RESULTS OF OPERATIONS

        The following table sets forth for the periods indicated the percentage of total revenue represented by certain items reflected in the Company's consolidated statements of operations:

Critical Accounting Policies and Estimates

        To prepare the financial statements in conformity with generally accepted accounting principles, management is required to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In addition, significant estimates were made in determining the gain on disposition of the company's discontinued operations including post-closing adjustments, in estimating future cash flows to quantify impairment of assets, in determining the ultimate cost of abandoning a lease (associated with discontinued operations) at a facility no longer being utilized, in estimates regarding the collectability of accounts receivable, realizability of a loan made to the former Chairman and Chief Executive Officer including sufficiency of collateral (see Note 12), deferred tax assets, the net realizable value of its inventory, as well as an estimate for other remaining liabilities associated with discontinued operations. On an on-going basis, we evaluate our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from the estimates and assumptions used by management.

26

Revenue Recognition

        We recognize revenue in accordance with the Securities and Exchange Commission's Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). Revenue is recognized when realized or earned when all the following criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred and risk of loss has passed; the seller's price to the buyer is fixed or determinable and collectibility is reasonably assured.

        Product revenue is generally recognized upon shipment of the products. The company will occasionally recognize revenue on a bill and hold basis after completion of manufacture for specific orders at the request of the customer. Bill and hold sales transactions are entered into after consideration of customer needs and capabilities relating to freezer capability to store biological substances at required temperatures. All bill and hold transactions meet specified revenue recognition criteria that include:

•

The risk of ownership has passed to the customer;



•

The customer has a fixed commitment to purchase the goods;



•

The customer, not the company, has requested the transaction to be on a bill and hold basis;



•

There is a fixed schedule for delivery of the goods;



•

We do not retain any specific performance obligations such that the earnings process is not complete;



•

The ordered goods are segregated from our inventory and not subject to being used to fill other orders; and



•

The goods must be complete and ready for shipment.

        The company also considers the following prior to recognizing revenue:

•

The transaction is subject to normal billing and credit terms for the specific customer;



•

The company's past experience with the pattern of bill and hold transactions;



•

Whether the customer has the expected risk of loss in the event of a decline in the market value of the goods;



•

Whether our custodial risks are insurable and insured;



•

Whether APB 21, pertaining to the need to discounting the related receivables, is applicable; and



•

Whether extended procedures are necessary in order to assure that there are no exceptions to the customer's commitment to accept and pay for the goods.

        Total revenue related to bill and hold transactions was approximately $380,000, $610,000, and $562,000, for the years ended December 31, 2002, 2001, and 2000, respectively.

        Revenue from service contracts is earned as the related services are performed. Revenue arrangements where multiple products or services are sold together under one contract are evaluated to determine if each element represents a separate earnings process. In the event that an element of such multiple element arrangement does not represent a separate earnings process, revenue from this element is recognized over the term of the related contract. Services are recognized as revenue upon completion of tests for laboratory services. Revenue from service contracts and research and development contracts for the Company's laboratory instrumentation business is recognized as the service and research and development activities are performed under the terms of the contracts.

27

        Revenue under long-term contracts, generally lasting from one to five years, including funded research and development contracts, is recorded when costs to perform such research and development activities are incurred. Billings under long-term contracts are generally at cost plus a predetermined profit. Billings occur as costs associated with time and materials are incurred. Customers are obligated to pay for such services, when billed, and payments are non-refundable. On occasion certain customers make advance payments that are deferred until revenue recognition is appropriate. Total revenue related to long-term contracts was approximately $5,802,000, $5,062,000, and $5,082,000, for the years ended December 31, 2002, 2001, and 2000, respectively. Total contract costs associated with these agreements were approximately $5,610,000, $4,911,000, and $5,540,000, for the years ended December 31, 2002, 2001 and 2000, respectively. Included in the revenue recognized under long-term contracts are certain unbilled receivables representing additional indirect costs, which are allowed under the terms of the respective contracts. Unbilled receivables were less than $62,000 for all years presented.

        During the fiscal years 2002, 2001, and 2000, the combined revenues from all branches of the National Institutes of Health, a United States Government agency, accounted for approximately 31%, 31% and 30%, respectively, of total consolidated revenues from continuing operations of the Company. Additional future revenues originating from various branches of the National Institutes of Health is subject to possible future changes in government funding levels.

Accounts Receivable

        Management periodically reviews outstanding balances in accounts receivable to determine future collections. Based on our historical experience, current business conditions and expected future collections, management established an allowance for uncollectible accounts. In the event circumstances change to affect the assumptions underlying this allowance, we might be required to take additional write-offs of our accounts receivable balances.

Inventory

        Inventory is valued at the lower of cost or market. Certain factors may impact the realizable value of our inventory including, but not limited to, technological changes, market demand, changes in product mix strategy, new product introductions and significant changes to our cost structure. In addition, estimates of reserves are made for obsolescence based on the current product mix on hand and its expected net realizability. If actual market conditions are less favorable or other factors arise that are significantly different than those anticipated by management, additional inventory write-downs or increases in obsolescence reserves may be required. We treat lower of cost or market adjustments and inventory reserves as an adjustment to the cost basis of the underlying inventory. Accordingly, favorable changes in market conditions are not recorded to inventory in subsequent periods.

Long-lived Assets and Goodwill

        Intangible assets primarily relate to the remaining value of acquired patents associated with PCT. The cost of these acquired patents is amortized on a straight-line basis over the estimated life of the patent which is generally four to sixteen years. Our policy regarding long-lived assets is to evaluate the recoverability or usefulness of these assets when the facts and circumstances suggest that these assets may be impaired. This analysis relies on a number of factors, including changes in strategic direction, business plans, regulatory developments, economic and budget projections, technological improvements, and operating results. The test of recoverability or usefulness is a comparison of the asset value to the undiscounted cash flow of its expected cumulative net operating cash flow over the asset's remaining useful life. Any write-downs would be treated as permanent reductions in the carrying amount of the asset and an operating loss would be recognized. To date, we have had recurring operating losses in the PCT segment and the recoverability of our long-lived assets is contingent upon executing our business

28

plan that includes expected revenues and cash flows to be generated from sales of PCT products and services. Our goodwill relates to our acquisition of the Source operating segment. This segment is expected to manufacture PCT related products and realizability of this goodwill is dependant, among other factors, on the success of our PCT product line. If we are unable to execute our business plans related to PCT, we may be required to write down the value of our long-lived assets and goodwill in future periods.

Deferred Tax Valuation Allowance

        A valuation allowance is established if it is more likely than not that all or a portion of a deferred tax asset will not be realized. In the year 2000, the Company established a full valuation allowance for its deferred tax assets in accordance with Statement of Financial Accounting Standards No. 109 and in consideration of three consecutive years of losses. The Company has not recognized an income tax benefit associated with the loss from continuing operations in years 2002, 2001 and 2000, as these tax assets have been fully reserved for. Accordingly, a valuation allowance has been established for the full amount of the deferred tax asset due to the uncertainty of realization.

Discontinued Operations

        The Company periodically reviews the adequacy of its reserve for discontinued operations associated with the Company's decision to exit the clinical laboratory testing segment of the business in 2000. The Company has established reserves to cover expected future costs including those associated with an existing facility lease expiring July 2005.

Pledge to Former Chairman and Chief Executive Officer

        As of December 31, 2002, the Company evaluated the recoverability of the restricted cash used as pledge for its former Chairman and Chief Executive Officer. The Company's review includes an evaluation of the collateral associated with the loan. The Company maintains a junior interest in this collateral. The collateral consists of real estate holdings and common stock of the Company. When considering the adequacy of the collateral, the Company considers the balance of the loan outstanding with this financial institution and the fact that the Company has a junior position in regards to the collateral as well as the liquidity and net realizable value of the assets underlying the collateral.

        The Company's analysis assumed transactions costs to sell the properties, and applied a liquidity discount to the trading value of the common stock. The ultimate value that may be recovered by the Company is dependant on numerous factors including market conditions relative to the real estate, the value of and ability to sell the Company's common stock, and the financial status of its former Chairman and Chief Executive Officer. At December 31, 2002, the Company performed a test for impairment of the restricted cash by analyzing the value of the collateral, and determined that the restricted cash was not impaired. While the restricted cash was not impaired as of December 31, 2002, the termination of the Company's Chairman and Chief Executive Officer by the Board of Directors in February 2003, together with the decline in the quoted market value of the Company's common stock, which comprises a major element of the collateral, are indicators of impairment. Based on the Company's assessment as of and through March 27, 2003, the Company estimates that the value of the collateral has declined below the amount of the Company's recorded loan. Accordingly, the Company estimates it may record a valuation reserve against this asset in the three months ended March 31, 2003 in the range of $300,000 to $500,000. If actual market conditions are less favorable or other factors arise that are significantly different than those anticipated by management, additional write-downs of this assets might be required.

29

YEARS ENDED DECEMBER 31, 2002 AND 2001

Revenue

        Total revenue from continuing operations increased 4.3%, or $939,000, to $22,765,000 in year 2002 from $21,826,000 in year 2001. The increase in revenue was the result of a 15.3% increase in service revenue or $1,334,000, to $10,068,000 in 2002 from $8,733,000 in 2001, partially offset by a small decrease in product revenue of 3.0%, or $396,000, to $12,697,000 in 2002 from $13,093,000 in 2001.

        Product Revenue.     The decrease of $396,000 in product revenue was due primarily to decreases of product sales at the Biotech segment and a decrease of $254,000 of product sales at the Laboratory Instrumentation segment (the latter segment experienced strong sales to existing customers in the first half of 2001).

        Service Revenue.     The $1,334,000 increase in service revenue was primarily related to strong activity in two service contracts related to HIV vaccine development and Hepatitis C work at the Biotech segment (the former resulting from increased revenue for the Biotech segment as the result of increased activity from a subcontractor), and increased grant revenue at the Company's PCT segment.

Gross Profit

        Overall gross profit decreased 2.3%, or $203,000, to $8,502,000 in 2002 from $8,705,000 in 2001. Product gross profit decreased 8.8%, or $594,000, to $6,161,000 in 2002 from $6,755,000 in 2001; product gross margin declined to 48.5% in 2002 from 51.6% in 2001. Services gross profit increased 20.0% or $391,000 to $2,341,000 in 2002 from $1,950,000 in 2001, while service gross margin increased to 23.2% in 2002 from 22.3% in 2001.

        Product Gross Margin.     A decrease in both product gross profit and margin was associated with increased sales of higher margin catalog products in 2001 at the Diagnostics segment and higher raw material costs in 2002, a decrease in high margin product sales at the Biotech segment in 2002, and lower revenues from instrument sales in 2002 over a relatively fixed cost structure (which includes increased costs associated with a facility lease renewal effective in February 2002 coupled with a facility sublease that expired in January 2002) at the Laboratory Instrumentation segment.

        Service Gross Margin.     The increase in both service gross profit and margin was primarily due to increased activity associated with two service contracts related to HIV vaccine development and Hepatitis C work at the Biotech segment, partially offset increased wage expense and higher facility operating costs at the Biotech segment in 2002.

Research and Development

        Research and development expenditures increased 13.3%, or $308,000, to $2,611,000 in 2002 from $2,303,000 in 2001. The increased level of expenditures was associated with ongoing PCT related projects including optimization protocols for various tissue types. In addition, there was an increase in development work on AccuChart Plus®, a quality control data management software program for analyzing, tracking and archiving daily run control data for monitoring test kit performance. Since the Company's acquisition of BioSeq Inc. in 1998, the Company has invested significantly in research and development, both in whole dollars and as a percentage of revenue, and expects to continue to do so for the foreseeable future, as it seeks to develop new applications for PCT.

Selling and Marketing

        Selling and marketing expenses increased by 12.7%, or $370,000, to $3,286,000 in 2002 from $2,916,000 in 2001. The Company incurred significant marketing and promotion related costs in 2002 primarily associated with its introduction of the PCT Barocycler™ at the Pittsburgh Conference industry

30

trade show and related ongoing sales, marketing and promotion efforts associated with the September 2002 commercial launch of the PCT Barocycler™, and expects these PCT related activities to continue in 2003.

General and Administrative

        General and administrative costs increased 3.3%, or $132,000, to $4,109,000 in 2002 from $3,977,000 in 2001, due to higher wage and facility lease and utility costs incurred in 2002 partially offset by a one time $54,000 credit associated with a telecommunications claim and the cessation, commencing January 2002, of amortization of goodwill associated with the Laboratory Instrumentation segment, compared to 2001, in which the Company benefited from the reversal of an $80,000 legal expense accrual associated with the June 2001 legal settlement reached with Paradigm Group, LLC. In the second quarter of 2001, the Company increased its provision for doubtful accounts by $82,000 based on a significant deterioration in the financial condition of a customer in its Diagnostics segment.

Operating Income (Loss) from Continuing Operations

        Operating (loss) from continuing operations amounted to $(1,504,000) in 2002 compared to an operating (loss) of $(491,000) in 2001. The Diagnostics segment's operating income decreased to $1,478,000 in 2002 from $1,674,000 in 2001 due to a decline in product gross margin. The Biotech segment's operating (loss) increased to $(319,000) in 2002 from $(212,000) in 2001; a 14.3% increase in service revenues coupled with an increase in service gross margin was more than offset by increased sales and marketing expenses and increased general and administrative expenses. The operating loss of the PCT segment increased to $(2,156,000) in 2002 from $(1,493,000) in 2001 due to increased research and development costs associated with the final phases of product development and advanced prototype manufacture and increased sales, promotion and marketing costs associated with the commercial launch, in late September of 2002, of the PCT Barocycler™.

        The Company continues evaluate the market for the PCT Barocycler™, as the sales cycle appears to be longer in duration than originally envisioned. While the Company believes strongly in the benefits of PCT's novel technology, the market potential of the existing PCT Barocycler™ appears uncertain. The manufacture of PCT products at the laboratory instrument segment of the business was part of the Company's plan to return BBI Source Scientific, Inc. to profitability in year 2003. The Company intends to evaluate other applications and products utilizing PCT and to reexamine the core contract manufacturing business of BBI Source Scientific, Inc. If the Company is unable to execute its business plans related to PCT, we may be required to write down the value of our intangible long-lived assets and goodwill in future periods.

Interest Expense

        Interest expense decreased to $248,000 in 2002 from $438,000 in 2001. The Company redeemed the remaining $2,040,000 (face value) of outstanding 3% Senior Subordinated Convertible Debentures ("Debentures"), which were originally issued in August 2000, plus accrued interest and a premium of $190,000 (which was charged to interest expense) in early 2001. Interest expense in 2001 also included interest on the Company's line of credit, which was terminated by the Company in February 2001. Both years' include interest expense associated with the Company's outstanding mortgage.

Income Taxes

        In 2000, the Company established a full valuation allowance for its deferred tax assets in accordance with Statement of Financial Accounting Standards No. 109 and in consideration of three consecutive years of losses; accordingly, the Company has not recognized an income tax benefit associated with the loss from continuing operations in 2002 and 2001, as these tax assets have been

31

fully reserved for. The Company incurred state income and franchise tax expense of approximately $3,000 and $16,000 in 2002 and 2001, respectively.

Loss from Continuing Operations

        Loss from continuing operations amounted to $1,713,000 for the year ended December 31, 2002 as compared to a loss of $887,000 for the year ended December 31, 2001 as a result of the items discussed above.

Discontinued Operations

        On February 20, 2001, the Company sold the business and certain assets and liabilities of its wholly-owned subsidiary BBICL to a third party. The Company retained certain other assets and liabilities of BBICL, primarily property, plant and equipment, together with the facility lease subsequent to the closing date, which the Company is attempting to sublease. The Company wrote down all of the retained assets not otherwise redistributed to other business units to their estimated net realizable value.

        The Company has accrued $710,000 as of December 31, 2002 for its estimate of remaining liabilities to exit the clinical laboratory testing business. The major component of this remaining accrual is estimated lease exit and facility related costs ($504,000) with the remainder for health care claims, other regulatory audit adjustments, and for other miscellaneous costs associated with exiting this business segment. The Company adjusted its estimated remaining liability in the third quarter and recorded an after tax gain of $225,000.

        Revenues from discontinued operations, net of intercompany eliminations, were $973,000, in the period January 1, 2001 to February 20, 2001. Operating (losses) from discontinued operations was $0 for the year ended December 31, 2002 and were $0 and $(136,000) for the years ended December 31, 2002 and 2001, respectively. The Company recorded a gain of $4,334,000, net of taxes of $969,000, in 2001. Income (loss) from discontinued operations was $225,000 for the year ended December 31, 2002 as discussed above, and $4,334,000 for the year ended December 31, 2001. The Company utilized prior period net operating loss carryforwards, previously reserved for by the Company in 2000, to partially offset the tax effect of this gain. Additionally, the Company took a tax benefit of $364,000 related to stock option exercises that was not previously recorded as the Company was in a loss position; this tax benefit was recorded as a credit to additional paid-in capital in the first quarter of 2001.

        In accordance with a transition services agreement, the Company operated the clinical laboratory business on behalf of the buyer during the period February 20, 2001 through December 2001 although most operations ceased activity by the end of June 2001. All of the revenues generated by, and substantially all costs associated with operating the business subsequent to the closing date of the transaction were the responsibility of the purchaser. A portion of the proceeds from this sale were used to redeem all outstanding Debentures and to retire the Company's line of credit in the first quarter of 2001 .

32

Net Income (Loss)

        The Company had a net (loss) of ($1,488,000) in 2002 as compared to net income of $3,448,000 in 2001. The 2002 net (loss) included an after-tax gain of $225,000 from discontinued operations, whereas in 2001, the Company recorded an after-tax gain of $4,334,000 associated with discontinued operations.

YEARS ENDED DECEMBER 31, 2001 AND 2000

Revenue

        Total revenue from continuing operations increased 12.1%, or $2,356,000, to $21,826,000 in 2001 from $19,470,000 in 2000. The increase in revenue was the result of an increase in product revenue of 5.7%, or $705,000 to $13,093,000 in 2001 from $12,387,000 in 2000, coupled with an increase in service revenue of 23.3%, or $1,651,000, to $8,733,000 in 2001 from $7,082,000 in 2000.

        Product Revenue.     The product revenue increase was primarily attributable to increased sales of basematrix and characterized specimens to IVD test kit manufacturers and continued strong domestic sales of Accurun® External Run Controls in the Diagnostics segment.

        Service Revenue.     The Biotech segment experienced a significant increase in repository and research services revenue. In addition, service revenue recognized in 2000 also included $161,000 of funding received by Panacos for drug discovery activities; as noted above, the Company no longer consolidates the results of operations of Panacos.

Gross Profit

        Overall gross profit increased 31.5%, or $2,087,000, to $8,705,000 in 2001 from $6,619,000 for 2000. Product gross profit increased 32.0%, or $1,637,000, to $6,755,000 in 2001 from $5,118,000 for 2000; product gross margin increased to 51.6% in 2001 from 41.3% in 2000. Services gross profit increased $449,000 to $1,950,000 in 2001 from $1,501,000 for 2000 and service gross margin increased to 22.3% in 2001 from 21.2% in 2000.

        Product Gross Margin.     The increase in product gross margin at the Diagnostics segment resulted from increased sales of higher margin catalog products coupled with a higher level of sales. In addition, product gross margin increased at the Laboratory Instrumentation segment driven by the cost reduction plan implemented in September 2000. In 2000, the Company recorded charges for inventory valuation at both of these segments, offsetting the increases in gross margins.

        Service Gross Margin.     The increase in service gross margin was due to an increase in higher margin commercial services as well as increased repository revenue, both performed at the Biotech segment.

Research and Development

        Research and development expenditures decreased 5.7%, or $141,000, to $2,303,000 in 2001 from $2,444,000 in 2000. Research and development expenses in 2000 included $600,000 associated with Panacos, the results of which are no longer included in the Company's results of operation as discussed above. Exclusive of funding to Panacos in 2000, research and development expenses increased $459,000 in 2001, most of which was driven by higher research and development spending on the Company's PCT program activities.

Selling and Marketing

        Selling and marketing expenses increased by 9.6%, or $256,000, to $2,916,000 in 2001 from $2,660,000 in 2000. This increase was a result of filling several sales and marketing positions in the latter part of 2000 as well as increased travel and promotion costs at the Diagnostic segment.

33

General and Administrative

        General and administrative costs declined 19.2%, or $942,000, to $3,977,000 in 2001 from $4,919,000 in 2000. This decrease was primarily a result of several factors. First, there were headcount reductions at Corporate, and the Diagnostics and Laboratory Instrumentation segments in the latter part of 2000 and into 2001. Second, there was a significantly lower level of professional fees in 2001 compared to 2000, when the Company explored several strategic and financing options; also in 2001, the Company reversed $80,000 of expenses previously accrued in 2000, based on the June 2001 legal settlement reached with Paradigm Group, LLC, as discussed further in the accompanying footnotes to the financial statements. Finally, a portion of the decline was associated with the September 2000 write down of goodwill at the Laboratory Instrumentation segment, thereby reducing amortization expense in 2001 by $115,000 compared to the year 2000.

Impairment of Intangible Asset

        As part of an ongoing strategic review process, the Company's Board of Directors met in late September 2000 to review the progress of its Laboratory Instrumentation segment, and that segment's prospects for the future to determine if any impairment of the segment's goodwill had occurred. Based on information presented at that meeting and subsequent analyses showing lower revenue expectations, management approved a cost reduction plan including a headcount reduction, salary freeze, and sublease of excess manufacturing space. Using the lower revenue projections associated with this plan, the Laboratory Instrumentation segment's undiscounted future cash flows were projected to be less than the carrying value of that segment's goodwill. In accordance with the provisions of "Statement of Financial Accounting Standards No. 121—Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," this segment's goodwill was written down by approximately $1,464,000 in the third quarter of 2000.

Operating Income (Loss)

        Operating loss from continuing operations decreased to $491,000 in 2001 versus $4,868,000 in 2000. The Diagnostics segment's operating income increased to $1,674,000 in 2001 from $1,015,000 in 2000, due to an increase in product revenue coupled with an increase in product gross margin, but partially offset by an increased absorption of corporate overhead by this segment as explained further below. The Laboratory Instrumentation segment had an operating (loss) of $(460,000) for 2001 versus a loss for 2000 of $(2,819,000); the 2000 results of operation include a charge of $1,464,000 taken in the third quarter of 2000 related to impairment of intangible assets as discussed further above, whereas the 2001 operating results reflect the impact of the September 2000 cost reduction plan. The PCT segment had an operating (loss) of $(1,493,000) in 2001 as compared to an operating (loss) of $(1,298,000) in 2000; also in 2000, Panacos incurred a $1,027,000 pre-tax operating loss; the Company no longer consolidates the results of operation of Panacos subsequent to November 2000 as previously discussed. Effective January 2001, the Company adjusted its allocation of corporate overhead based upon a revised corporate structure effective in 2001. The present corporate structure reflects the Company's implementation, in the latter part of 2000, of a cost reduction plan at the Laboratory Instrumentation segment, the Company's spin-off of Panacos as an independent company, and the Company's decision to exit the clinical laboratory testing business. The latter item is reflected as discontinued operations in the accompanying financial statements. In accordance with generally accepted accounting principles, the Company ceased allocating corporate overhead to the clinical laboratory testing business for all periods presented. This adjustment results in the Diagnostics unit absorbing a large portion of corporate overhead, which in prior years would have been allocated to Panacos and the clinical laboratory testing business.

34

Interest Expense/Cumulative change in accounting principle

        Interest expense decreased from $1,617,000 in 2000 to $438,000 in 2001. The large portion of the decrease is associated with reduced interest expense incurred in 2001 on the Company's line of credit, which was outstanding for all of 2000 but was repaid and terminated by the Company in February 2001 as discussed further in the section "Discontinued Operations" below. Additional interest expense was incurred in 2001 associated with the Company obtaining a $2,447,000 (net) mortgage on its West Bridgewater MA facility in April 2000.

        In 2000, the Company incurred a charge of $898,000 (including $190,223 for the cumulative effect of change in accounting principle, see Note 7 of Notes to Consolidated Financial Statements) due to amortization of the beneficial conversion feature, warrant costs and original issue discount/debt issuance costs associated with the Company's August 2000 issuance of $3,250,000 3% Senior Subordinated Convertible Debentures (the "Debentures"). In the first quarter of 2001, the Company redeemed the remaining $2,040,000 (face value) of the outstanding Debentures plus accrued interest and a premium of $190,000 (which was charged to interest expense). The pro-rata portion of unamortized original issue discount, debt issuance and warrant related costs associated with the redeemed Debentures, amounting to approximately $377,000, is included in the loss on extinguishment of the Debentures. Substantially offsetting this loss is the Company's reversal of approximately $528,000 of interest expense in 2001, previously recorded in 2000, associated with the amortization of the Debentures beneficial conversion feature.

Income Taxes

        In the third quarter of 2000, the Company established a full valuation allowance for its deferred tax assets in accordance with Statement of Financial Accounting Standards No. 109 and in consideration of three consecutive years of losses; accordingly, the Company has not subsequently recognized an income tax benefit associated with the loss from continuing operations in either 2000 or 2001 as these tax assets have been fully reserved for. The Company recorded approximately $16,000 of state tax expense in 2001.

Loss from Continuing Operations

        Loss from continuing operations decreased to $(887,000) for the year ended December 31, 2001 from $(7,804,000) for year 2000, as a result of the items discussed above.

Discontinued Operations

        On February 20, 2001, the Company sold the business and certain assets and liabilities of its wholly-owned subsidiary BBICL to a third party for an adjusted purchase price of $8,958,000. The escrow account entered into in connection with the transaction was terminated in December 2001 by mutual agreement between the buyer and the Company, resulting in approximately $358,000 being received by the Company from the escrow account. The Company has retained certain other assets and liabilities of BBICL, primarily property, plant and equipment, together with the facility lease subsequent to the closing date, which the Company is attempting to sublease. The Company has written down all of the retained assets not otherwise redistributed to other business units to their estimated net realizable value.

        In connection with the sale of the business and certain assets and liabilities of BBICL, the Company recorded a gain of $4,334,000 net of taxes of $969,000 in 2001. The Company utilized prior period net operating loss carryforwards, previously reserved for by the Company, to partially offset the tax effect of this gain. Additionally, in 2001, the Company recognized a tax benefit of approximately $364,000 related to stock option exercises that was not previously recorded as the Company was in a loss position. This tax benefit was recorded as a credit to additional paid-in capital in 2001.

35

        The Company recorded its estimate of remaining short and long term accrued liabilities to exit the clinical laboratory testing business, totaling approximately $1,687,000 as of December 31, 2001. The major components of this accrual are estimated income taxes ($420,000), severance and other employee related costs ($75,000), estimated lease exit and facility related costs ($750,000) and potential health care claims and other related potential audit adjustments ($318,000), with the remainder for other miscellaneous costs associated with exiting this business segment.

        Revenues from discontinued operations, net of intercompany eliminations, were $973,000 for the period from January 1, 2001 to February 20, 2001 and $8,367,000 for the year ended December 31, 2000. Operating (losses) from discontinued operations were $(136,000) for the year ended December 31, 2001 and $(197,000) for the year ended December 31, 2000. In summary, income (loss) from discontinued operations was $4,334,000 for the year ended December 31, 2001 and $(197,000) for the year ended December 31, 2000.

        In accordance with a transition services agreement, the Company operated the business in a normal fashion during the period February 20, 2001 through December 2001. All of the revenues generated by, and substantially all costs associated with operating the business subsequent to the closing date of the transaction were the responsibility of the purchaser. A portion of the proceeds from this sale were used to redeem all outstanding Debentures and to retire the Company's line of credit in the first quarter of 2001.

Summary

        In summary, the Company had net income of $3,448,000 for the year ended December 31, 2001 as compared to a net loss of $(8,001,000) for the year ended December 31, 2000. This improvement was driven by four factors: first and foremost, the gain recognized on the sale of the Company's clinical laboratory testing business; second, a significantly reduced operating loss in 2001 compared to 2000 as all business units posted improved operating results, and Panacos (which incurred a pretax loss of $1,027,000 in 2000) no longer being consolidated in 2001; third, the impairment of intangible assets at the Laboratory Instrumentation segment recorded in 2000, which increased the loss for 2000; and fourthly, higher interest expense in 2000 due to the higher debt carried prior to the repayments that occurred after the sale of the clinical laboratory testing business.

        The earnings per share computation for 2001 reflects both the issuance of 801,325 additional shares of common stock in the first quarter of 2001, as certain holders of the Debentures exercised their rights to convert $1,210,000 of such Debentures into shares of the Company's common stock, and the issuance of 178,877 additional shares of common stock associated with the exercise of stock options, warrants and purchases made pursuant to the employee stock purchase plan. In addition, on June 15, 2001, the Company and Paradigm Group, LLC entered into an agreement to permanently settle their disputes. Under the terms of the agreement, Paradigm Group, LLC rescinded their exercise of the common stock purchase warrants, which have since expired, and the Company retained the 500,000 shares associated with their exercise. These shares were included in the total shares outstanding as well as in the calculation of earnings (loss) per share from February 17, 2000 (the date of exercise) through June 15, 2001 (the date of the agreement). As of September 30, these shares were cancelled by the Company. In December 2001, an additional 600,000 shares of common stock were subscribed to and paid for by a group of investors for $1,500,000. These shares were issued in the first quarter of 2002 and therefore were not included in the total shares outstanding as well as in the calculation of earnings (loss) per share for the year ended December 31, 2001.

LIQUIDITY AND FINANCIAL CONDITION

        As of December 31, 2002, the Company had approximately $9.2 million in working capital. At December 31, 2002, the Company had cash and cash equivalents of $975,649, excluding restricted cash of $1,000,000, compared to cash of $2,857,916 at December 31, 2001. In January 2003, the $1,000,000 of restricted cash pledged to a financial institution to secure the Company's limited guarantee of a loan

36

from the financial institution to an entity controlled by Richard T. Schumacher, the Company's former Chairman and Chief Executive Officer, was used to satisfy the Company's guaranty obligation to the financial institution as discussed further below. The Company has experienced operating losses from continuing operations of $1,504,000 and $491,000 and has experienced negative cash flows from operations of $200,000 and $56,000 for the years ended December 2002 and 2001, respectively. In addition, it is anticipated there may be additional working capital requirements in connection with PCT Barocycler™ sales and marketing activities. Management has met its recent historical cash flow needs by managing its working capital and utilizing proceeds from the February 2001 sale of one of its business segments. It plans to manage its future liquidity needs through cost reductions and additional selling initiatives.

        Net cash used in operations for the year ended December 31, 2002 was $200,000 as compared to $56,000 for the year ended December 31, 2001. The operational use of cash during 2002 was primarily the result of the operating loss incurred coupled with the buildup of PCT raw materials inventory, partially offset by an increase in trade accounts payable and an increased level of cash collections on outstanding accounts receivable. Net cash used in operations in 2001 included the operating loss incurred in 2001, a buildup of inventory, the reversal of non-cash interest expense and a decline in accrued expenses, partially offset by the receipt of an income tax refund and an increase in trade accounts payable.

        Cash used in investing activities for the year ended December 31, 2002 was $625,000 compared to $416,000 during year 2001. The increase of cash used for investing in 2002 was due to the purchase of a DNA Sequencer at the Company's Biotech subsidiary and the construction of several preproduction PCT Barocyclers ^TM as demonstration units.

        Cash used in financing activities for the year ended December 31, 2002 was $392,000 compared to cash used of $6,110,000 during 2001. In early 2002, the Company pledged $1,000,000 via a deposit in an interest bearing account at a financial institution; this was partially offset by repayment to the Company of a loan to Richard T. Schumacher as discussed further below. In 2001, the Company used proceeds from the sale of certain assets of BBICL to pay off in full the remaining $5,762,635 balance on its line of credit and all remaining outstanding 3% Senior Subordinated Convertible Debentures and issued a loan to Richard T. Schumacher as discussed in the section entitled "Related Party Transaction" below.

        In April 2000, the Company borrowed $2,447,000 (net of issuance costs) under a mortgage agreement on its West Bridgewater, MA facility. The Company used these funds to reduce the outstanding balance on its line-of-credit. The mortgage is due on March 31, 2010. During the first five years the note carries an interest rate of 9.75%; after five years the rate charged will be 0.75% greater than the bank base rate then in effect. Under this mortgage agreement the Company is subject to certain financial covenants. The Company failed to meet its debt service coverage covenant for the year ended December 31, 2002, but the financial institution has waived this default and the Company's other defaults relating to reports and the termination of the Company's former Chairman and Chief Executive Officer. Payments due on this mortgage are based on a 20 year amortization schedule with a balloon payment representing the remaining balance due in full on March 10, 2010.

        Based on current forecasts, management believes that the company has sufficient liquidity to finance operations for the next twelve months. Management's forecasts involve assumptions that could prove to be incorrect. If the Company continues to incur operating losses or negative cash flows, it may need to raise additional funds. There can be no assurance that these funds will be available when required on terms acceptable to the Company, if at all. If adequate funds are not available when needed, the Company may be required to further reduce its fixed costs and delay, scale back, or eliminate certain of its activities, any of which could have a material adverse long term effect on its business, financial condition and results of operations. The Company is considering various sources of additional financing, including but not limited to, sale of business segments, strategic alliances and private placements of debt or equity securities, which could result in dilution to the Company's

37

*

Future monthly payments on this mortgage include principal and interest, based on a 20-year amortization schedule with a balloon payment representing the remaining balance due in full on March 10, 2010. During the first five years the note carries an interest rate of 9.75%; after five years the rate charged will be .75% greater than the Corporate Base Rate then in effect. The information presented in the table above is presented using an assumed annual mortgage interest rate of 9.75% for all periods presented.

**

The Company acquired in 1998 all the remaining outstanding common stock of BioSeq, Inc., a development stage company involved with PCT. In accordance with the provisions of a technology transfer agreement assumed in the transaction, the Company is obligated to pay a 5% royalty on net sales until March 2016 of future sales by any entity of the Company utilizing PCT, with minimum royalty payments through year 2003. The Company announced the availability of its PCT products for commercial sale in the latter part of year 2002.

***

In January 2002, the Company made a $1,000,000 pledge and loan guarantee of certain indebtedness of an entity controlled by Mr. Schumacher via a deposit of equal amount in an interest bearing account with a financial institution. This is reflected as restricted cash on the accompanying balance sheet as of December 31, 2002. In January 2003, the $1,000,000 pledged to a financial institution was used to satisfy the Company's guaranty obligation to the financial institution. A description of this transaction is noted above.

Related Party Transaction

        As of December 31, 2001, the Company had entered into a one year loan of $525,000 to Richard T. Schumacher, the Company's former Chairman and Chief Executive Officer and a current Director of the Company, renewable at the Company's option, and collateralized by 90,000 of Mr. Schumacher's shares of the Company's common stock. This loan constituted an increase from the $350,000 had been loaned as of September 30, 2001. Interest on the loan was payable monthly at the annual rate of 7% but has not been paid to date. As of December 31, 2001, the loan was shown on the balance sheet as a decrease to stockholders equity. In January 2002, the principal of these loans was repaid in full with a portion of the proceeds of the loans described in the following sentence. The Company's loans were replaced by the Company's pledge of a $1,000,000 interest bearing deposit at a financial institution to secure the Company's limited guaranty of loans in the aggregate amount of $2,418,000 from the

38

financial institution to an entity controlled by Mr. Schumacher. The loans are personally guaranteed by Mr. Schumacher. The Company's pledge is secured by a junior subordinated interest in the collateral provided by Mr. Schumacher to the financial institution. Such collateral includes certain of his real property and all of his common stock holdings in the Company. The Company's original loan and subsequent pledge of $1,000,000 were made to assist Mr. Schumacher in refinancing indebtedness related to, among other things, his divorce settlement and to enable him to avoid the need to sell his common stock holdings in the Company on the open market to satisfy his debts. The Company's Board of Directors and, with respect to the decision to pledge the $1,000,000 cash collateral, a special committee of the independent directors, evaluated a number of options and concluded that the original loan to Mr. Schumacher and the subsequent pledge were the best option and in the best interests of the Company's stockholders in the belief that it would, among other things, avoid selling pressure on the Company's common stock and relieve the financial pressures on Mr. Schumacher that could otherwise divert his attention from the Company.    In January 2003, the $1,000,000 account was used to satisfy the Company's limited guaranty obligation. The Company has now satisfied its obligation under the limited guaranty and pledge with the financial institution. The Company continues to maintain its junior interest in collateral pledged by Mr. Schumacher to the financial institution. The collateral includes certain of Mr. Schumacher's real property and all of his common stockholdings in the Company. The Company reflected the $1,000,000 pledge as restricted cash on its balance sheet until the cash was used to satisfy the Company's limited guaranty in January 2003 and since then has reflected a $1,000,000 loan receivable on its balance sheet. On February 14, 2003, the Company announced that the Company's Board of Directors had terminated Richard T. Schumacher as Chairman and Chief Executive Officer, effective immediately. Mr. Schumacher remains a Director of the Company. William A. Wilson, a Director, was named Chairman of the Board. Kevin W. Quinlan, President and Chief Operating Officer, will continue leading day-to-day operations. A special committee of the Board of Directors has been appointed to seek a replacement for Mr. Schumacher and to oversee the transition.

Recent Accounting Standards

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs and is effective in 2003. The Company does not expect the adoption of this new standard to have a material impact on its financial statements.

        In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), which establishes one accounting model to be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. SFAS No. 144 supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board (APB) Opinion No. 30. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. Adoption of the standard did not materially affect the Company's financial statements.

        In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Adoption of the standard is generally required in 2003. Under the standard, gains and losses on early extinguishment of debt, will be reported as other nonoperating income or expense. The Company does not expect the adoption of this new standard to have a material impact on its financial statements.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which supersedes Emerging Issues Task Force Issue (EITF) 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." The standard affects the accounting for restructuring

39

charges and related activities and generally will lengthen the timeframe for reporting of expenses relating to restructuring activities beyond the period in which a plan is initiated. The provisions of this statement are required to be adopted for exit or disposal activities that are initiated after 2002. The provisions of EITF 94-3 will continue to apply with regard to the Company's previously announced restructuring plans.

        In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions—an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9." This Statement had no impact on the Company.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As provided for in SFAS No. 123, the company has elected to apply APB No. 25 "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock-based compensation plans. APB No. 25 does not require options to be expensed when granted with an exercise price equal to fair market value. The company is complying with the disclosure requirements of SFAS No. 148 in this note under (xvii) Stock-Based Compensation.

        In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation," (an Interpretation of Accounting Principles Bulletin Opinion No. 25 ("APB 25")) ("FIN 44"). FIN 44 provides guidance on the application of APB 25, particularly as it relates to options. The effective date of FIN 44 was July 1, 2000, and the Company has adopted FIN 44 as of that date. The application of FIN 44 has not had a material effect on the Company's financial statements.

        In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," (An interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34") ("FIN 45"). FIN 45 requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. The Interpretation also requires additional disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees it has issued. The accounting requirements for the initial recognition of guarantees are applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for all guarantees outstanding, regardless of when they were issued or modified, for annual periods that end after December 15, 2002. The adoption of FIN No. 45 did not have a material effect on the Company's consolidated financial statements. See the section above entitled "Related Party Transaction" for a discussion of the Company's limited guaranty and pledge of a $1,000,000 interest bearing deposit at a financial institution to provide additional security for loans in the aggregate amount of $2,418,000 from the financial institution to an entity controlled by the former Chief Executive Officer of the Company. In addition, BBI Clinical Laboratories, a discontinued operation, operated from a 15,000 square foot facility in New Britain CT pursuant to a lease which expires in July 2005 and which was guaranteed by the Company. In connection with the Company's decision to exit this business segment, the Company has assumed the obligation to make the remaining lease payments, which is included in the Company's estimate of remaining liabilities associated with discontinued operations

        In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB 51." The primary objectives of FIN No. 46 are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights

40

("variable interest entities" or "VIEs") and how to determine when and which business enterprise should consolidate the VIE. This new model for consolidation applies to an entity for which either: (a) the equity investors (if any) do not have a controlling financial interest; or (b) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN No. 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. The Company is required to apply FIN No. 46 to all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the Company is required to apply FIN No. 46 on July 1, 2003. The Company does not expect FIN No. 46 will have a material effect on its financial statements.

        In November 2002, the EITF reached a final consensus on EITF Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." The provisions of EITF 00-21 are required to be adopted for revenue arrangements entered into by the Company after June 28, 2003, although early adoption is permitted. EITF 00-21 addresses arrangements with customers that have multiple deliverables such as equipment and installation and provides guidance as to when recognition of revenue for each deliverable is appropriate. The Company is evaluating the timing and impact of adoption of EITF 00-21.

Forward-Looking Information

        This Annual Report on Form 10-K contains forward-looking statements concerning the Company's financial performance and business operations. In some cases, forward-looking statements are identified by terms such as "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential" and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause the Company's actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Also, these forward-looking statements represent the Company's estimates and assumptions only as of the date of this report. Except as otherwise required by law, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this report to reflect any change in the Company's expectations or any change in events, conditions or circumstances on which any of the Company's forward-looking statements are based. Factors that could cause or contribute to differences in the Company's future financial results include those discussed in the risk factors set forth below as well as those discussed elsewhere in this report. The Company qualifies all of our forward-looking statements by these cautionary statements. The Company wishes to caution readers of this Annual Report on Form 10-K that actual results might differ materially from those projected in any forward-looking statements.

RISK FACTORS

        This report also contains forward-looking statements that involve risks and uncertainties, such as statements of our objectives, expectations and intentions. The cautionary statements made in this report should be read as applicable to all forward-looking statements wherever they appear in this report. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this report.

41

WE RELY ON PURCHASE ORDERS AND CONTRACTS FROM A SMALL NUMBER OF CUSTOMERS FOR A LARGE PORTION OF OUR REVENUES; THE LOSS OF BUSINESS FROM THESE CUSTOMERS COULD MATERIALLY REDUCE OUR REVENUES AND INCOME.

        Purchase orders account for the majority of our orders; none of our customers have contractually committed to make future product purchases from us. In 2002, our three largest commercial customers, Ortho Clinical Laboratories, Inc., Roche Diagnostics Corporation, and Abbott Laboratories, together accounted for approximately 11.4% of our revenues. In addition, the various agencies of the National Institutes of Health, including the National Institutes of Allergies and Infectious Disease, the National Cancer Institute and the National Heart Lung and Blood Institute, in the aggregate, accounted for approximately 31% of our revenues in 2002. Each agency within the National Institutes of Health, however, makes independent purchasing decisions. The loss of any major customer, including any agency within the National Institutes of Health, the failure of any agency of the National Institutes of Health to fully fund any contract or renew any contract with us, or a material reduction in any major customer's purchases would materially reduce our revenues and our operating results.

IF WE ARE UNABLE TO INCREASE OUR SALES OF QUALITY CONTROL PRODUCTS TO END-USERS OF INFECTIOUS DISEASE TEST KITS, THEN OUR FUTURE REVENUES COULD BE LESS THAN WE HAVE PROJECTED.

        Currently, we sell most of our quality control products for infectious disease test kits to test kit manufacturers and regulators, which is a relatively small market. However, we also sell our quality control products to end-users of infectious disease test kits, including hospital laboratories, blood donor testing centers, public health laboratories and commercial laboratories. This end-user market is a larger market which has not yet become accustomed to using quality control products to monitor test results, but which we believe is a growing market. Currently, we expect an increase in both the frequency of use and the number of products used by our current end-user customers. However, these end-users of infectious disease test kits may not increase their use of our products. Further, large manufacturers and distributors of quality control products that have historically sold to the non-infectious disease market and that have greater financial, manufacturing and marketing resources than we have could begin selling their products to the end-users of infectious disease test kits. This would increase competition for an adequate supply of the rare specimens of plasma and serum necessary for certain of our quality control and run control products. If the end-user market for quality control products for infectious disease testing does not develop further, or if we are unable to increase sales of our products to this market, our future revenues could be substantially less than we have projected.

IF OUR BBI BIOSEQ, INC. AND BBI SOURCE SCIENTIFIC, INC. SUBSIDIARIES CONTINUE TO HAVE SUBSTANTIAL OPERATING LOSSES, THEN WE MAY NOT BE ABLE TO REALIZE THE BOOK VALUE OF THEIR ASSETS.

        Our BBI BioSeq subsidiary has incurred operating losses of approximately $4,900,000, since its acquisition in September 1998 through December 31, 2002. This subsidiary may not be successful in marketing and further developing its technology, and its technology may never achieve commercial viability. Accordingly, our BBI BioSeq subsidiary may never become profitable and we may need to write off some or all of the current net book value of its intangible assets related to its patents, which was approximately $571,000 as of December 31, 2002.

        As a result of our July 1997 acquisition of Source Scientific, Inc., we recorded approximately $2,200,000 of goodwill. Since this acquisition, our BBI Source Scientific subsidiary has incurred cumulative operating losses of approximately $3,764,000 (not including a $1,464,000 write down of goodwill in the third quarter of 2002), as of December 31, 2002. As of December 31, 2002, the remaining net book value of goodwill from the BBI Source Scientific acquisition was approximately $227,000. That subsidiary may continue to have operating losses and may never become profitable. If

42

operating losses continue, some or all of the remaining goodwill associated with BBI Source Scientific in the amount of $227,000 may be written down or written off entirely.

IF WE ARE UNABLE TO OBTAIN BOTH THE NECESSARY REGULATORY APPROVALS AND SUBSTANTIAL FUNDS FOR OUR BBI BIOSEQ SUBSIDIARY'S PRODUCTS, OR IF DEMAND FOR NEW PRODUCTS AND SERVICES FAILS TO MATERIALIZE, OUR FUTURE REVENUES AND INCOME WILL BE LESS THAN WE HAVE PROJECTED.

        Our BBI BioSeq subsidiary, in conjunction with our other subsidiaries has developed products that involved significant development, preclinical and clinical testing, regulatory approvals and investment of substantial funds prior to their commercialization. Our BBI BioSeq subsidiary and BBI Source Scientific subsidiary have developed a pressure cycling technology process into a working laboratory instrument now available for commercial sale. We first introduced our Barocycler™ instrument and related disposable PULSE™ tubes based upon pressure cycling technology for commercial sale in September 2002. Demand for these commercial applications of pressure cycling technology may not materialize as expected. As a result, we may not be successful in selling the Barocycler™ instrument and disposable PULSE™ tubes in sufficient numbers to be commercially viable.

        In addition, we may not be successful in further developing pressure cycling technology into other commercially viable products and services, or such activities may take longer than currently expected; and if successful in such development activities, demand for such products and services may not develop as we anticipate.

        While we have nine issued U.S. patents relating to pressure cycling technology, certain pressure cycling technology applications may not fall within the claims of those issued patents. Further, individuals and groups utilizing present cycling technology may not be required to license such technology from us. Further, our future revenues and income could be less than we have projected.

IF THE FDA REQUIRES CLEARANCE OR APPROVAL FOR EITHER OUR PRODUCTS THAT ARE DESIGNATED ONLY FOR RESEARCH AND NOT FOR DIAGNOSTIC PROCEDURES OR OUR PRODUCTS THAT WE BELIEVE ARE EXEMPT FROM FDA CLEARANCE AND INITIATES ENFORCEMENT ACTION FOR OUR FAILURE TO DO SO, WE WILL LIKELY EXPEND SIGNIFICANT RESOURCES TO RESOLVE THE MATTER.

        In the United States, the Food, Drug, and Cosmetic Act prohibits the marketing of most IN VITRO diagnostic products until the Food and Drug Administration either clears or approves the products through processes that are time-consuming, expensive and uncertain. Some IN VITRO diagnostic products may be exempt from FDA clearance or approval if they have undergone validation studies. As of February 1, 2003, 47 of our Accurun 1(R) and Accurun(R) products had received FDA clearance.

        During 2003, our Accurun(R) External Run Controls products accounted for approximately 11.55% of our revenue. Although it has not done so in the past, the FDA may not agree that some of these products are entitled to an exemption and may adopt a different interpretation of the Food, Drug, and Cosmetic Act or other laws it administers. We believe that products which are used only for research and not in diagnostic procedures are not subject to FDA clearance or approval. We currently label some of our products "for research use only" because they are not intended for use in diagnostic procedures, and have not been cleared or approved by the FDA. It is possible, however, that some purchasers of these products may use them for diagnostic purposes rather than for research, despite our labeling. Under any of these circumstances, the FDA could allege that some or all of these products should have been cleared or approved, or otherwise validated prior to marketing, and could initiate enforcement action against us. If the FDA initiates enforcement action against us, we will likely expend a large amount of time, money, resources and management attention to resolve the matter. In addition, if we cannot obtain or are delayed in obtaining FDA clearances or approvals for our products, we may encounter delays or be unable to ever sell those products.

43

IF WE FAIL TO COMPLY WITH GOOD MANUFACTURING PRACTICES IN CONNECTION WITH THE MANUFACTURE OF OUR MEDICAL DEVICE PRODUCTS, WE MAY NOT BE ABLE TO DISTRIBUTE OUR PRODUCTS AND MAY NOT GENERATE PRODUCT REVENUES.

        We are also subject to strict FDA good manufacturing practice regulations which govern testing, control and documentation practices, and other post-marketing restrictions on the manufacture of our medical device products. Our IN VITRO diagnostic products and our laboratory instrumentation products are considered "medical device products," as defined by the FDA. Regulatory authorities monitor our ongoing compliance with good manufacturing practices and other applicable regulatory requirements through periodic inspections. If we fail to comply with good manufacturing practices or other regulatory requirements, we may not be able to obtain future pre-market clearances or approvals, or the FDA or other regulatory agencies may impose corrective action requirements, including total or partial suspension of product distribution, injunctions, civil penalties, recall or seizure of products, and criminal prosecution. Any of these events would lead to increased costs and a drain on resources and could reduce our revenues and operating results.

BECAUSE WE CONDUCT OUR BUSINESS WORLDWIDE, CHANGES IN INTERNATIONAL REGULATORY REQUIREMENTS MAY MATERIALLY REDUCE OUR TOTAL REVENUES.

        Our international sales accounted for approximately 14.5% of our total revenues for the year ended December 31, 2002. Several Accurun(R) External Run Controls products are subject to international regulatory approvals in Germany and France.

        As of February 2003, seven of the Company's Accurun 1(R) Positive Control products designed for the European market have been "approved to CE Mark" by G-Med, a Designated Notified Body under the European Union's In Vitro Diagnostics Directive. The IVD Directive describes criteria that must be met and steps that must be taken for in vitro diagnostic products to be qualified for sale in European Union countries beginning at the end of 2003. In the IVD Directive, the European Union classifies products according to the risks associated with their failure or misuse, and establishes a process leading to CE Mark (approval to sell a product in EU countries) for each category. Our Accurun 1(R) product line is in the highest risk category because these products are intended for use with tests for HIV and Hepatitis B and C; thus the criteria for approval to CE Mark are the most stringent, and require Notified Body review. These international approval processes are similar to the FDA clearance process and good manufacturing practice regulations. Changes in international regulatory requirements and policies, including both changes in existing restrictions and future restrictions on importation of blood and blood derivatives, could result in reduced international sales, which may materially reduce our total revenues and income.

IF WE ARE UNABLE TO OBTAIN A STEADY AND ADEQUATE SUPPLY OF RARE SPECIMENS OF PLASMA AND SERUM, THEN WE MAY BE UNABLE TO PRODUCE OUR QUALITY CONTROL PANEL PRODUCTS AND OUR ACCURUN® EXTERNAL RUN CONTROLS PRODUCTS.

        We manufacture our diagnostic products, including our quality control panel products and Accurun® External Run Controls products, from human plasma and serum which we obtain from nonprofit and commercial blood centers in the United States and from similar sources throughout the world. Our BBI Diagnostics business unit, which manufactures and sells these diagnostic products, accounts for approximately 51% of our revenues. Our quality control panel products and Accurun® External Run Controls products contain rare plasma specimens that we collect from individuals who have been infected with particular diseases. The specimens are rare because we can collect them only during the brief period of time when the markers for a particular disease in an infected individual are converting from negative to positive. It is difficult to identify such infected individuals and to collect

44

specimens from them during the brief period of time when the markers for a particular disease are converting from negative to positive. As a result, quantities of these specimens are limited. As we sell our quality control panel products and Accurun® External Run Controls products, we must find replacement specimens that are equally rare. We may also face competition to obtain these specimens which could further limit our ability to obtain the specimens and to produce our quality control panel products and Accurun® External Run Controls products. A limit in our ability to produce our products would reduce our future revenues and operating results.

IF WE ARE NOT ABLE TO REACT QUICKLY TO TECHNOLOGICAL CHANGE, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.

        The infectious disease test kit industry is characterized by rapid and significant technological change, and changes in customer requirements. As a result, our ability to continue to compete effectively in this industry depends upon our ability to enhance our existing products and to develop or acquire, and introduce in a timely manner, new products that take advantage of technological advances and respond to customer requirements. We may not be successful in developing and marketing such new products or enhancements to our existing products on a timely basis, if at all, and such products may not adequately address the changing needs of the marketplace. Furthermore, rapid technological development may result in our products or services becoming obsolete or noncompetitive before we recover our investment in research, development and commercialization.

IF WE CANNOT PROTECT OUR INTELLECTUAL PROPERTY, WE MAY BE UNABLE TO COMPETE EFFECTIVELY.

        Our ability to compete effectively with other companies depends in part on our ability to maintain the proprietary nature of our technologies and products. We rely primarily on a combination of trade secrets and non-disclosure and confidentiality agreements to establish and protect our proprietary rights in our technology and products. For the pressure cycling technology developed by our BBI BioSeq subsidiary, we have nine issued patents and several other patents pending. If we have not adequately protected our technology, or if our competitors misappropriate our intellectual property, we could lose market share and our future revenues and operating income could be significantly less than projected.

IF WE ARE UNABLE TO ATTRACT AND RETAIN A NEW CHIEF EXECUTIVE OFFICER, THEN WE MAY NOT BE SUCCESSFUL IN FULLY EXECUTING OUR BUSINESS PLAN.

        On February 14, 2003, we announced the termination of our Chairman and Chief Executive Officer. We subsequently appointed as Chairman Mr. William A. Wilson, an existing independent member of the Board of Directors. A special committee of our Board of Directors has been appointed to oversee management of the affairs of the Company until such time as a new Chief Executive Officer is employed. There are a limited number of qualified candidates for the position with the necessary technical background and management experience. We are competing for those candidates with companies that are larger and have greater financial resources than we. If we are not able to attract and retain a new, suitably qualified, Chief Executive Officer within a reasonable period of time, we may not be able to properly evaluate our strategic choices, our existing management may not be able to focus their attention on all necessary management matters and we may not be successful in fully executing our business plan.

IF WE ARE UNABLE TO ATTRACT AND RETAIN HIGHLY QUALIFIED SCIENTIFIC AND MANAGEMENT PERSONNEL, THEN WE MAY NOT BE ABLE TO DEVELOP AND REFINE OUR PRODUCTS AND SERVICES.

        Our products and services are highly technical and our key personnel must have specialized training or advanced degrees in order to develop and refine these products and services. There are a

45

limited number of qualified scientific and management personnel who possess the technical background necessary to adequately understand and improve our products and services. We compete for these personnel with other companies, academic institutions, government entities and other organizations engaged in research and development of products similar to ours. If we are unable to attract and retain scientific and management personnel with the appropriate credentials who are capable of developing and refining our products and services, then our products and services could become inaccurate or unreliable, or could fail to obtain FDA approval and we may be unable to deliver new products.

WE MAY NOT BE ABLE TO FULLY COLLECT THE PRINCIPAL AND INTEREST DUE ON A $1,000,000 RECEIVABLE FROM OUR FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER.

        As of January 2003, we recorded a $1,000,000 receivable from our former Chairman and Chief Executive Officer, Richard T. Schumacher. We continue to maintain a junior security interest in collateral pledged by Mr. Schumacher to a financial institution. The collateral includes certain of Mr. Schumacher's real property and all of his shares of our common stock. The collateral and personal assets of Mr. Schumacher may not be sufficient to permit us to fully recover the principal, interest and other costs associated with this receivable. If the value of the collateral decreases, we may have to write down or write off the receivable. Therefore, we cannot be certain that we will collect the full amount of the receivable.

A FEW STOCKHOLDERS CONTROL A SIGNIFICANT PERCENTAGE OF VOTING POWER AND MAY EXERCISE THEIR VOTING POWER IN A MANNER ADVERSE TO OTHER STOCKHOLDERS' INTERESTS.

        Our former Chairman and Chief Executive Officer, Richard T. Schumacher, and our other existing officers and directors collectively have voting control over approximately 15% of the outstanding shares of our common stock as of February 2003. In addition, approximately 23% of the outstanding shares of our common stock as of February 2003 were controlled by Mr. Richard Kiphart, an unaffiliated investor. Accordingly, these stockholders, should they choose to act in concert, are in a position to exercise a significant degree of control and to significantly influence stockholder votes on the election of directors, increasing the authorized capital stock, and authorizing mergers and sales of assets. These stockholders may act in a manner that is adverse to your personal interests.

PROVISIONS IN OUR CHARTER AND BY-LAWS AND OUR SHAREHOLDER RIGHTS PLAN MAY DISCOURAGE OR FRUSTRATE STOCKHOLDERS' ATTEMPTS TO REMOVE OR REPLACE OUR CURRENT MANAGEMENT.

        Our amended and restated articles of organization and restated bylaws contain provisions that may make more difficult or discourage changes in our management that our stockholders may consider to be favorable. These provisions include:

•

classified board of directors;



•

advance notice for stockholder nominations to the board of directors;



•

limitations on the ability of shareholders to remove directors; and



•

a provision that allows a majority of the directors to fill vacancies on the board of directors.

        These provisions could prevent or frustrate stockholders' attempts to make changes in our management that our stockholders consider to be beneficial.

        On February 27, 2003, our Board of Directors adopted a Shareholder Purchase Rights Plan. This Plan may have the effect of discouraging or preventing a change in control.

46

        All of these provisions could limit the price that our stockholders might receive in the future for shares of our common stock.

THE EXERCISE OF ALL OUTSTANDING OPTIONS AND THE CONVERSION OF ALL OUTSTANDING WARRANTS COULD HAVE AN ADVERSE EFFECT ON THE PRICE OF OUR COMMON STOCK.

        We have 1,395,687 options outstanding as of December 31, 2002 which are exercisable at various prices. In addition, we have outstanding warrants, with various strike prices, which are exercisable for a total of 231,901 shares of our common stock as of December 31, 2002. The options and warrants exercisable as of December 31, 2002 represent approximately 19.6% of our issued and outstanding common stock based on the number of shares issued and outstanding as of December 31, 2002 on a fully diluted basis. The exercise of our outstanding options and warrants could place downward pressure on the price of our common stock.

WE ARE INCURRING SIGNIFICANT LOSSES AND CANNOT ASSURE THAT WE WILL BECOME PROFITABLE.

        We incurred net losses in four out of the last five years. For the year ended December 31, 2002, we incurred a net loss of $1,488,000. For the year ended December 31, 2001 we had net income of $3,447,000, but the results for that year included $4,334,000 from discontinued operations. We cannot assure that we will become profitable or that we can maintain profitability if we attain it.

        In January 2002, we pledged a $1,000,000 interest bearing deposit at a financial institution to secure the Company's limited guaranty of loans in the aggregate amount of $2,418,000 from a financial institution to an entity controlled by our former Chairman and Chief Executive Officer, Richard T. Schumacher. In January 2003, the $1,000,000 was used to satisfy our limited guaranty obligation to the financial institution. This may adversely affect our operational needs for cash in 2003 and thereafter.

        If revenues are lower than anticipated or expenses are higher than anticipated, we may require additional capital sooner than expected and there can be no assurance that we will be able to obtain additional financing or capital on acceptable terms or that we will be successful in eliminating or scaling back certain of our activities.