OxyFile #401

Corporate Objective

LifeTECH is a Canadian company committed to a safe global blood 
supply.  We will develop efficient and cost effective methods of 
blood sterilization in collaboration with the scientific and 
medical communities.  Our strengths are excellence, innovation and 
continuous improvement of our technology.  Our goal is to enhance 
the quality of life by eliminating the risk of transmission of 
disease through transfusions of blood and blood products.


President's Letter to Shareholders

Dear Shareholders,

Welcome to this first Annual Report of LifeTECH Corporation as a 
public company.  The completion of the Corporation's Initial 
Public Offering has launched a new and dynamic phase of growth and 
development.  This past year, the Corporation has taken great 
strides towards its goal of creating the first commercially viable 
technology to effectively and safely sterilize blood, serum and 
other biological fluids.

During fiscal 1995, our Research & Development efforts advanced 
our Sterizone(TM) System from the prototype stage to the "Alpha" 
(pre-production) unit in preparation for Pre-Clinical Trials.  The 
development of a key component, a specialized ozone sensor, will 
significantly reduce manufacturing costs.  The main focus of our 
Research & Development efforts is the optimization of the Cellular 
Infusion Device (CID), the consumable component that combines 
ozone with the biological fluid.  Four new patent submissions for 
CID, along with patent submissions for the ozone sensor and 
specialized electronic systems, have continued our aggressive 
patent protection program.

Building on our strong Research & Development program and 
significant technological progress, we have initiated talks with 
potential strategic partners.  Although these talks are in the 
early stages, strategic alliances with multinational corporations 
could augment future applications of our blood and biological 
fluid sterilization technology.

The Corporation raised $6.9 million through its Initial Public 
Offering.  These funds supported the acceleration of Research & 
Development activities and the expansion of our facilities by 
7,500 square feet.  Level 2 and Level 3 laboratories (a 
requirement for working with certain microorganisms) were 
constructed, creating a state-of-the-art facility for our expanded 
research staff.

In parallel with our primary focus on human blood sterilization, 
we are evaluating the sterile bovine serum marketplace as a 
potential source of revenues in the near future.  It will take 
approximately three years to obtain approvals from the regulatory 
agencies for human applications of the Sterizone System (Canadian 
Health Protection Branch (HPB) and United States Food & Drug 
Administration (USFDA)).  On the other hand, the minimal 
regulatory requirements for the sterilization of bovine serum for 
medical research and vaccine production means these products could 
be commercialized in approximately twelve months.  The (U.S.) $600 
million bovine serum market represents substantial revenue steam 
possibilities for LifeTECH.

We anticipate that revenues generated by bovine serum 
sterilization will support our USFDA Pre-Clinical and Clinical 
Trials for the sterilization of human blood.  These Pre-Clinical 
Trials are planned for two sites in the United States and one site 
in Canada.  Our goal is to accelerate the worldwide 
commercialization of the Sterizone System through a strategic 
partnership with a multinational biotechnology company.

The primary mission of LifeTECH is the commercialization of our 
technology for a safe global blood supply.   The Krever Commission 
(Commission of Inquiry on the Blood System in Canada) has revealed 
a significant incidence of patients who have contracted disease 
through blood transfusions, clearly demonstrating the limitations 
of current screening technologies and the need for blood 
sterilization.  The Corporation's goal is to provide a safe and 
cost effective process for sterilizing blood and blood products, 
thus reducing the risk of transfusion-related diseases.

The ultimate marketplace for our sterilization technology is the 
120 million units of human blood collected annually around the 
world.  Current testing methodologies in Canada screen only for 
eight different infectious agents.  We believe that global blood 
collection agencies will aggressively pursue the opportunity to 
sterilize their blood and blood products, rather than rely on 
imperfect and costly tests.  Our marketing efforts will be aimed 
at sterilizing every unit of blood and blood products that are 
processed worldwide.

To all shareholders, I express the Corporation's thanks for your 
support and look forward to sharing the excitement of meeting the 
challenges ahead.  I would like to personally thank our Board of 
Directors, our Scientific Advisory Board and our dedicated 
employees who have made the Corporation what it is today.  I look 
forward to sharing an exciting future with every member of the 
LifeTECH team.

Walter J. Dermott
President & Chief Executive Officer


The serious crisis facing the global blood supply is expected to 
escalate in the future as new viruses and bacteria infect the 
human blood supply:

HOW DOES THE STERIZONE SYSTEM WORK?

The Sterizone System uses our patented, disposable Cellular 
Infusion Device (CID) to precisely combine gaseous ozone with 
blood or blood products.  Since red blood cells are extremely 
fragile, this process must be very gentle to prevent physical 
damage to the blood.  Under properly controlled conditions, the 
ozone mixes with the red blood cells without affecting healthy red 
blood cells, but destroying virally infected cells. In one study, 
a 10 ml quantity of blood was contaminated with enough HIV to 
infect the entire world population 10 times, then ozonated.  All 
of the HIV was destroyed by the ozone.  The Surgeon General of 
Canada has been a leader in this research, and is presently using 
the Sterizone System in its continuing research at Cornell 
University in New York State.


WHY HAVE YOU SELECTED OZONE AS THE KEY COMPONENT IN YOUR 
TECHNOLOGY?

Scientific studies have confirmed that ozonation is an effective 
method of killing viruses and bacteria in blood products.  Ozone 
chemically interacts with blood, forming compounds which are 
identical to those produced by our own immune system to destroy 
viruses and bacteria.  Some of these compounds include singlet 
oxygen, hydrogen peroxide and lipid peroxide.

Until LifeTECH's Sterizone System was developed, all attempts to 
use ozone for blood sterilization had failed.  Other technologies 
could not accurately and reproducibly control the amount of ozone 
delivered to ensure viral and bacterial kill with minimal red 
blood cell damage.  Too much ozone will cause red blood cell 
damage, and too little will be ineffective for viral kill.  The 
ability of our Sterizone System to accurately control ozone 
delivery is a key element in our patented process.


WHY HASN'T SOMEONE COME UP WITH A WAY TO STERILIZE BLOOD BEFORE 
NOW?

The components of blood are very fragile, especially the red blood 
cells.  If the red blood cells are damaged in any significant way, 
the blood is unsuitable for transfusion purposes.  Many companies 
have tried different sterilization techniques - heating, 
microwaving, centrifuging, chemicals, filters and radiation - 
designed to reduce or remove contaminants from the blood.  To 
date, sterilization technologies developed by others appear to 
result in either a significant amount of cellular damage or a 
limited viral or bacterial deactivation.  Our Sterizone System is 
designed to achieve both goals - sterilization and minimal damage 
to the red blood and proteins.


WHAT TYPE OF R&D ARE YOU DOING?

Our scientists are currently testing various configurations of the 
Sterizone System and the Cellular Infusion Device to sterilize 
whole blood and biological fluids (human and bovine serum, plasma, 
packed red blood cells and MEM, a growth media for tissue 
cultures).  Our experiments will identify the optimum process for 
each biological fluid, then confirm our viral/bacterial kill and 
minimal toxic effects on the red blood cells and proteins.


DO CURRENT TESTS USED BY GLOBAL BLOOD COLLECTION AGENCIES IDENTIFY 
ALL KNOWN INFECTIOUS AGENTS?

Blood and blood products are known to transmit a number of 
infectious viral, bacterial and parasitic diseases.  In Canada, 
blood is usually screened for eight viral contaminants.  Current 
testing is neither comprehensive nor completely reliable, as the 
testing reagents do not react to viruses but to the antibody 
produced by the immune system in response to viral infection.  
Since antibodies are not produced immediately upon infection, even 
the most thorough and sensitive screening tests will not detect 
very early stage infection.  HIV, for instance, may not be 
detectable using current testing for the first three weeks that 
the virus is present.  This "incubation period" means that some 
viruses will inevitably remain undetected and enter the global 
blood supply.

In addition, many known infectious agents remain undetected in the 
blood supply due to a lack of testing or the unavailability of 
commercially available screening tests.


HOW ARE YOU GOING TO ADDRESS THE ISSUE OF OTHER KNOWN OR UNKNOWN 
INFECTIOUS AGENTS?

The Canadian Red Cross tests for HIV-1 and HIV-2, Human T-Cell 
Lymphatropic Virus (HTLV-1 and 2), Hepatitis B and C, Syphilis and 
Cytomegalovirus.  These pathogens have historically been the most 
dangerous viruses and bacteria in our blood supply.  Unfortunately 
there are many other viruses and bacteria that are not screened 
for, such as Parvovirus, Epstein-Barr Virus, Chagas Disease, 
Creutzfeldt-Jakob Disease, and new mutated variations of Hepatitis 
and other diseases.  All of these pathogens can produce serious 
illness or death in humans.  Our goal is to show that the 
Sterizone System will effectively kill these newer strains as well 
as the existing infectious agents.


HOW WILL THE STERIZONE SYSTEM IMPACT HEALTH CARE COSTS?

The cost of testing a unit of blood in Canada is approximately 
$100.00 for the existing group of tests.  LifeTECH anticipates 
that the Sterizone System will be used initially in conjunction 
with screening tests, until effective sterilization can be proven.  
This will have the effect of marginally increasing the total cost 
of processing blood.  Once sterilization has been proven, the 
Sterizone System has the potential to generate substantial cost 
savings for blood collection and processing agencies over the long 
term.  When the Sterizone System becomes accepted as an effective 
method of sterilizing blood and blood products, the Corporation 
expects that screening will be used on a less extensive basis.

The greatest financial impact of the Sterizone System will be the 
dramatic reduction in the long term costs of treating serious 
diseases like AIDS.  By preventing the transmission of serious 
diseases, the Sterizone System will eliminated the escalating 
costs of expensive medical treatments that can extend for years.  
Equally important is the avoidance of the incalculable human pain 
and suffering caused by serious and widespread diseases like AIDS.



Human Blood and Blood Products

The most significant market for the Sterizone System is the 120 
million units of whole blood that are collected and processed 
annually throughout the world.  The North American portion of this 
market is approximately 16 million units (a unit is approximately 
500 ml).  The last decade has seen increasing public pressure put 
on the blood supply industry to make the blood supply safe.  
Driven by the worldwide fear of contracting HIV through 
contaminated blood and blood products, collection agencies have 
been pressured to increase testing for dangerous viruses and 
bacteria, while facing expensive legal settlements, criminal 
charges against blood industry executives, and escalating 
insurance premiums.  In spite of all these issues, blood testing 
is still not universally practiced.  In many developing countries, 
testing in minimal or non-existent due to the high costs and the 
need for trained technicians.

The risk of blood-borne infectious agents is increasing, according 
to the World Health Organization (WHO):

* over 200 million people worldwide are long term carriers of 
Hepatitis B; Hepatitis G, a rare form of the disease, has just 
been isolated in China

* over 17 million people worldwide are infected with known HIV 
strains, with 30-40 million projected by the year 2000

* more than 11 million people worldwide have Tuberculosis

* Dengue Fever, Malaria and Cholera are spreading quickly in Latin 
America and the Caribbean, two popular tourist areas that received 
two million visitors during 1994

* Malaria is one of the world's oldest plagues.  This second 
highest killer of mankind has developed a variety of new 
antibiotic resistant strains

* Cholera has infected more than one million people in Latin 
America since 1991, killing more than 9,000

The need to test blood for multiple contaminants creates 
unaffordably high costs for blood collection agencies.  Testing 
costs can only escalate as more stringent testing is demanded.  
This situation is further aggravated by the fact that some blood 
products are routinely fractionated into as many as eight 
different components.  If the original unit of whole blood is 
contaminated with a virus, this virus will be present in all of 
the fractionated products, multiplying the risk to the users of 
the blood supply.  In 1995, blood from on Canadian donor was found 
to be contaminated with Creutzfeld-Jakob Disease, resulting in the 
recall by the Canadian Red Cross Society of 3,865,780 units of 
Factor VIII, 5,496 vials of IVIgG, 8,352 vials of Albumin 5% and 
10,557 vials of Albumin 25%.  The cost of this nationwide recall 
exceeded $10 million.

The key to the marketing of the Sterizone System is its ability to 
sterilize blood of all viruses and bacteria in one step, without 
the need for highly skilled laboratory staff.  Once the Sterizone 
System has been validated, the need for testing is expected to be 
greatly reduced.  Eventually, only statistical sampling would be 
required to ensure the reproducibility of the system.  As this 
early stage in our development, final pricing has not been 
established.  Our goal is to dramatically reduce the overall costs 
associated with blood testing and post-transfusions illness caused 
by contaminated blood.

LifeTECH's expectation is that our technology will sterilize a 
unit of blood for less than is now spent on current testing 
programs.  Blood collection agencies will welcome an efficient, 
cost effective method of sterilization.

There is another crucial benefit of sterilization over testing.  
The global medical community fully expects new viruses to emerge 
in the human population.  Whether these new viruses are variants 
of old viruses - like Hepatitis G - or entirely new pathogens, the 
fear is that they will enter the human blood supply undetected and 
be transmitted to unknowing transfusion recipients.  A replay of 
the HIV scenario - a period of years to initially detect the 
disease, then relate it to a blood borne virus, then more years to 
develop a reliable test - is unacceptable.  The promise of 
sterilization is that all new viruses and bacteria will be killed 
along with the known viruses and bacteria.  This would happen 
without anyone being aware that the new virus or bacteria is even 
present in the blood supply.  LifeTECH expects the Sterizone 
System to be the long term answer to a safe global blood supply.


Bovine Sera Markets

The sterilization of bovine serum represents an important 
opportunity for LifeTECH to generate significant revenues in the 
short term.  The Sterizone System technology will sterilize bovine 
serum just as effectively as it sterilizes human serum.  Serum is 
the colorless liquid component of the blood which contains 
proteins and nutrients.  Bovine serum is extensively used in the 
manufacture of human and veterinary vaccines, and for cell culture 
growth for medical/veterinary research.  A significant portion of 
the bovine serum that is commercially available today is 
contaminated with viruses and bacteria.  The impact of infected 
serum is extremely costly - contaminated vaccines and wasted 
medical research.  LifeTECH has identified bovine serum as a 
short-term, high-growth market for the Sterizone System.

The bovine serum marketplace is dominated by Fetal Bovine Serum 
(FBS) from unborn calves.  FBS that is said to be "sterilized" 
sells for over U.S. $500 per litre, but the techniques currently 
being used have not proven to be effective.  The market advantage 
of the Sterizone System will be reliable, cost effective 
sterilization of bovine serum.

The bovine serum marketplace currently relies on Certificates of 
Analysis which as issued by the serum manufacturer to indicate the 
purity and chemical analysis of each lot of serum.  However, the 
accuracy of these Certificates of Analysis can vary greatly, as 
can the quality of the serum, with no reliable way to detect 
contamination.  Reliable sterilization will eliminate these 
concerns, yielding a high quality product with substantial added 
value.

The worldwide market for bovine sera is estimated to be U.S. $600 
million.  These estimates are based on global demands exceeding 
1,500,000 litres per year, and growing.  LifeTECH's marketing 
strategy is to revolutionize the bovine serum marketplace by 
offering a technology that will sterilize bovine serum of viruses 
and other contaminants.  Sterilized sera will be highly regarded 
by the marketplace, and will command both a premium price and a 
significant market share.

More information can be obtained from LifeTECH:

LifeTECH Corporation
133-6 The West Mall
Toronto, Ontario
M9C 1C2
416-621-8883
416-620-6927 Fax