Standards Board ("FASB") Statement No. 109, Accounting for
Income Taxes, deferred tax assets and liabilities are computed based on the
difference between the financial statement and tax bases of assets and
liabilities using currently enacted tax rates.

At March 31, 1997 (unaudited) and December 31, 1996, the Company's
deferred taxes would have consisted of differences attributable to the cash
basis of accounting and accelerated methods of depreciation used for income tax
purposes. If the Company had been a C Corporation for all periods presented, at
March 31, 1997, its current tax liability for federal and state taxes would have
been $34,268; its deferred tax liabilities would have been $70,919 and its
retained earnings would be decreased by $145,118. At December 31, 1996, its
current tax liability for federal and state taxes would have been $39,931; its
deferred tax liabilities would have been $35,068 and its retained earnings would
be decreased by $74,999.

Research & Development

Costs incurred in connection with research and development activities
are expensed as incurred. These consist of direct and indirect costs associated
with specific research and development projects.

Advertising Costs

The Company expenses all advertising costs as incurred. Total
advertising expense for the three months ended March 31, 1997 (unaudited), March
31, 1996 (unaudited), and for the years ended December 31, 1996 and 1995 was
$11,293, $4,045, $25,008 and $26,286, respectively.

Proforma Earnings Per Common and Common Equivalent Share

The proforma earnings per common and common equivalent share was
computed by dividing the proforma net income, including applying the effects of
proforma income taxes, by the weighted average number of shares of common stock
and common stock equivalents outstanding during each period. Common stock
equivalents include the effects of the Company's convertible subordinated notes
and warrants that are assumed to be exercised or converted into common stock for
the earliest period presented. The Company's warrants are antidilutive. However,
pursuant to Securities and Exchange Commission ("SEC") rules (Staff Accounting
Bulletin No. 83), shares of stock sold, stock options and warrants granted and
convertible subordinated notes issued within one year of the date of the
comtemplated initial public offering (but exclusive of the initial public
offering itself) have been included in the calculation of common stock
equivalents, using the treasury stock method, as if they were outstanding for
all periods presented, even if the effect is antidilutive.

(Notes continued on next page)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Proforma Earnings Per Common and Common Equivalent Share (Continued)

The number of shares outstanding for the purpose of presenting proforma
earnings per common and common equivalent share gives effect retroactively for
the 93.78-for-one stock split that occurred on June 17, 1997. After giving
retroactive effect to the stock split, the weighted average number of shares
outstanding during the year ended December 31, 1996 and the three months ended
March 31, 1997 (unaudited) was 71,273. For December 31, 1996 and 1995, and March
31, 1997 (unaudited) and March 31, 1996 (unaudited), the average common
equivalent shares used to calculate proforma earnings per common and common
equivalent share were 473,773. This includes the Company's presently outstanding
common shares of 71,273, 500,000 shares relating to the Company's convertible
subordinated notes on an "as if converted" basis, and the antidilutive effect of
the Company's 150,000 warrants converted using the Treasury Stock method to
reduce the shares outstanding by 97,500. The antidilutive component results from
the exercise price of $9.90 for each of the Company's warrants being greater
than the $6.00 anticipated market price of the Company's common stock.

Credit Risk

The Company provides laboratory services primarily to researchers in
North America (United States, Canada). Other major clients are located in South
America (Brazil, Colombia), in the far east (Japan, Korea), and in Europe
(Norway, Sweden, Germany, Italy, France, Greece). For projects exceeding $5,000,
the Company mitigates its credit risk by requiring a deposit of 50% of total
anticipated billings. The Company performs ongoing credit evaluations of its
customers and generally does not require additional collateral on its laboratory
services. However, the Company provides a charge to bad debts when, in the
opinion of management, such balances are not deemed to be collectible.

The Company primarily invests its excess cash in a money market fund
administered by an institutional investment firm and also in overnight deposits
managed by a financial institution and, at times, these deposits may exceed
federally insured limits.

Estimates

The preparation of 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.

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at:

March 31, December 31,
1997 1996 1995
------------- ------------------------
(Unaudited)
Laboratory equipment $ 563,342 $ 359,476 $ 180,574
Furniture and fixtures 1,925 1,925 -
Office equipment and improvements 16,983 16,983 3,012
------------- ------------------------
582,250 378,384 183,586
Less accumulated depreciation and
amortization (159,970) (134,773) (82,837)
------------- ------------------------
Property and equipment, net $ 422,280 $ 243,611 $ 100,749
============= ========================

(Notes continued on next page)

NOTE 4 - LONG-TERM DEBT

Long-term debt consists of the following at:

(Notes continued on next page)

NOTE 4 - LONG-TERM DEBT (Continued)

Five-year maturities of long-term debt are as follows at December 31, 1996:

1997 $ 37,293
1998 40,417
1999 43,826
2000 47,545
2001 38,899
Thereafter 15,000
-----------
$ 222,980
===========

NOTE 5 - DEMAND NOTE PAYABLE

The Company has a demand note payable to Crestar Bank in the amount of
$42,000 at March 31, 1997. The note bears interest at the rate of prime plus 1%.
Interest is payable monthly. The note is unsecured.

NOTE 6 - CAPITAL LEASE OBLIGATIONS

The Company acquired, in January 1994, certain computer equipment for
its laboratory from Hewlett Packard Company under a capital lease in the amount
of $104,500. The lease terms called for monthly lease payments of $2,049 to be
made through December 1998 at an implicit lease rate of 8.44%. The lease was
paid off during 1996. Accumulated depreciation and depreciation expense on the
assets previously subject to capital lease amounted to $41,800 at December 31,
1996 and $20,900 for 1996, respectively.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

Leases

During 1996 and 1995, the Company was engaged in a noncancellable
operating lease for its laboratory and office space from the Virginia
Biotechnology Research Park in Richmond, Virginia as a sub- landlord for the
City of Richmond. The monthly rental payment through the culmination of the
lease at June 30, 1997 is $691.

Beginning July 1, 1997, the Company will lease its current laboratory
and office space, directly from the City of Richmond. The monthly rental payment
will increase to $3,222. The initial term of the lease will extend through June
30, 2000, however, either party may cancel the lease with nine months notice.

The Company also leases certain of its office equipment under a
noncancelable lease agreement which expires in October 1999.

Future minimum payments under these noncancelable operating leases are
as follows:

1997 $ 27,354
1998 13,542
1999 11,199
---------------
$ 52,095
===============

Total rent expense for all operating leases for each of the years ended
December 31, 1996 and 1995 was $8,291.

(Notes continued on next page)

NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

Sales Commitments

In December 31, 1996, the Company entered into a contract with one
customer to perform structural studies on a proprietary protein product totaling
approximately $200,000. As of December 31, 1996, no services have been rendered
pursuant to this contract.

At December 31, 1996, the Company is performing under contract with
several companies. These companies include Insmed Pharmaceuticals (Richmond,
Virginia), Bayer Corporation (Clayton, North Carolina, Raleigh, North Carolina,
West Haven, Connecticut and Berkley, California), Breastek, Inc. (Charleston,
South Carolina) and Somatix Therapeutics Corporation (Alameda, California). The
company is the major biochemistry subcontractor to a grant issued by the
University of New Mexico, Department of Chemical and Nuclear Engineering at
Albuquerque, New Mexico.

Sponsored Research Contract and Consulting Agreement

The Company entered into a sponsored research agreement (the
"Agreement") with Virginia Commonwealth University (the "University") on
November 15, 1992. Unless canceled by written notification by either party, the
Agreement automatically renews annually. The Agreement allows CBI personnel
access to equipment located within the academic laboratories of certain
professors, who are also officers of the Company. The laboratories are located
on the campus of the Medical College of Virginia (an affiliate of the
University). The Agreement carries a fee for service schedule, which allows for
payment to the University for use of the equipment. The Company has since
purchased its own equipment and reduced its dependence on the University's
equipment to a level that total payments made to the University are
approximately $1,200 per calendar quarter.

NOTE 8 - RETIREMENT PLAN

Effective October 1, 1996, the Company adopted an employee 401(k)
retirement plan. Qualified employees may contribute up to 15% of their gross pay
to the plan. Employee contributions are limited to amounts established by law.
The Company may make matching contributions to the plan as determined by the
Board of Directors subject to the limitations under the Internal Revenue Code.
The Company made no contributions to the Plan during the three-month period
ended March 31, 1997, or in 1996 or 1995.

NOTE 9 - MAJOR CUSTOMERS

The Company had the following revenue concentrations that exceeded 10%:

These research revenues represent 48.3%, 30.81% and 29.74% of total
revenue for the three months ended March 31, 1997 (unaudited) and for the years
ended December 31, 1996 and 1995, respectively.

(Notes continued on next page)

NOTE 10 - COMPENSATION AND BENEFIT COSTS

Compensation and benefit costs are included in the statements of
operations as follows:

NOTE 11 - PRIVATE PLACEMENT AND PROPOSED INITIAL PUBLIC OFFERING ("IPO")

On June 24, 1997, the Company declared a 93.78-for-1 stock split which
has been retroactively reflected in the accompanying financial statements.

On June 25, 1997, the Company sold 60 convertible subordinated notes
("notes"), with a principal amount of $50,000, in a private placement offering
at an offering price of $50,000 per note. Each note bears interest at the rate
of 20% and is payable upon the conversion of the note into shares of the
Company's common stock. Interest will be paid through the date of the conversion
in the form of additional shares of common stock that will be issued based on a
conversion price of $6.00 for each share of common stock. Each note will be
automatically converted into a minimum of 8,333.33 shares of the Company's
common stock upon the earlier of the closing of the Company's proposed IPO, or
June 25, 1998, the maturity date. Upon conversion, the actual number of shares
issued will equal the principal amount of the notes plus accrued interest
divided by the stated conversion price of $6.00. The Company received net
proceeds of approximately $2,590,000, after underwriting and other offering
costs of $410,000.

Upon the closing of the private placement offering, the Company issued
warrants to members of Management for the purchase of 100,000 shares of common
stock. The warrants were issued to the management team at $.001 per share, and
will be exercisable for a period of ten years at an exercise price of $9.90 per
share. The Company also agreed to grant the underwriter five-year warrants to
purchase 50,000 shares of the Company's common stock at an exercise price of
$9.90 per share.

The Company intends to file a Form SB-2 Registration Statement with the
Securities and Exchange Commission for the sale of 834,000 shares of common
stock. The proceeds are expected to be used to acquire laboratory equipment,
additional personnel, expand existing facilities, expand marketing and
advertising and fund working capital.

NOTE 12 - STOCK COMPENSATION

The Company adopted its Incentive Plan (the "Plan") on June 24, 1997.
The Incentive Plan provides for the granting to employees, officers, directors,
consultants and certain non-employees of the Company of options to purchase
shares of common stock. The maximum number of shares of common stock that may be
issued pursuant to options under the Plan is 376,667. This amount is subject to
adjustment in the event of a stock split, stock dividend or other change in the
common stock or capital structure of the Company. Of the maximum number of
shares to be issued under the Plan, 236,667 will be reserved for incentive
awards to be granted to the four founders of the Company, and 140,000 shares
will be reserved for incentive awards to be granted to other persons.

(Notes continued on next page)

NOTE 12 - STOCK COMPENSATON (Continued)

Incentive awards may be in the form of stock options, restricted stock,
incentive stock or tax offset rights. In the case of incentive stock options or
non-qualified stock options, the exercise price will not be less than 100% of
the fair market value of shares covered at the time of the grant. Options
granted under the Plan vest immediately at the date of grant and are exercisable
for ten years, except that the term may not exceed five years for incentive
stock options granted to persons who own more than 10% of the Company's
outstanding common stock.

The Company applies APB Opinion No. 25 and related accounting
interpretations in accounting for its Plan and, accordingly, no compensation
cost has been recognized. Had compensation cost for the Company's Plan been
determined based on the fair value at the grant dates for awards under the Plan
consistent with the method prescribed by FASB No. 123, Accounting for
Stock-Based Compensation, the Company's net income and earnings per share would
have been reduced to the proforma amounts indicated below as if the Plan had
been in effect for the periods presented:

March 31, December 31,
1997 1996
-----------------------
(Unaudited)
Net income As previously reported $ 248,947 $ 179,146
Proforma $ 201,126 $ 131,325

Earnings per common and As previously reported $ 0.53 $ 0.38
common equivalent share Proforma $ 0.42 $ 0.28

NOTE 13 - EMPLOYMENT AGREEMENTS

Also on June 24, 1997, the Company entered into employment agreements
with its four founders. Each of the agreements has a term of five years with
specified base salaries and provide for successive one-year terms. In addition,
the employment agreements provide the Company's executive officers with annual
bonuses equal to, in the aggregate, 15% of the Company's pre-tax net income for
the preceding fiscal year. The bonuses for the Company's executive officers for
the fiscal year ending December 31, 1997 will equal the greater of 15% of the
Company's pre-tax net income or $150,000.

* * * * *

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

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

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

No person has been authorized in connection with the offering made hereby to
give any information or to make any representation not contained in this
Prospectus and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or any
Underwriter. This Prospectus does not constitute an offer to buy any of the
securities offered hereby to any person or by anyone in any jurisdiction in
which it is unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus nor any sale make hereunder shall, under any circumstances,
created any implication that the information contained herein is correct as of
any date subsequent to the date hereof.

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

TABLE OF CONTENTS

Page

Prospectus Summary
Risk Factors
Special Note Regarding Forward-Looking
Statements
Use of Proceeds
Dividend Policy
Dilution
Capitalization
Selected Financial Data
Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Business
Management
Principal Shareholders
Certain Relationships and Related
Transactions
Description of Capital Stock
Shares Eligible for Future Sale
Selling Securityholders
Plan of Distribution for Selling Shareholders
Underwriting
Legal Matters
Experts
Available Information
Glossary
Index to Financial Statements

Until ________, 1997, all dealers effecting transactions in the registered
securities, whether or not participating in the distribution, may be
required to deliver a prospectus. This is in addition to the
obligations of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.

834,000

SHARES OF COMMON STOCK

[INSERT LOGO]

------------------------------
PROSPECTUS
------------------------------

ANDERSON & STRUDWICK,
INCORPORATED

July ______, 1997

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

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers

Article VI of the Company's Articles of Incorporation provides as
follows:

The Corporation shall indemnify(a) any person who was, is or may become
a party to any proceeding, including a proceeding brought by a shareholder in
the right of the Corporation or brought by or on behalf of shareholders of the
Corporation, by reason of the fact that he is or was a director or officer of
the Corporation, or (b) any director or officer who is or was serving at the
request of the Corporation as a director, trustee, partner or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability incurred by him in connection with such
proceeding unless he engaged in willful misconduct or a knowing violation of
criminal law. A person is considered to be serving an employee benefit plan at
the Corporation's request if his duties to the Corporation also impose duties
on, or otherwise involve securities by, him to the plan or to participants in or
beneficiaries of the plan. The Board of Directors is hereby empowered, by a
majority vote of a quorum of disinterested Directors, to enter into a contract
to indemnify any Director or officer in respect of any proceedings arising from
any act or omission, whether occurring before or after the execution of such
contract.

Section 8 of the Underwriting Agreement, filed as Exhibit 1.1 hereto
provides for reciprocal indemnification between the Registrant and the
Underwriter against certain liabilities in connection with the Offering,
including liabilities under the Securities Act.

Item 25. Other Expenses of Issuance and Distribution

The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the issuance and distribution of the shares of
Common Stock being registered, other than the Underwriter's selling commissions.
All of the following expenses will be paid by the Company.

-----------------------------------------------------------------
Commission Filing Fee $ 3,201.00
-----------------------------------------------------------------
Nasdaq SmallCap Fee $ 7,843.00
-----------------------------------------------------------------
NASD Filing Fee $ 1,465.00
-----------------------------------------------------------------
Blue Sky Fees and Expenses $ 10,000.00
-----------------------------------------------------------------
Printing and Engraving Expenses $ 20,000.00
-----------------------------------------------------------------
Accounting Fees and Expenses $ 35,000.00
-----------------------------------------------------------------
Legal Fees and Expenses $100,000.00
-----------------------------------------------------------------
Transfer Agent and Registrar Fees $ 5,000.00
-----------------------------------------------------------------
Miscellaneous Fees and Expenses $ 27,491.00
-----------------------------------------------------------------
Total (Estimated) $200,000.00
=================================================================

Item 26. Recent Sales of Unregistered Securities

Since July 18, 1994, the Company has sold and issued the following
unregistered securities:

On June 25, 1997, the Company sold subordinated convertible notes in an
aggregate principal amount of $3,000,000 to 42 accredited investors in an
offering exempt from registration pursuant to Rule 506 of Regulation D
promulgated under the Securities Act. Such notes accrue interest from June 25,
1997 through the date of conversion at a rate of 20% per annum and are payable
in shares of Common Stock at a rate of $6.00 per share. The Underwriter served
as placement agent in connection with such private placement and received a
$240,000 placement fee. As additional compensation, the Company issued the
Private Placement Warrants to the Underwriter. The Private Placement Warrants
are exercisable for a period of five years at an exercise price of $9.90 per
share.

The Company believes that all of the transactions noted above were made
or will be made on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties. All future transactions between the
Company and its officers, directors and principal shareholders will be approved
in accordance with the Virginia law by a majority of the Board, including a
majority of the independent and disinterested directors of the Board, and will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.

The sales and issuance of the securities in the above transactions were
deemed to be exempt under the Securities Act by virtue of Sections 3(b) and/or
4(2) thereof and/or Regulation D promulgated thereunder as transactions not
involving any public offering. The purchasers in each case represented their
intention to acquire the securities for investment only and not with a view to
the distribution thereof. Appropriate legends were affixed to the certificates
issued in such transactions.

Item 27. Exhibits

Exhibit Number Description of Exhibits

1.1 Form of Underwriting Agreement*
1.2 Form of Selected Dealers Agreement*
1.3 Form of Escrow Agreement*
3.1 Amended and Restated Articles of Incorporation of Registrant*
3.2 Amended and Restated Bylaws of Registrant*
4.1 Form of Common Stock Certificate**
4.2 Form of Subordinated Convertible Note*
4.3 Form of Underwriter's Warrant*
4.4 Form of Private Placement Warrant*
4.5 Form of Management Warrant*
5.1 Opinion of LeClair Ryan, A Professional Corporation**
10.1 Placement Agreement between the Company and the Underwriter
relating to the Private Placement*
10.2 Warrant Agreement between the Company and the Underwriter
relating to the Private Placement*
10.2 Warrant Agreement between the Company and the Underwriter
relating to the Offering*
10.4 Warrant Agreement between the Company and Richard J. Freer*
10.5 Warrant Agreement between the Company and Thomas R. Reynolds*
10.6 Warrant Agreement between the Company and Gregory A. Buck*
10.7 Warrant Agreement between the Company and Robert B. Harris*
10.8 Employment Agreement for Richard J. Freer*
10.9 Employment Agreement for Thomas R. Reynolds*
10.10 Employment Agreement for Gregory A. Buck*
10.11 Employment Agreement for Robert B. Harris*
10.12 Executive Severance Agreement for Richard J. Freer*
10.13 Executive Severance Agreement for Thomas R. Reynolds*
10.14 Executive Severance Agreement for Gregory A. Buck*
10.15 Executive Severance Agreement for Robert B. Harris*
10.16 Escrow Agreement*
11.1 Statement re: computation of per share earnings*
23.1 Consent of Goodman & Company, L.L.P.*
23.2 Consent of LeClair Ryan, A Professional Corporation (included
in Exhibit 5.1 hereto)**
24.1 Power of Attorney (see Page II-6)*
99.1 1997 Stock Incentive Plan*
- -----------
* Filed Herewith
** To be filed by amendment

Item 28. Undertakings

The undersigned registrant hereby undertakes:

(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:

(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act;

(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and

(iii) Include any additional or changed material information
on the plan of distribution.

Provided, however, that paragraphs 1(i) and 1(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
of any of the securities being registered which remain unsold at the termination
of the offering.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business

issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

The registrant hereby undertakes that:

(1) For the purpose of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or(4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it is declared effective.

(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

The undersigned small business issuer undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.

SIGNATURES

In accordance with the requirements of the Securities Act, the Registrant
certifies that has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, in the in the City of Richmond,
Commonwealth of Virginia, on July 21, 1997.

COMMONWEALTH BIOTECHNOLOGIES, INC.

By: /s/ Richard J. Freer, Ph.D.
---------------------------
Richard J. Freer, Ph.D.,
Chairman of the Board

Each person whose signature appears below on this Registration
Statement hereby constitutes and appoints Richard J. Freer, Ph.D.. and Robert B.
Harris, Ph.D. and each of them, with full power to act without the other, his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities (until revoked by writing) to sign any and all amendments
to this Registration Statement (including post-effective amendments and
amendments thereto) and any registration statement relating to the same offering
as this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing, ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.

Pursuant to the requirement of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:

EXHIBIT INDEX

Exhibit Number Description of Exhibits
1.1 Form of Underwriting Agreement*
1.2 Form of Selected Dealer Agreement*
1.3 Form of Escrow Agreement*
3.1 Amended and Restated Articles of Incorporation
of Registrant*
3.2 Amended and Restated Bylaws of Registrant*
4.1 Form of Common Stock Certificate**
4.2 Form of Subordinated Convertible Note*
4.3 Form of Underwriter's Warrant*
4.4 Form of Private Placement Warrant*
4.5 Form of Management Warrant*
5.1 Opinion of LeClair Ryan, A Professional
Corporation**
10.1 Placement Agreement between the Company and the
Underwriter relating to the Private Placement*
10.2 Warrant Agreement between the Company and the
Underwriter relating to the Private Placement*
10.3 Warrant Agreement between the Company and the
Underwriter relating to the Offering*
10.4 Warrant Agreement between the Company and
Richard J. Freer*
10.5 Warrant Agreement between the Company and
Thomas R. Reynolds*
10.6 Warrant Agreement between the Company and
Gregory A. Buck*
10.7 Warrant Agreement between the Company and
Robert B. Harris*
10.8 Employment Agreement for Richard J. Freer*
10.9 Employment Agreement for Thomas R. Reynolds*
10.10 Employment Agreement for Gregory A. Buck*
10.11 Employment Agreement for Robert B. Harris*
10.12 Executive Severance Agreement for Richard J.
Freer*
10.13 Executive Severance Agreement for Thomas R.
Reynolds*
10.14 Executive Severance Agreement for Gregory A.
Buck*
10.15 Executive Severance Agreement for Robert B.
Harris*
10.16 Escrow Agreement*
11.1 Statement re: computation of per share earnings*
23.1 Consent of Goodman & Company, L.L.P.*
23.2 Consent of LeClair Ryan, A Professional*
Corporation (included in Exhibit 5.1 hereto)**
24.1 Power of Attorney (see Page II-6)*
99.1 1997 Stock Incentive Plan*
- --------------------------
* Filed Herewith
** To be filed by amendment

Form: SB-2

Documents

SB-2: Optional form for registration of securities to be sold to the public by small business issuers