BIOPHARMACEUTICS INC, 10-K, 1997-04-07

BIOPHARMACEUTICS INC
10-K, 1997-04-07
PHARMACEUTICAL PREPARATIONS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
---------

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

For the fiscal year ended September 30, 1995
Commission file number: 1-9370

Biopharmaceutics, Inc.
-------------------------------------------
(Exact name of Registrant as specified in its Charter)

Delaware 13-3186327
State of Corporation (I.R.S. Employer I.D. Number)

990 Station Road, Bellport, NY 11713
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (516) 286-5800

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, $0.001 Par Value NASDAQ OTC Bulletin Board

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes __X___ No____

The aggregate market value of the voting stock owned by non-affiliates
of the Registrant on November 30, 1995 was $13,461,011. On such date, the mean
price at which the stock was sold was $0.50 per share.

The number of shares of Common Stock, $.001 Par Value, outstanding as
of November 30, 1995, was 26,922,022, exclusive of outstanding, unexercised
options.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

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BIOPHARMACEUTICS, INC.

FORM 10-K
(Filed for Fiscal Year Ended September 30, 1995)

TABLE OF CONTENTS
Page No.
-------
Part I.

Item 1. Business . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . 16
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . 16
Item 4. Submission of Matters to
a Vote of Security Holders. . . . . . . . . . . . 17

Part II.

Item 5. Market for Registrant's Common
Stock and Related Shareholder
Matters . . . . . . . . . . . . . . . . . . . . . 18
Item 6. Selected Financial Data . . . . . . . . . . . . . . 19
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . 19
Item 8. Financial Statements and Supplementary Data 22
Item 9. Disagreements on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . 22

Part III.

Item 10 Directors and Executive Officers . . . . . . . . 22
Item 11. Executive Compensation . . . . . . . . . . . . . . 23
Item 12 Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . 26
Item 13. Certain Relationships and Transactions . . . . . . 28

Part IV.

Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K

Exhibit Index. . . . . . . . . . . . . . . . . . . 29

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PART I

ITEM 1. BUSINESS
--------

The Company
-----------

Biopharmaceutics, Inc. (the "Company") was incorporated in Nevada on
August 15, 1983, under the name of Health Care Facilities Corporation. On
November 10, l983, Health Care Facilities Corporation changed its name to
Patient Medical Systems Corporation. The Shareholders, on January 21, 1987,
changed the Company's name to Integrated Generics, Inc. and on March 28,
1988, to Biopharmaceutics, Inc. and the state of incorporation from Nevada to
Delaware. The Company's executive office is located at 990 Station Road,
Bellport, New York 11713. Its telephone number is (516) 286-5800.

Business Operations
-------------------

The Company's business operations, in fiscal year 1995, were
principally conducted through three wholly owned subsidiaries: Biopharmaceutics,
Inc. ("Biopharm"), a New York corporation, engaged in the manufacturing of
generic pharmaceutical products, Biopharm Lab, Inc. ("Lab"), a company engaged
in the marketing of a branded consumer sun care product, Treo(R), and Anti-Sense
Technologies, Ltd., ("Anti-Sense"), a company engaged in the biotechnology field
currently holding licenses for anti-sense oligonucleotides and peptides in the
developmental stage which have displayed anti-tumor, anti-metastatic and
anti-HIV characteristics.

In addition, the Company holds the license rights to Mitalactol
("DBD"), a pharmaceutical, solid dosage which holds "Orphan Drug Status" for
both the treatment of cervical cancer and brain cancer and "ADT" the Company's
licensed, patented process for the diagnosis of Alzheimer's Disease.

In November 1995, a Federal District Court issued a Preliminary
Injunction enjoining Lab from marketing Treo for the 1996 season. In December
1995, this same Court issued a Final Judgment terminating Lab's and the
Company's rights to the Treo license. The Company has filed a Notice of Appeal
of the Preliminary Injunction and intends to file a Notice of Appeal from the
Final Judgment. As a result of the Court's actions, the Company has discontinued
its Treo business.

Furthermore, the Company has had to cease current expenditures on
final development of DBD in order to concentrate its available assets on
rebuilding its pharmaceutical operations and to commence sales and marketing of
its new Feminine Hygiene Products, whose acquisition is expected to be complete
by February 28, 1996 (See "Feminine Hygiene Products").

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Pharmaceutical Operations
-------------------------

Background
----------

Sales of prescription generic drugs and private label over the
counter ("OTC") drugs ("Non-Branded") have increased significantly in the past
fifteen years, due in part to greater awareness and acceptance of non-branded
drugs by physicians, pharmacists and consumers. Among the factors that have
contributed to this increased awareness and acceptance are favorable federal and
state laws permitting physicians or pharmacists to substitute generic drugs for
brand name drugs, and the publication by the Food and Drug Administration
("FDA") of a list of therapeutic equivalent drugs that provides physicians and
pharmacists with the names of generic drug alternatives. In addition, various
government agencies and many private health programs encourage and, in many
cases, require the prescribing and use of non-branded drugs as a cost-saving
measure.

Most, but not all, prescription drugs and several OTC drugs
require FDA approval of Abbreviated New Drug Applications ("ANDA"s) before those
drugs can be marketed. In order to obtain approval of an ANDA, an applicant
must, among other things, develop a formulation for a product, manufacture the
product, conduct stability tests on the product and, when required, provide an
independent clinical test proving that the product that is the subject of the
ANDA is the bio-equivalent of the brand name product that the subject is
designed to duplicate. Substantial funds are required to develop a line of
prescription generic drugs because of the requisite FDA approval process.

Until April 1990, Biopharm's strategy involved developing, and
filing for approval, for prescription pharmaceuticals requiring FDA approval of
ANDAs. This approach required significant expenditures for research and
development, including personnel and materials. Through April 1990, this
approach had not produced any significant tangible results. Therefore, in May
1990, Biopharm eliminated its research and development personnel and
significantly reduced its expenditures for materials related to research and
development. In addition, since May 1990, following a series of developments
involving the FDA and certain competitors of Biopharm, Biopharm had implemented
a modified marketing and development strategy.

Biopharm's product development and marketing strategy had four
major areas of concentration. Through Biopharm, the Company intended to (1)
develop some of the approximately twenty prescription products not requiring
ANDA filings, (2) broaden its OTC product line, (3) secure private formulation
work for larger branded or generic companies and (4) file ANDAs for products not
requiring clinical studies, with Biopharm's current staff performing the
development and filing work. Due to the reduction of industry competition as a
result of FDA actions, the Company believed it would be more practical to
implement that marketing strategy then, than previously.

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As a result of the temporary closure (referred to below), Biopharm had
to suspend the continued implementation of this strategy until it became
reapproved as a manufacturer. As of November 22, 1993 with the FDA approval
to recommence manufacturing operations, Biopharm has taken steps to reimplement
parts 2, 3 and 4 of this strategy. The Company still intends to implement part
1, but not immediately.

Current Operations
------------------

Biopharm maintains manufacturing facilities and offices at the
Company's headquarters in Bellport, New York. Through November 1, 1991, Biopharm
had been engaged in the business of manufacturing and marketing private label
OTC and generic prescription pharmaceuticals to major generic drug distributors,
chain drug stores, supermarkets, drug wholesalers and other generic drug
manufacturers. Biopharm products were sold with the Customer's private label and
with the Biopharm brand label.

During that period, Biopharm manufactured various dosages of
approximately forty OTC drugs using brand names designated by Biopharm, or by
its private label customers or using their generic (chemical) names. Products
were sold in various forms, including compressed tablets, two-piece, hard-shell
capsules and caplets.

Biopharm markets its products primarily to major generic drug
distributors, chain drug stores, supermarkets, drug wholesalers and other drug
manufacturers. Non-brand drug products must meet the same government standards
as brand name drugs, but are sold at prices substantially below those of brand
name drugs. During fiscal 1991, approximately 5% of Biopharm products sold were
sold with their generic name, approximately 7% were sold with the "Biopharm"
brand, and the balance of sales were made to customers for sale with the
customers' private labels.

Following the close of the Company's 1991 fiscal year, the
Federal government, on November 1, 1991, obtained a temporary restraining order
against Biopharm and its president, Edward Fine, temporarily restraining and
enjoining Biopharm and Mr. Fine from manufacturing, processing, packing or
labeling any pharmaceutical products manufactured, processed, packed or labeled
at those facilities pending a court ruling on a government motion for a
preliminary injunction against Biopharm. The FDA's complaint centered around
allegations that Biopharm had not complied with current Good Manufacturing
Practice ("cGMP") regulations concerning such matters as packaging and labeling
procedures and controls, validation of mixing and blending procedures and the
documentation of process failures. The complaint also alleged that Biopharm had
inadequately responded to various cGMP observations following FDA plant
inspections over a period of time. On November 19, 1991, Biopharm signed a
Consent Agreement with the FDA, thereby ending the legal proceedings that gave
rise to the temporary restraining order. Biopharm had laid off a majority of its
employees following the issuance of the temporary restraining order and had
ceased all operations. Although Biopharm believes that the government's action
resulted from the independent, unauthorized activities of three former
employees, each of whom were promptly discharged by Biopharm, it determined that

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the signing of the Consent Decree would be less damaging to it's business than a
protracted legal proceeding. On January 10, 1992, the FDA approved Biopharm's
performance of its obligations under the Consent Decree, as amended on December
23, 1991. As a result , Biopharm began the process of returning to full
operations.

Since January 13, 1992, Biopharm had been operating as a repacker,
purchasing finished dosages (tablets, caplets or capsules) in bulk from other
manufacturers, and packaging them in consumer selling sizes for distribution
to its customers. Biopharm has lost a significant portion of its customer bas
as a result of the temporary closure. The Company began actively pursuing new
customers as described in Items 2 and 3 under Pharmaceutical Operations -
Background. During the last several months, the Company has been successful in
acquiring business from three potentially major customers: Columbia Labs,
Zenith/Goldline Pharmaceuticals and Arnet Pharmaceuticals.

The Company is producing a branded consumer product for Columbia under
a trademark, owned by Columbia, Legatrin PM(TM). Sales to Arnet are of bulk
pharmaceutical products for distribution in South America. Arnet's customer i
South America is one of the largest distributors of pharmaceutical products on
the South American continent. Zenith/Goldline has given the Company orders to
produce one of their high volume supplements to be shipped in both bulk and in
bottles. In addition, the Company is discussing numerous products with a former
customer who markets branded products. The Company continues to seek such
business where the products can generate significant volume at reasonable
profit margins.

As of November 22, 1993 the FDA had completed its inspection of
Biopharm's facility, and, had deemed Biopharm to be in compliance with
cGMP's. Biopharm is now approved to manufacture and sell its five validated
products and it may also manufacture and sell additional products not previously
manufactured by it, provided those products are manufactured in conformance with
cGMP's. Biopharm began shipments of its manufactured products immediately. On
December 5, 1994, Biopharm requested that the FDA begin their review of eight
additional validated products. The review was completed by May 1995 and seven
products were approved. The eighth product was withdrawn. As of June 1995,
Biopharm was approved to manufacture a total of twelve of its former products.

The former combined total sales of the aforementioned twelve products
constituted approximately 62% of Biopharm's former sales volume for manufactured
products. The Company has petitioned the FDA to waive the requirements
for a third multiple product review, which if acceptable to the FDA, would
enable the Company to bring individual products back on line more quickly. The
Company is having on-going negotiations with the FDA on this issue.

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Marketing and Customers -- Order Backlog
----------------------------------------

A key element of Biopharm's marketing strategy is the maintenance of
sufficien inventory to fill customer orders within a three to fou week period.
The success of this strategy is heavily dependent on Biopharm's ability to
predict market demand.

Biopharm currently sells its products to approximately thirty-three
customers, using both private (customer) labels, customer branded product
labels, bulk containers or its own Biopharm brand label. Marketing and sales by
Biopharm include efforts directed at increasing the overall acceptance of
generic pharmaceutical products in all classes of trade within the health care
distribution network.

Biopharm believes that, prior to its temporary cessation of operations
as a result of the FDA action described above, its fast delivery of customer
orders had significantly contributed to the growth of its customer base and the
growth in the number of products each customer was purchasing from it.
Biopharm intends to continue this aggressive approach to quick, on-time
deliveries. Sales efforts stress this point as the predominant benefit of doing
business with Biopharm.

Biopharm's products are sold on terms ranging from Net 30 to 2% 15-
Net 61. These products are not returnable except if damaged in shipment. During
fiscal 1993, 1994 and 1995, credits were issued for less than $25,000 for
damaged goods.

Raw Materials
-------------

The raw materials essential to Biopharm's business are purchased
primarily from domestic distributors for foreign manufacturers and domestic
manufacturers and distributors, directly. To date, Biopharm has experienced
little difficulty in obtaining the raw chemicals it needs and it expects that
raw materials will continue to be available in the future from a variety of
sources.

Governmental Regulations Affecting the Company and its Industry
---------------------------------------------------------------

All pharmaceutical manufacturers are subject to extensive regulation
by the Federal and state governments, including compliance with the current
good manufacturing practices promulgated by the FDA. The Federal Food, Drug
and Cosmetic Act, the Controlled Substances Act and other federal statutes and
regulations govern or influence the testing, manufacture, safety, labeling,
storage, record keeping, approval, pricing, advertising and promotion of the
Company's products. Furthermore, the Company is governed by Federal and state
laws of general applicability, including laws regulating matters of
environmental quality and working conditions. Non-compliance with applicable
requirements can result in fines, recall and seizure of products, total or
partial suspension of production, and refusal of the government to enter into
supply contracts or to approve new drug applications.

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All fifty states and the District of Columbia now have legislation
permitting or encouraging the substitution of equivalent generic prescription
drug products for brand name pharmaceutical products where such substitutions
have been either authorized or not prohibited by the prescribing physician.

In September l984, the Drug Price Competition and Patent Term
Restoration Act of 1984, popularly known as the "Waxman-Hatch Act" (the "Act"),
was enacted. Under the Act, generic drug companies, instead of being required to
submit additional detailed scientific data to the FDA, need only demonstrate to
the FDA that generic drugs marketed after 1962 are the chemical equivalents of
brand name drugs and deliver the same amount of medication with the same speed
into the bloodstream. The Act also imposes time limits on the FDA for ANDA
approvals of generic drugs. In addition, the Act also gives drug companies that
develop new drugs extra years of patent protection to compensate for the cost of
the time needed to comply with the FDA's approval process.

Consumer Sun Care Product
-------------------------

In August 1992, the Company and Lab signed a license agreement with
Primavera Laboratories for the exclusive, U.S., mass market rights to Treo(R),
a combination outdoor protection product containing a sunscreen, natural
insect repellent and moisturizer. A patent for Treo was issued on July 13,
1993, by the U.S. patent office. A second patent for Treo was issued in 1994,
by the U.S. patent office.

The primary terms of the Agreement required the Company to pay
Primavera a license fee of $200,000 in varying monthly installments with the
final payment due on February 10, l993. The Company made all payments required
by the Agreement. In addition, the Company was obligated to raise and did raise,
$2,500,000, by January 15, 1993 to maintain its rights under the Agreement (see
information pertaining to sales of stock and warrants under Regulation S
elsewhere) and is obligated for minimum annual royalty payments during the term
of the Agreement payable in quarterly installments.
Royalties are 8 1/2% of net sales.

During 1993, Tre was placed in approximately 3,100 independent
pharmacies and in 30 major pharmaceutical wholesalers including eight of the
top ten (McKesson, Bergen Brunswig, Fox Meyer, Alco, etc.). Treo's sales efforts
to the major food, drug and mass merchandisers began too late to accomplish any
significant placements for the 1993 spring and summer selling season. Despite
this late start, some of the sales reps managed to get Treo placed in eight
chain stores including Longs, Rock Bottom Stores, Rx Place and Drug Emporium.

During 1994, Lab obtained the services of Joe Morano, a marketing and
sales consultant, who spent seventeen years in various sales and marketing
positions with the Consumer Products division of Bristol-Myers, a major
pharmaceutical and consumer products company. Mr. Morano's last position with
Bristol prior to resigning in 1984, was Corporate Director-Sales Promotions. He
is compensated for his efforts based on a percentage of sales to food and drug
chains.

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With full control of its sales organization and with Mr. Morano's
assistance, Lab was able to start the Spring selling season of 1994 with
approximately 500 stores carrying Treo. By the Fall of 1994, this number had
reached approximately 3,500. In addition, Treo's catalog reps succeeded in
placing Treo in 13 catalogs during 1994.

In the 1995 selling season Lab received orders from chain stores,
having in excess of 15,000 units. Orders were received from such chains as
Wal-Mart Walgreens, R ite-Aid, Eckerd, Osco, Sav-On, CVS, Longs, Grand Union,
A&P, Shoprite, Genovese, Shopko and Caldor.

A significant component of Lab's selling strategy for Treo consisted
of appearing at numerous industry trade shows to build chain store acceptance
and recognition of the Treo brand. Treo has been displayed at numerous shows,
including NACDS, FMI, Exclusively HBA, NETGRA, Great Outdoor Expo, AFTMA and
the PGA. Treo also attempted to attract doctors and other health organizations
to recognize its benefits and to either recommend Treo directly to patients or
to place Treo on their acceptance list. Toward that goal, Lab participated
in the American Dermatology Association's semi-annual and annual onventions
and the American Academy of Pediatricians semi-annual and annual conventions.
Many doctors visited Lab's display and either requested samples of Treo for
their personal use or to give to patients. Lab had signed up over 5,000
dermatologists and pediatricians for its sampling program.

As more fully described under "Legal Proceedings", the Lab and the
Company commenced a lawsuit against Primavera and Avon Products, Inc.,
Primavera's door-to-door licensee, in order to prevent Avon from invading the
Company's exclusive territory. Primavera filed a counterclaim against the
Company and Lab seeking termination of the License Agreement. In December 1995,
a Federal District Court issued a Final Judgment for Primavera and Avon and
against the Company and Lab, terminating the License Agreement and dismissing
all of the Company's claims against Primavera and Avon. The Company intends to
appeal the Judgment.

As a result of the Court's decision, the Company will not be selling
or marketing Treo in 1996 or in the foreseeable future, if at all, ever again.
All Treo business has been discontinued.

Feminine Hygiene Products
-------------------------

In January 1996, the Company signed a Letter of Intent to acquire the
Feminine Hygiene brands of London International U.S. Holdings, Inc. ("LIUSH").
The brands being acquired have been on the market for more than ten years each
and are sold under the names Vaginex(R), Koromex(R), Koroflex(R) and
Feminique(R). LIUSH is the largest condom manufacturer in the U.S. and has
decided to sell its Feminine Hygiene brands in order to concentrate its efforts
on its core business.

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In the latest year, sales of these three brands have been running at a
rate which exceeds the Company's sales for fiscal 1995. Sales of these brands
are being made to food and drug chains, drug wholesalers, distributors and
the U.S. military. The Company intends to use its former Treo reps to sell the
newly acquired lines. Nine of the former ten rep organizations have already
agreed to sell the new lines. Each of these rep organizations already calls on
the key accounts carrying the lines. The Company expects its reps to expand
sales of the lines by making a more concerted effort than that being made by
LIUSH, expanding the customer base and by receiving greater support from
Biopharm in promoting the products.

At one time sales of the brands ran at a substantially higher level
than they are currently. The brands are sold as value priced brands, but not
all customers are carrying all items. In addition, no sales are currently
being made to mass merchandisers such as Walmart, K-Mart, Target, Venture or
Ames. The Company's reps have a strong presence with these mass merchandisers
and they will be the reps first area of concentration. The Company expects to
complete the acquisition by February 28, 1996.

Biotechnology
-------------

The Company and Amswiss Scientific, Inc. ("Amswiss"), a Canadian
Corporation, publicly traded on the Alberta Stock Exchange, entered into an
agreement dated December 30, 1992, under which the Company would acquire th
rights to certain drugs presently under license to Amswiss in consideration
of four million shares of the Company's common stock, plus warrants to purchase
an additional two million shares at $2 per share. This transaction was approved
by the shareholders at the Company's Annual Meeting on September 29, 1993. On
November 18, 1993, the transaction with Amswiss closed and title to the assets
passed to the Company. On that date, the closing price of the Company's common
stock was $1.9375.

The Company acquired three principal assets from Amswiss; (1) the
license rights to DBD, (2) certain patent rights, including the U.S.A. patent,
to a peptide, Nitroso-N-beta Chloroethyl Carbamoyl ("NNB") and (3) agreements
with the Central Research Institute for Chemistry of the Hungarian Academy of
Sciences ("CRIC"), and, a group of scientists associated with, and, Semmelweiss
Medical University, Budapest, Hungary (the "Group") for the development of
two anti-sense oligonucleotides which have displayed anti-tumor and anti-
metastatic activity. The anti-sense oligonucleotide agreement and NNB have been
assigned by the Company to Anti-Sense Technologies, Ltd. In addition, on
November 1, 1993, Anti-Sense signed a second agreement with CRIC for the
exclusive rights to acquire a 50% interest in CRIC's anti-HIV, anti-sense
oligonucleotide, KKKI-538.

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DBD is a cytotoxic, chemotherapy agent used in the treatment of
cancer. DBD was developed and patented by Chinoin Pharmaceutical and Chemical
Works, Budapest, Hungary and eventually licensed to Amswiss from whom the
Company acquired its rights. The Company has obtained from Amswiss, DBD's Orphan
Drug status for the treatment of cervical cancer granted by the U.S. Food and
Drug Administration.

DBD has gone through various Phase II and Phase III clinical trials
with approximately 2400 patients in the U.S. and approximately an additional
3,100 patients worldwide. One of DBD's major advantages is that it can be taken
orally, thus reducing expensive hospital stays. The majority of the development
and testing expenses for DBD have been borne by the National Cancer Institute
("NCI") in the U.S. and the European Organization for Research and Treatment of
Cancer ("EORTC") in Europe.

In July 1995, the FDA granted the Company's application for Orphan
Drug Status for DBD's use as adjuvent therapy in the treatment of primary brain
tumors. DBD now holds Orphan Drug Status for the two principal indications which
have been supported by successful completion of Phase III clinical trials.
Orphan Drug Status provides patent-like protection for off-patent drugs. Since
DBD is no longer covered by a patent, the Orphan Drug Status will provide
important protection if and when the Company obtains a New Drug Application
("NDA").

The Company will be required to file an NDA with the FDA and receive
approval from the FDA before any U.S. commercial sales or marketing of DBD can
commence.

The Company has re-evaluated its investment in Amswiss assets as of
September 30, 1995. Due to the Company's present lack of working capital, the
cost of the NDA filing, and recent developments in cancer research, along with
new diagnostic techniques for cervical cancer that significantly reduce
potential future sales of the Amswiss Drugs, the Company has decided to
write-off the intangibles with a charge to its consolidated statement of
operations aggregating $5,526,587. At September 30, 1995, the Company decided
not to proceed with the filing of the NDA's and in addition, as a result of this
decision, the Company recorded the forfeiture of the aforementioned 800,000
common shares and warrants which resulted in a charge to common stock and
additional paid-in capital aggregating $1,381,647. Company management has
decided it would be more beneficial for the Company to invest any funds raised
or any funds available into the acquisition and development of the Feminine
Hygiene Products. Until the Company's pharmaceutical sales and sales of the soon
to be acquired Feminine Hygiene Products produce positive cash flow and
profitable operations, the Company will be unable to finance the NDA for DBD.

NNB is a peptide in the early stages of development. It is a compound
which appears to be more stable than similar compounds (Bristol Myers' Senmustin
and Lomustin), is water soluble, whose peptide carrier offers a ossible way
for selecting targets in those tumors which have receptors for A-melantropin
or ACTH hormone. The compounds exhibit significant anti-tumor activity in pre-
clinical testing. No determination can be presently made if a commercially
feasible product can be developed from this peptide or how much it will cost to
do so.

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Anti-Sense had entered into an agreement with CRIC and the Group to
develop two anti-sense oligonucleotide compounds for use as anti-tumor and anti-
metastatic agents. Under the terms of the agreement, Anti-Sense will pay
$800,000 in cash, or, in kind by furnishing equipment, over a three year period
which commenced with a payment of $167,000 on November 3, 1993.

The Company believes that most research, including that acquired by
Anti-Sense, is in the very early stages of development and it will take at least
five to ten years and large sums of capital to develop commercially
feasible products, if they can be developed at all.

The Company has failed to meet its financial obligations under the
terms of the Agreement with CRIC and the Group. Although the Agreement has not
been formally canceled, the Company is not in a position to provide any of the
funding required by the Agreement. Although no contact has occurred between
the parties, the Company believes the likely result of its failure to fulfill
its obligations under the Agreement will be the cancellation of the contract and
the reversion to the Group of all rights to the compounds being developed.

On November 1, 1993, Anti-Sense entered into an agreement with CRIC
giving it the exclusive right to acquire a 50% ownership interest in KKKI-538,
an antisense compound which has shown significant activity in controlling
HIV in human tissue cells. During a 30 day test period, KKKI-538 has induced
complete irreversible inhibition of HIV production in human cell cultures.
Furthermore, in the same period, the compound has shown no cytotoxicity
in non-inoculated cell cultures. The compound's effectiveness was tested and
compared to the effectiveness of AZT and three other oligonucleotides.
The AZT and three other oligonucleotides only demonstrated reversible action on
HIV production.

In accordance with the agreement, which was superseded by a new
agreement on May 27, 1994, ntisense paid CRIC $100,000 as a non-refundable down
payment and $300,000 on May 31, 1994. Antisense was required to pay CRIC an
additional $50,000 in August 1994, $250,000 by December 15, 1994, $2,800,000 in
1995 and $1,500,000 in 1996 until a total of $5,000,000 had been paid.

The Company has not made any of the payments required under the
Agreement since May 31, 1994. The Company is not currently in a position to make
any payments required by the contract and the likely result is that the contract
will be terminated and the Company will lose all rights to KKKI-538.

On December 13, 1993, the Company entered into an agreement with the
Cornell Research Foundation ("CRF") and acquired ADT, CRF's patented process
for a non-invasive method of diagnosing Alzheimer's Disease. The test,

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developed by Dr. John Blass, requires only a simple skin biopsy to be cultured
for diagnosing a neural abnormality present in Alzheimer's patients. The Company
believes that this test method provides substantial benefits, both financially
and medically, when compared to the current methods and costs involved in
diagnosing Alzheimer's. Currently, Alzheimer's disease can only be diagnosed by
a process of elimination, spinal taps or post mortem exams. The tests involved
in the process of elimination method are both costly to administer and subject
the patient to substantial discomfort. Spinal taps are extremely discomforting
and involve the insertion of a needle into the spine to withdraw spinal fluid,
which must then be analyzed in a laboratory. It is not unusual for the spinal
fluid to become contaminated during the initial tap procedure and for additional
spinal taps to be required, subjecting the patient to extreme discomfort.

The Company believes that by using its Alzheimer's diagnostic test,
doctors can save patients substantial expense by not having to perform a
variety of elimination tests and can save the patient substantial discomfort by
using its non-invasive procedure.

The Company paid CRF $20,000 when the agreement was signed and has
agreed to pay an additional $25,000 within six months, or 25,000 shares of
unregistered, restricted common stock of the Company, at CRF's option. CRF
decided to accept the common stock in lieu of cash. In addition, it will also
pay CRF $40,000 once the licensed product has reached $250,000 in sales. The
Company will also pay a royalty of 5% of net sales and, beginning in the fourth
year of the agreement a minimum royalty of $25,000.

During the last year and a half, substantial progress has been made in
the development of pharmaceutical products for the treatment of Alzheimer's
Disease. As a result of these developments, the Company believes that the full
development of its diagnostic test and the commercialization of the test is more
desirable now, than when first acquired. As of now, the Company does not have
the funds available to complete the development of the test, or on the
completion of the development into a marketable product, enough funds to
properly market the product. The Company intends to complete development and
bring the test to market when, and if, funds are available for such purpose.

On August 19, 1994, the Company entered into an agreement with the
Research Foundation of State University of New York and acquired the rights to a
patented "Antiviral Composition and Method", consisting of ingredients which
are "generally recognized as safe and effective" in humans (GRAS status), which
kills the HIV and Hepatitis B viruses on contact.

The Company intends to combine this antiviral compound into a
spermicidal formula, utilizing currently approved ingredients, and intends to
offer such product for sale to third world governments or through humanitarian
health organizations.

13
<PAGE>

Biopharm anticipates spending approximately $50,000 to $100,000 to
finalize development of the spermicide. Additionally, Biopharm will pay the
Foundation a royalty of 5% of net sales with a minimum royalty of $25,000
commencing in four years.

The acquisition of the Feminine Hygiene brands, discussed earlier,
will provide the Company with a base for final development of the anti-viral
compound. The Feminine Hygiene Brands being acquired already have a spermicidal
formula. In addition, these brands have U.S. market presence. The Company
estimates it will take approximately nine months to a year to finish development
of the anti-viral compound in conjunction with one of the spermicidal
formulas currently being acquired.

Discontinued Operations
-----------------------

In August, 1992, the Company obtained an exclusive license for the
ith a minimum royalty of $300,000 for the calendar year 1993, increasing to
$900,000 in 1999.

The Company has been engaged in litigation with its Treo licensor
since 1994 over, among other things, the promotion and marketing of the product.
As a result of a November 16, 1995 court order issued by the United States
District Court, Eastern District of New York, the Company was enjoined from
selling Treo during the 1996 selling season and in a decision dated December 20,
1995, the court granted Primavera's counterclaim and dismissed all claims by
Biopharm against both Primavera and Avon. The Company's license was thereby
terminated. As a result of the court's decision, the Company recorded a
loss from discontinued operations for the year ended September 30, 1995,
aggregating $1,621,543 and discontinued its Treo business. The Company has filed
a Notice of Appeal of the Preliminary Injunction and intends to file a Notice of
Appeal from the final judgment.

Employees
---------

As of September 30, 1995, the Company had 35 employees.

Competition
-----------

Biopharm has approximately twenty-five principal competitors and
competes in varying degrees with numerous other companies in the health care
industry . The competition includes many prescription drug pharmaceutical
companies, which, as a part of their business, market both brand name
prescription drugs and generic versions of brand name drugs, after their patents
expire. Most, if not all, of these competitors have greater financial and other
resources, and are therefore able to expend more effort than Biopharm in such
areas as marketing and product development.

14
<PAGE>

In the biotechnology field, the Company competes with numerous large
biotechnology firms and biotechnology subsidiaries of major pharmaceutical
companies, most of whom have substantially greater financial capability than the
Company and are therefore able to expend far greater amounts on research and
development than the Company. The Company is not a significant factor in this
market at the present time.

Recent Developments-Financing
-----------------------------

In July, 1992, the Board of Directors approved the offering pursuant
to Regulation S of 2,550,000 shares and warrants to purchase anadditional
550,000 shares of common stock to certain non-United States persons. In
connection with this offering, the Company received approximately $2,194,000
from October, 1992 to January, 1993.

In June, 1993, the Board of Directors approved a second offering
pursuant to Regulation S of 3,750,000 shares, as amended. In connection with
this offering, the Company received approximately $224,000 in July 1993 and
additional $3,705,000 from October, 1993 to September, 1994.

In April, 1994, the Board of Directors approved an additional offering
pursuant to Regulation S of 4,000,000 shares. In connection with this offering,
the Company received approximately $1,025,000 from May, 1994 to September,
1994, resulting from the sale of 1,448,570 shares of common stock. In 1995, an
additional 2,436,042 shares of common stock were sold for approximately
$1,026,000.

During the year ended September 30, 1994, options for the issuance of
686,100 commo shares were exercised (Note 10). Additionally, 122,339 shares
were issued from Treasury in exchange for trade obligations and for the purchase
of an exclusive license for a patented process to diagnose Alzheimer's disease
(Note 5).

In March, 1995, the Board of Directors approved another offering
pursuant to Regulation S of 4,500,000 shares. In connection with this offering,
the Company received approximately $1,220,000 from March, 1995 to September,
1995, resulting from the sale of 3,109,937 shares of common stock. Subsequent to
September 30, 1995, an additional 1,273,071 shares of common stock were sold for
approximately $217,000.

The Company signed a Letter of Intent on January 3, 1996 to acquire a
product line from a U.S. manufacturer which would generate substantial sales,
gross margins and working capital to Biopharm's operations. The cost will
approximate $3,600,000 and will be financed by a combination of Regulation S
common stock sales, registered stock sales and notes to be paid over a number of
years.

ITEM 2. PROPERTIES
----------

The Company presently leases a 30,000 square foot facility in
Bellport, New York, which contains the Company's headquarters, warehousing and
manufacturing facilities. The lease is on a month to month basis. The current
space is adequate to meet the Company's requirements for the foreseeable future.

15
<PAGE>

ITEM 3. LEGAL PROCEEDINGS
-----------------

Medicare/Medicaid
-----------------

On August 31, 1989, the Company was convicted, in the United States
District Court for the Eastern District of New York, of one count of mail fraud
conspiracy, three counts of mail fraud and nine counts of false representation
of material facts on Medicare/Medicaid claims, in the conduct of its Medicare
operations, which were conducted under prior management and discontinued in
May 1986. The Company was sentenced to a total of approximately $174,000 in
fines on the various counts. The fine was accrued and charged to discontinued
operations in the year ended September 30, 1989.

On November 17, 1995, the Company announced that the United States
District Court had reduced the fine to $50,000, payable $25,000 by December
13, 1995 and $25,000 by May 13, 1996. The fine accrues no interest if the
Company is in compliance with the payment schedule. The first payment was made
on December 13, 1995.

U.S. Department of Justice
--------------------------

In December 1991, Biopharm was served with a Grand Jury Subpoena Duces
Tecum seeking production of certain documents to be presented to a Federal grand
jury in the United States District Court of the District of Maryland. The
Company learned that a number of other companies in the generic drug industry
had also received similar subpoenas. As a result of the investigation the
Justice Department advised Biopharm that it would be charged with violations of
18 U.S.C. Section 1001. Biopharm thereupon entered into a Plea Bargain Agreement
with the U.S. Justice Department, on July 8, 1993, and agreed to plead guilty to
three counts of filing false statements in connection with three separate ANDAs
filed with the FDA between 1988 and 1989. Biopharm agreed to pay a fine of
$350,000 over a three year period, commencing with a $50,000 payment 45 days
after July 8, 1993, an additional $50,000 12 months thereafter and the balance
of $250,000 with accrued interest over the next two years.

Biopharm made its first payment subsequent to the initial payment due
date, and otherwise was not in default of the settlement agreement. Management
does not anticipate that the late payment default will materially affect the
daily operations of the Company. The balance of $200,000 due the U.S. Justice
Department was payable $75,000 in July 1995 and $125,000 in July 1996. The
Company was unable to meet the July 1995 requirement and is making payments on a
monthly basis. The balance of $200,000 has been reduced to $175,000 as of
December 31, 1995.

16
<PAGE>

Primavera and Avon
-----------------

On July 26, 1994, the Company and its subsidiary commenced an action
against Primavera Laboratories, Inc. ("Primavera") and Avon Products, Inc.
("Avon") in the State Court, later removed to the United States District Court,
Eastern District of New York. Primavera is the licensor of Treo and holder
of the patent covering Treo. In August 1992 the exclusive retail Mass Market
rights were granted to the Company. Primavera subsequently granted a license
to Avon to manufacture and sell the same patented product in a different market
than that exclusively granted to the Company. The complaint alleges various
breaches and other violations by defendants of the Company's exclusive license
and right to manufacture, market and sell Treo in the retail Mass Market,
seeking damages and a permanent injunction against Primavera and Avon enjoining
Avon's activities in the retail Mass Market.

The Company's motion for a preliminary injunction was denied. All the
parties to the suit have served and filed their pleadings. Primavera interposed
a counterclaim alleging breaches by the Company of the License Agreement,
seeking a cancellation of the Treo license.

In November 1995, a Federal District Court issued a Preliminary
Injunction enjoining the Company and Lab from marketing Treo for the 1996
season. The Company has filed a Notice of Appeal of the Preliminary Injunction.
In December 1995, the Federal District Court issued a Final Judgment terminating
the Company's and Lab's rights to the Treo license and dismissing all of the
Company's claims against Primavera and Avon. The Company intends to appeal the
Final Judgment as well.

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

The following items were approved by the Shareholders at the Annual
Meeting held on April 27, 1995.

1. Election of Directors; Edward Fine, Gary Garistina, Russell
Cleveland and Dr. Alfred Stracher

PART II

ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
---------------------------------------------

The Company's Common Stock is traded principally on the NASDAQ OTC
Bulletin Board under the symbol "BIOP."

17
<PAGE>

Prior to December 1, 1986, the Company's Common Stock was listed on
the National Association of Securities Dealers, Inc. automated quotation
system under the symbol "PATS." On December 19, 1986, the Company's Common Stock
was listed on The American Stock Exchange (AMEX) under the symbol ("IGN"). On
May 24, 1988, trading commenced on the AMEX under the symbol BPH, reflecting
the most recent name change from Integrated Generics, Inc. to Biopharmaceutics,
Inc. On July 13, 1995 the AMEX delisted the trading of the Company's Common
Stock. On July 14, 995, the Company was listed on the NASDAQ OTC Bulletin Board
under the symbol "BIOP."

As of November 30, 1995, there were approximately 950 holders of
record of Common Stock and approximately 7,000 holders in street name. On that
date, the Company's Common Stock closed at $0.50 per share n NASDAQ OTC Bulletin
Board.

The Company has not paid any cash dividends since its inception. For
the foreseeable future, it is anticipated that any earnings that may be
generated from operations of the Company will be retained for use in the
Company's business and that dividends will not be paid to shareholders.

The trading range for the stock for each quarterly period from October
l, 1992 to September 30, 1995 was as follows:

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

Oct. l - Dec .31, l992 $3.1875 $1.00
Jan. l - Mar. 31, l993 $2.l25 $1.125
Apr.l - June30, l993 $1.8125 $1.0625
July l - Sept. 30,1993 $1.50 $1.00

Oct. l - Dec. 31, 1993 $3.0625 $1.1250
Jan. 1 - Mar. 31, 1994 $2.25 $1.50
Apr. 1 - June 30, 1994 $1.75 $1.0625
July 1 - Sept. 30, 1994 $1.9375 $1.00

Oct. 1 - Dec. 31, 1994 $1.25 $0.5625
Jan. 1 - Mar. 31, 1995 $1.25 $0.375
Apr. 1 - June 30, 1995 $0.875 $0.4375
July 1 - Sept. 30, 1995 $0.6563 $0.3l25

In early 1992, the Company had been informed by The American Stock
Exchange (AMEX) that the Company's continuing losses and reduced net worth were
below standards required by The American Stock Exchange for continued listing
The Company's shares were delisted by The American Stock Exchange on July 13,
1995.

18
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA
-----------------------

(Amounts in Thousands Except Per Share Data)
Years Ended September 30,
-------------------------

<TABLE>
<CAPTION>
1995 1994 1993 1990 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Selected Operating Data

Continuing Operations:
Revenues $1,533 $2,057 $1,989 $2,375 $6,244
Net Loss (7,986) (3,425) (2,292) (1,636) (961)
Net Loss Per Share (.35) (.18) (.22) (.20) (.12)

Discontinued Operations:
Net Income (Loss) $(1,622) $(1,246) $(787) $ 924 $ ---
Net Income (Loss) Per Share (.07) (.07) (.08) .11 ---

Selected Balance Sheet Data
Total Assets $1,421 $10,552 $2,222 $2,422 $2,945
Total Liabilities 3,639 3,985 3,369 2,875 3,161
Long-Term Debt 1,131 1,525 1,150 1,204 838

Shareholders' Equity (Deficit) (2,218) 6,567 (1,147) (453) (215)
Dividends Declared None None None None None

</TABLE>

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

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

The Company has financed its operating requirements, for the last
three years, primarily by the issuance of common shares, $2,384,806 in 1993,
$4,433,790 in 1994, $2,054,722 in 1995, convertible debentures of $800,000 in
1992 and the settlement of claims against past management of $924,076 in 1992.
As of September 30, 1995, the Company had cash of approximately $86,000 and
subsequently thereto through December 1995 received $217,000 from the sale of
common stock under Regulation S.

As a result of the United States District Court's decision on December
20, 1995, the Company is enjoined from selling Treo in 1996 and therefore
wrote-off the assets associated with Treo as a discontinued operation as of
September 30, 1995. The Company had anticipated a negative cash flow from the
product line of $150,000 to $600,000 in fiscal 1996.

The Company signed a Letter of Intent on January 3, 1996 to acquire a
product line from London International U.S. Holdings, Inc.("LIUSH") which should
generate sales in excess of the Company's 1995 total sales and would generate
substantial working capital to Biopharm. The cost will approximate $3,600,000

19
<PAGE>

and will be financed by a combination of Regulation S common stock sales,
registered stock sales and notes to be paid over a number of years. The brands
being acquired have been on the market for more than ten years each and are sold
under the names Vaginex(R), Koromex(R), Koroflex(R) and Feminique(R). LIUSH
is the largest condom manufacturer in the U.S. and has decided to sell its
Feminine Hygiene brands in order to concentrate its efforts on its core
business.

Sales of these brands are being made to food and drug chains, drug
wholesalers, distributors and the U.S. military. The Company intends to use it
former Treo reps to sell the newly acquired lines. Nine of the former ten rep
organizations have already agreed to sell the new lines. Each of these rep
organizations already calls on the key accounts carrying the lines. The Company
expects its reps to expand sales of the lines by making a more concerted effort
than that being made by LIUSH, expanding the customer base and by receiving
greater support from Biopharm in promoting the products.

The Company also anticipates that the approval of the additional seven
products by the FDA in 1995, which increased the number of products offered by
the Company to its customers and with the addition of three significant new
customers, should enable the Company to increase sales and provide a basis for
profitability in fiscal 1996.

The Company believes that the foregoing, along with the additional
capital raised through December 1995 and the possibility of recoveries from
the appeal of the Primavera/Avon suit, will be adequate to meet its current
objectives. Sinking fund requirements in the convertible debentures in 1996
should be satisfied by either refunding or conversion of the debentures into
common stock.

20
<PAGE>

RESULTS OF OPERATIONS
---------------------

1995 compared to 1994
---------------------

Sales for 1995 totaled $1,532,649, a decrease of 26% from sales of
$2,057,383 in 1994. The decrease occurred primarily from one customer, who had
accounted for 54% of sales in 1994 and who decided to phase down its purchases
over fiscal 1995 to represent only 23% of current year shipments. The Company
has replaced this customer with three significant new customers who should
more than offset the level lost. The Company operated at a negative gross profit
of 50% for 1995 compared to a negative gross profit of 23% in 1994 due to lower
sales volume. The negative margins were attributable to sales levels not being
sufficiently high to absorb fixed overheads in manufacturing. General and
administrative and selling expenses decreased to $1,028,596 from $1,575,870 in
1994 due primarily to legal expenses of approximately $440,000 incurred for the
Primavera/Avon suit which were charged to discontinued operations. Legal
expenses in 1994 of $461,000 included approximately $80,000 of Primavera/Avon
expense. The majority of other expenses were generally in line with 1994.

The Company incurred research and development expenses in 1995 of
$62,311 compared to $633,154 in 1994 expended in connection with an agreement
with the Central Research Institute of Chemistry of the Hungarian Academy of
Sciences for the development of an anti HIV compound. Lack of working capital
curtailed further funding in 1995. The Company began amortization of its rights
acquired from Amswiss Scientific, Inc. in 1994. The rights were being amortized
over a period of fifteen years. The Amswiss rights were written off at September
30, 1995 due to delays in funding the NDA. Interest expense, attributable to the
convertible debentures, was essentially in line with prior years.

1994 compared to 1993
---------------------

Shipments for 1994 amounted to $2,057,383, an increase of 3% from
sales of $1,989,260 in 1993. The Company operated at a negative gross profit
in 1994 of 24% compared to a negative gross profit of 27% in 1993. The negative
margins are attributable to sales levels not being high enough to absorb the
fixed overheads in manufacturing. Selling, general and administrative expenses
increased to 1,575,870 from 1,121,645 in 1993 due primarily to advertising
and promotional expenses.

The Company incurred research and development expenses in 1994 in
connection with an agreement with the Central Research Institute of Chemistry
of the Hungarian Academy of Sciences for the development of an anti-HIV
compound. The Company also began the amortization of its rights acquired from
Amswiss Scientific, Inc. on November 15, 1993. The rights were amortized over a
period of fifteen years. Interest expense was essentially in line with 1993.

21
<PAGE>

1993 compared to 1992
---------------------

Net sales for 1993 totaled $1,989,260, a decrease of 16% from sales of
$2,375,371 in 1992, which included $919,000 through November 1, 1991, the day
the Company ceased manufacturing operations in compliance with the Temporary
Restraining Order obtained by the FDA. The Company was permitted to commence
operations as a repacker in January 1992. The Company has retained a portion of
its customer base from 1991 and 1992 due to its performance as a dependable
supplier over many years. On November 19, 1993 the FDA completed its inspection
of the Company's facility and has deemed the Company to be in compliance
with current Good Manufacturing Practices. It is now approved to manufacture
and sell its five validated products. The Company operated at a negative gross
profit in 1993 of 19.4% compared to a negative gross profit of 26.7% in 1992,
due primarily to reduced sales levels which prevented the absorption of fixed
overhead and sales product mix. The introduction of a new personal care product
in 1993, Treo, contributed to improved profit margins. Selling, general and
administrative expenses increased to $2,039,918 from $974,956 in 1992 due
primarily to advertising and promotional expenses of $480,000 to launch the
new Treo product, $169,000 of royalty expenses, $75,000 for State and Federal
EPA registration of Treo and $195,000 in legal expenses to resolve the numerous
problems the Company encountered since its shutdown by the FDA. Interest expense
remained essentially in line with 1992 at $257,000.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------

See Financial Statements and Schedules, at page F-1, which immediately
follows page 31.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
---------------------------------------------=------

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
-----------------------------------------------

The following list sets forth information as of November 30, 1995, as
to all directors and executive officers of the Company during its fiscal year
ended September 30, 1995.

EDWARD FINE, age 53, has been President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since 1987. From 1979 until
1985, Mr. Fine was President and a director of Newtron Pharmaceuticals
Inc., a company engaged in the manufacturing and sale of generic prescription
and over-the-counter pharmaceutical products. Mr. Fine has been President and a

22
<PAGE>

director of Biopharm since 1986. From October 1986 through September 1987, Mr.
Fine was an officer and a director of the Company. Effective October 1, 1987
Mr. Fine became President and Chief Executive Officer of the Company. From 1982
until 1988, Mr. Fine was a member of the Board of Directors of the National
Association of Pharmaceutical Manufacturers.

INGRID FINE, age 54, was President of Biopharm from September 1985
until September 1986. Since October 1986, Ms. Fine has been Vice President of
Purchasing or Biopharm. Ingrid Fine is the spouse of Edward Fine, the Company's
President.

WILLIAM C. KUGLER, age 57, has been Vice-President-Finance of the
Company since January 18, 1993. From 1983 to 1992 Mr. Kugler was Vice President-
Finance of Telebyte Technology Inc.

RUSSELL CLEVELAND, age 57, is a director of the Company. Mr. Cleveland
is a principal in Renaissance Capital Partners, Ltd., Renaissance Capital
Partners II, Ltd., Renaissance Capital Growth and Income Fund III, and certain
affiliates engaged in the finance and investment industry, for more than the
past five years. Mr. Cleveland serves as a director of Greiner Engineering,
Inc., Global Environment, Inc., International Movie Group, Inc., and Unico, Inc.

Dr. ALFRED STRACHER, age 64, is Chairman of the Department of
Biochemistry at the SUNY Downstate Medical Center. He is a member of the review
panel for the National Science Foundation and the review panel for Neurological
Disease for the National Institutes of Health.

ITEM 11. EXECUTIVE COMPENSATION
----------------------

The following table summarizes all plan and non-plan compensation
awarded to, earned by or paid to the Company's Chief Executive Officer and its
other Executive Officers who were serving as executive officers during and at
the end of the last completed fiscal year ended September 30, 1995 for services
rendered in all capacities to the company and its subsidiaries for each of the
Company's last three fiscal years.

23
<PAGE>

Summary Compensation Table
--------------------------

<TABLE>
<CAPTION>
Long Term All Other
Annual Compensation Compensation Compensation**
Awards*

Securities
Underlying
Name and Principal Position Year Salary Bonus Options
- --------------------------- ---- -------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>

Edward Fine (1)(2) 1995 $130,000 None None $12,000
Chairman of the Board 1994 130,000 None None 12,000
and CEO, President 1993 99,200 None 350,000 sh 13,000

William C. Kugler (2) 1995 $ 70,000 None None
Vice President 1994 70,019 None None
1993 44,808 None 35,000 sh

Ingrid Fine (2) 1995 $ 65,000 None 10,000 sh $ 7,900
Vice President 1994 64,124 None None 8,700
1993 58,500 None 25,000 sh

Executive Officers of 1995 $302,700 None
Company as a Group 1994 264,144 None
1993 202,508 None

</TABLE>

* The Company has never granted stock appreciation rights
** Represents aggregate annual cost of automobiles provided and maintained for
Edward Fine and Ingrid Fine during fiscal 1993

(1) The Company has entered into an Employment Agreement with Edward Fine, its
President and Chief Executive Officer, for a period of five years, commencing
October 1, 1993. Pursuant to the terms of the Employment Agreement, Mr. Fine
will receive an annual salary of $130,000, plus a bonus based upon the
profitability of the Company of 5% of the Company's annual pre-tax profit, to a
maximum bonus of $1.5 million per year. In addition, the contract provides for a
payment of $1,000 per month for automobile expenses and costs and participation
in any additional fringe benefit plans in effect with respect to executives of
the Company. The Company does not have employment agreements with any other
executive officers.

(2) The Company provided and maintained an automobile for use by Ingrid Fine in
connection with Company business during fiscal 1995. The aggregate annual cost
to the Company for this automobile was approximately $7,900. To the extent that
this automobile was used for other than Company business, the costs may be
considered compensation to the above-named individual. No value for personal use
of automobile by such individual has been included in the compensation table set
forth above. In addition, the Company provided Messrs. Fine and Kugler, and
Ingrid Fine, with medical and hospitalization coverage during fiscal 1995 and
Mr. Fine with disability coverage, under plans that were not available to all
employees of the Company. The aggregate annual cost to the Company for such
coverage was approximately $19,000, and such cost may be considered compensation
to the above-named individuals. No value for such coverage has been included in
the compensation table set forth above.

24
<PAGE>

Option Grants in Last Fiscal Year
---------------------------------

The following table set forth information with respect to grants of
stock options to purchase common stock pursuant to the Plan granted to the Named
Executive Officers during the fiscal year ended September 30, 1995. In addition,
in accordance with rules of the Securities and Exchange Commission, the table
show the hypothetical gains that would be produced by the respective options
based on assumed 5% and 10% rates of annual compound stock appreciation from the
date the options were granted until the end of the ten year option terms. The
actual value the executive may realize will depend on the spread between the
market price and the exercise price on the date the option is exercised.

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation (2)
Individual Grants

Percent of
Number of Total Options
Securities Granted to Exercise
underlying Options Employees in Price Expiration 5% 10%
Name Granted (1) Fiscal Year ($/sh) Date $ $
---- ----------- ----------- ------ ---- - -
<S> <C> <C> <C> <C> <C> <C>
Edward Fine 350,000 53.55% .50 9/29/05 285,000 453,000
Ingrid Fine 35,000 5.35% .50 9/29/05 29,000 45,000
William C. Kugler 35,000 5.35% .50 9/29/05 29,000 45,000
Jennie Porcaro 25,000 3.82% .50 9/29/05 20,000 32,000

</TABLE>
(1) Options granted to Named Executive Officers in the fiscal year ended
September 30, 1995 were granted on September 29, 1995. The options have terms of
ten years and become exercisable commencing twelve months after date of grant
(September 29, 1995).

(2) At assumed rates of appreciation of 5% and 10% compounded annually, the
common stock would appreciate in value 63% and 159% respectively over a ten year
period. These mandated computations do not represent the Company's estimates or
projections of future common stock.

25
<PAGE>

Aggregate Options Exercises in Last Fiscal Year
and Fiscal Year End Option Values
-----------------------------------------------

The following table sets forth information with respect to each
exercise of stock options during the fiscal year ended September 30, 1995 by the
Named Executive Officers, the option values on the dates of exercise, the number
of shares covered by both exercisable and unexercisable options as of fiscal
year end, and the year end values of such option.

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised in -
Options at Fiscal Year the - Money Options at
End (#) Fiscal Year End (1)($)

Shares
Acquired on Value
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
(#) ($)
Edward Fine 0 0 0 350,000 None None
Ingrid Fine 0 0 0 35,000 None None
William C. Kugler 0 0 0 35,000 None None
Jennie Porcaro 0 0 0 25,000 None None

</TABLE>
(1) Value is based on market value of the common stock at exercise date (for
value realized) on fiscal year end (for value of unexercised options) minus the
option exercise price.

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

(a) and (b) Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information at November 30, 1995
concerning ownership of the Company's Common Shares by each director and
executive officer and each person who owns of record, or is known to the Company
to own beneficially, more than five percent of the Company's Common Shares:

26
<PAGE>

Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
------------------- -------------------- ----------------

Edward Fine (1) 1,399,000 5.2%
Swiss American Securities 1,500,000 5.6%
Amswiss Scientific, Inc. (2) 3,200,000 11.9%
Alfred Stracher (3) 25,000 0%
Ingrid Fine (3) 56,000 0%
William Kugler (3) 35,000 0%
Russell Cleveland 32,413 0%
All Directors and Officers as
a Group (6 persons)(3) 1,547,413 5.7%

(1) Includes 350,000 shares underlying an incentive stock option pursuant to the
Company's 1993 plan exercisable at $0.50 per share. Mr. Fine disclaims
beneficial ownership of shares underlying present holdings and options held by
his wife, Ingrid Fine, and shares underlying an incentive stock option held by
his son, Stuart Fine, a key employee of the Company.

(2) Includes 4,000,000 shares acquired November 18, 1993, less 800,000 shares
canceled as of September 30, 1995.

(3) Represents stock options to acquire shares of the Company's common stock as
follows: Pursuant to the Company's 1993 Stock Option Plan, (i) Dr. Alfred
Stracher holds an option to acquire 25,000 shares at an option price of $0.50
per share, (ii) Ingrid Fine holds options to purchase an aggregate of 25,000
shares at exercise price of $0.50 per share, (iii) Mr. Kugler has an option to
acquire 35,000 shares at an exercise price of $0.50 per share.

See the section of this Report under the heading Biotechnology for a
description of a transaction with Amswiss Scientific, Inc., which, when
consummated, resulted in the issuance of approximately 4,000,000 shares of
Company common stock to Amswiss shareholders, subsequently reduced by 800,000
forfeitable shares on September 30, 1995, representing, in the aggregate,
approximately 11.9% of the Company's common stock, after issued basis.

In addition, see the section of this Report under the heading Certain
Relationships and Related Transactions for a discussion of the Renaissance
transaction pursuant to which Renaissance Capital Partners, Ltd. holds
debentures convertible into 4,000,000 shares of the Company's common stock.

27
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------

On September 12, 1991 the Company entered into a Convertible Debenture
Loan Agreement (the "Loan Agreement") with Renaissance Capital Partners, Ltd.
("Renaissance"), pursuant to which Renaissance agreed to purchase from the
Company up to $1 million in principal amount of 12 1/2% convertible debentures
(the "Debentures"). The Debentures are convertible into shares of common stock
of the Company at a conversion price of $.25 per share, subject to adjustment
under certain circumstances. The Agreement was the result of a letter of intent
dated August 2, 1991. The closing price of the Company's Common Stock on August
2, 1991 was $0.25 per share. The closing price on September 12, 1991 was $1.0833
At the initial closing of the transaction, Renaissance purchased $300,000 in
principal amount of Debentures. Renaissance purchased an additional $350,000 in
principal amount of Debentures on February 14, 1992. The final purchase of
$350,000 in principal amount of Debentures occurred in July 1992.

As a condition to Renaissance's investment, Mr. Edward Fine, President
of the Company, agreed to purchase up to $150,000 in principal amount of
Debentures on the same terms as Renaissance. At the initial closing of the
Renaissance transaction, Mr. Fine purchased $50,000 in principal amount of
Debentures. As of September 16, 1992, Mr. Fine had completed the purchase of the
additional $100,000 of debentures. In 1993 Mr. Edward Fine transferred $50,000
in debentures to Milton Fine, his father.

All of the Debentures bear interest at the rate of 12 1/2% per annum,
payable quarterly, and are subject to quarterly sinking fund payments of $30 per
$1,000 of principal remaining outstanding, commencing October 1, 1994. The
Company has obtained an extension until October 1, 1996 for the afore-
mentioned redemption installments If not sooner redeemed or converted, the
Debentures shall mature on October 10, 1998, at which time all then remaining
unpaid principal and interest will be due and payable in full. In June 1995 Mr.
Edward Fine exercised his option to convert $100,000 of convertible debentures
into 400,000 shares of common stock. In addition, Milton Fine, the father of
Edward Fine, converted $50,000 in debentures into 200,000 shares of common
stock.

The Company has the right to redeem the Debentures commencing in the
fourth year following issuance of the first Debenture at a premium of 15% over
par if redeemed during the fourth year, 10% over par if redeemed during the
fifth year and 5% over par if redeemed during the sixth year or thereafter.

As an additional condition to the investment by Renaissance, Outback
Oil and Mineral Exploration Corp. ("Outback"), which owned, immediately prior to
the Renaissance investment, approximately 27.58% of the outstanding, common
stock of the Company, forgave all interest then owing on the Company's

28
<PAGE>

subordinated note payable to Outback, reduced the outstanding principal amount
thereof to $175,000, and agreed to surrender to the Company for cancellation up
to 500,000 shares of the Company's common stock then held by Outback. All of the
500,000 shares have been surrendered as of September 30, 1992.

In addition, in June 1992, in exchange for a waiver of any claims the
Company might assert against Outback, Outback fully released the Company of
its obligation under the subordinated note payable.

Russell Cleveland, a director of the Company, is also a major
shareholder and principal of Renaissance. As such, Mr. Cleveland may have
conflicting interests with those of the Company with respect to Renaissance
ownership of $1,000,000 of the Debentures and conversion, redemption or
continued holding thereof.

PART IV

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

(A) Documents filed as part of this report:

(1) and (2) - See Index to Consolidated Financial Statements and
Schedules included herein.

(3) Exhibits - None

(B) Reports Filed on Form 8-K during the Fourth Quarter

8-K dated July 11, 1995, announcing SEC decision not to oppose AMEX
decision to delist stock of Biopharmaceutics, Inc.

29
<PAGE>

SIGNATURE
---------

Pursuant to the requirements of Section 13 of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

BIOPHARMACEUTICS, INC.

By: /s/ Edward Fine
--------------------
Edward Fine
President and
Chief Executive Officer

By: /s/ William C. Kugler
--------------------
William C. Kugler
Vice President-Finance
Chief Financial Officer

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

/s/ Edward Fine
- --------------------------
EDWARD FINE President, Chief Executive
Officer and Director February 12, 1996

Resigned December 4, 1995
- --------------------------
DR. ALFRED STRACHER Director February 12, 1996

/s/ Russell Cleveland
- --------------------------
RUSSELL CLEVELAND Director February 12, 1996

30
<PAGE>

BIOPHARMACEUTICS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30,
1995, 1994 AND 1993

<PAGE>

BIOPHARMACEUTICS, INC.

CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

INDEX

Page
Number
------

Auditor's Report ............................................ 1 - 2

FINANCIAL STATEMENTS:
- --------------------

Consolidated Balance Sheets as of
September 30, 1995 and 1994 ................................ 3 - 4
Consolidated Statements of Operations for the
Years Ended September 30, 1995, 1994 and 1993 .............. 5
Consolidated Statements of Shareholders' Equity (Deficiency
in Assets) for the Years Ended September 30, 1995, 1994
and 1993 ................................................... 6 - 8
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1995, 1994 and 1993 .............. 9 - 10
Notes to Consolidated Financial Statements .................. 11 - 24

FINANCIAL STATEMENT SCHEDULES:
- -----------------------------

Schedule VIII - Valuation Accounts .......................... 25

All other information is omitted, as the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.

<PAGE>

FARBER, BLICHT & EYERMAN, LLP
Certified Public Accountants 255 Executive Drive, Suite 215
Plainview, NY 11803-1715
Telephone: (516) 576-7040
Facsimile: (516) 576-1232

Board of Directors and Shareholders
Biopharmaceutics, Inc.
Bellport, New York

We have audited the accompanying consolidated balance sheets of
Biopharmaceutics, Inc. and Subsidiaries as of September 30, 1995 and 1994, and
the related consolidated statements of operations, shareholders' equity
(deficiency in assets) and cash flows for each of the three years in the period
ended September 30, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Biopharmaceutics, Inc. and Subsidiaries at September 30, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1995, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects, the information set forth therein.

1
<PAGE>

Board of Directors and Shareholders
Biopharmaceutics, Inc.
Page 2

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the consolidated financial statements, the Company has incurred substantial
operating losses in each of the three years ended September 30, 1995, and had
consolidated working capital deficit and a deficiency in assets at September 30,
1995 of $1,630,616 and $2,217,911, respectively. In addition, the Company has
discontinued its operations for the manufacture and distribution of a consumer
product that it was marketing since 1992 and which represented approximately
forty percent of the Company's net sales for the year ended September 30, 1995.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
discussed in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.

Plainview, New York
December 7, 1995 (except for Notes 2,
9 and 15, the latest of which is
dated February 9, 1996)

2
<PAGE>

BIOPHARMACEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS
------

September 30,
-------------------------
1995 1994
----------- ----------
Current assets:
Cash $ 86,664 $ 129,004
Trade receivables, less allowance
for doubtful accounts of $22,000;
$27,000 in 1994 (Schedule VIII) 268,957 424,810
Inventories (Note 3) 493,671 1,301,838
Prepaid expenses and other
current assets 27,953 52,761
----------- -----------

Total current assets 877,245 1,908,413

Property, plant and equipment, at
cost, net of accumulated depreciation
and amortization (Note 4) 443,267 672,776
Intangible assets (Note 15) --- 7,703,610
Licensing costs, net of accumulated
amortization (Note 5) 70,301 215,762
Sundry 30,119 51,484
----------- -----------

$ 1,420,932 $10,552,045
=========== ===========

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

3
<PAGE>

BIOPHARMACEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)

September 30,
-------------------------
1995 1994
----------- -----------
Current liabilities:
Accounts payable - trade $ 1,027,865 $ 1,301,882
Accrued expenses (Note 6) 1,043,676 673,374
Customer credit balances payable 196,320 80,461
Medicare judgment payable (Note 7) 50,000 279,524
Current maturities of long-term
debt (Note 8) 190,000 125,000
----------- -----------

Total current liabilities 2,507,861 2,460,241
----------- -----------

Long-term debt (Note 8) 130,982 375,000
----------- -----------
Convertible debentures payable
(Note 9):
Officer --- 100,000
Other 1,000,000 1,050,000
----------- -----------
1,000,000 1,150,000
----------- -----------
Commitments and contingencies
(Notes 13 and 14)

Shareholders' equity (deficiency
in assets) (Notes 9, 10, 11, 15,
and 18):
Common stock - par value $.001
per share:
Authorized - 50,000,000 shares
Issued - 26,535,750 shares;
21,189,771 shares in 1994 26,536 21,189
Additional paid-in capital 27,149,038 26,331,310
Deficit (27,889,599) (18,281,809)
----------- -----------
(714,025) 8,070,690

Less treasury stock, at cost
(413,728 shares in 1995 and 1994) (944,612) (944,612)
Notes receivable from officers
and employees (559,274) (559,274)
----------- -----------
(2,217,911) 6,566,804
----------- -----------
$ 1,420,932 $10,552,045
=========== ===========

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

4
<PAGE>

BIOPHARMACEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended September 30,
-------------------------------------
1995 1994 1993
----------- ----------- -----------

Sales $ 1,532,649 $ 2,057,383 $ 1,989,260

Costs and expenses:
Cost of sales 2,303,224 2,542,912 2,520,161
Selling, general and
administrative 1,028,596 1,575,870 1,121,645
Research and development
expenses 62,311 633,154 5,260
Amortization of licenses 576,264 483,659 26,964
----------- ----------- -----------
3,970,395 5,235,595 3,674,030
----------- ----------- -----------
(2,437,746) (3,178,212) (1,684,770)
----------- ----------- -----------
Other income (deductions):
Loss on write-off of
intangible assets (Note 15) (5,526,587) --- ---
Settlement of medicare
judgement (Note 7) 229,524 --- ---
Settlement of litigation
(Note 8) --- --- (350,000)
Interest expense (including
interest to officer of
$6,165; $12,500 in 1994;
$9,696 in 1993) (251,438) (246,629) (257,160)
----------- ----------- -----------
(5,548,501) (246,629) (607,160)
----------- ----------- -----------
Loss from continuing operations (7,986,247) (3,424,841) (2,291,930)
----------- ----------- -----------
Discontinued operations (Note 16):
Operating loss (429,936) (1,245,924) (787,534)
Loss of disposal (1,191,607) --- ---
----------- ----------- -----------
(1,621,543) (1,245,924) (787,534)
----------- ----------- -----------
Net loss $(9,607,790) $(4,670,765) $(3,079,464)
=========== =========== ===========
Primary loss
per share (Note 11):
Continuing operations $(.35) $(.18) $(.22)
Discontinued operations (.07) (.07) (.08)
----- ----- -----
Net loss $(.42) $(.25) $(.30)
===== ===== =====

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

5
<PAGE>

BIOPHARMACEUTICS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
Notes
Receivable
Common Shares Additional from
Number of Paid-in Treasury Officers &
Shares Amount Capital Deficit Stock Employees Total
---------- ------- ----------- ------------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1992 9,155,250 $ 9,155 $11,256,009 $(10,531,580) $(1,186,196) $ --- $ (452,612)

Shares issued in connection with
the Company's Regulation S
offerings, net of related
expenses of $34,140 2,000,000 2,000 1,763,636 --- --- --- 1,765,636

Shares issued in connection with
the exercise of warrants 550,000 550 618,620 --- --- --- 619,170

Net loss for year ended
September 30, 1993 --- --- --- (3,079,464) --- --- (3,079,464)
---------- ------- ----------- ------------- ----------- ------ -----------

Balance, September 30, 1993 11,705,250 $11,705 $13,638,265 $(13,611,044) $(1,186,196) $ --- $(1,147,270)
========== ======= =========== ============= ============ ====== ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

6
<PAGE>

BIOPHARMACEUTICS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

(continued)

<TABLE>
<CAPTION>
Notes
Receivable
Common Shares Additional from
Number of Paid-in Treasury Officers &
Shares Amount Capital Deficit Stock Employees Total
---------- ------- ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1993 11,705,250 $11,705 $13,638,265 $(13,611,044) $(1,186,196) $ --- $(1,147,270)

Shares issued in
connection with the
exercise of stock options 686,100 686 559,274 --- --- (559,274) 686

Shares issued in connection
with the Company's
Regulation S offerings, net
of related expenses $296,040 4,798,421 4,798 4,428,992 --- --- --- 4,433,790

Shares issued in connection
with the purchase of certain
intangible assets of Amswiss
Scientific, Inc. 4,000,000 4,000 7,746,000 --- --- --- 7,750,000

Shares issued (97,339)
in exchange for accounts
payable obligations --- --- (55,284) --- 213,459 --- 158,175

Shares issued (25,000)
in exchange for license --- --- 14,063 --- 28,125 --- 42,188

Net loss for year ended
September 30, 1994 --- --- --- (4,670,765) --- --- (4,670,765)
---------- ------- ----------- ------------- ----------- ---------- ------------

Balance, September 30, 1994 21,189,771 $21,189 $26,331,310 $(18,281,809) $ (944,612) $(559,274) $ 6,566,804
========== ======= =========== ============ =========== ========== ===========

<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

7
<PAGE>

BIOPHARMACEUTICS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

(continued)
<TABLE>
<CAPTION>
Notes
Receivable
Common Shares Additional from
Number of Paid-in Treasury Officers &
Shares Amount Capital Deficit Stock Employees Total
---------- ------- ----------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1994 21,189,771 $21,189 $26,331,310 $(18,281,809) $ (944,612) $(559,274) $ 6,566,804

Shares issued in connection
with the Company's Regulation S
offerings, net of related expenses
of $190,891 5,545,979 5,547 2,049,175 --- -- --- 2,054,722

Shares issued in exchange
for convertible debentures 600,000 600 149,400 --- --- --- 150,000

Forfeiture of shares in
connection with the purchase of
certain intangible assets of
Amswiss Scientific, Inc. (800,000) (800) (1,380,847) --- --- --- (1,381,647)

Net loss for year ended
September 30, 1995 --- --- --- (9,607,790) --- --- (9,607,790)
---------- ------- ----------- ------------- ----------- ---------- ------------
Balance, September 30, 1995 26,535,750 $26,536 $27,149,038 $(27,889,599) $ (944,612) $(559,274) $(2,217,911)
========== ======= =========== ============= =========== ========== ============

<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

8
<PAGE>

BIOPHARMACEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended September 30,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
Cash flows from operating
activities:
- -------------------------
Loss from continuing operations $(7,986,247) $(3,424,841) $(2,291,930)
Loss from discontinued
operations (1,621,543) (1,245,924) (787,534)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 835,304 761,374 288,254
Loss on write-off of
intangible assets 5,526,587 --- ---
Loss on write-off of license 114,574 --- ---
Gain on sale of equipment (2,758) --- ---
Changes in certain assets and
liabilities:
Accounts receivable 155,853 (19,025) (137,354)
Inventories 808,167 (747,319) (79,130)
Other current assets 24,808 73,118 (111,112)
Accounts payable - trade (274,017) 732,242 45,441
Accrued expenses 370,301 72,524 288,219
Obligation from litigation
settlement --- --- 350,000
Customer credit balances 115,859 24,961 ---
Medicare judgment payable (229,524) 31,000 27,600
Deferred costs --- 128,757 (53,316)
Sundry 21,365 (20,380) 5,628
----------- ----------- -----------
Net cash used in
operating activities (2,141,271) (3,633,513) (2,455,234)
----------- ----------- -----------
Cash flows from investing
activities:
- -------------------------
Purchase of property, plant
and equipment (36,773) (94,226) (44,811)
Payments for licensing
agreements --- (35,000) (105,000)
Proceeds from sale of property,
plant and equipment 10,000 --- ---
Intangible assets acquired --- (180,646) ---
----------- ----------- -----------
Net cash used in
investing activities (26,773) (309,872) (149,811)
----------- ------------ -----------
Balance carried forward (2,168,044) (3,943,385) (2,605,045)
----------- ----------- -----------

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

9
<PAGE>

BIOPHARMACEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Years ended September 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------

Balance brought forward $(2,168,044) $(3,943,385) $(2,605,045)
----------- ----------- -----------
Cash flows from financing
activities:
- -------------------------
Revolving credit loan activity:
Borrowings --- 1,855,000 1,874,093
Repayments --- (2,071,488) (1,827,711)
Term loan activity:
Repayments --- (75,765) (158,000)
Proceeds of Company's
Regulation S offerings, net
of related expenses of
$190,891; $296,040 in
1994; $34,140 in 1993 2,054,722 4,433,790 1,765,636
Proceeds from the exercise
of warrants --- --- 619,170
Long-term debt incurred 130,982 --- ---
Repayments of long-term debt (60,000) (100,000) ---
Proceeds from the exercise
of stock options --- 686 ---
----------- ----------- -----------
Net cash provided by
financing activities 2,125,704 4,042,223 2,273,188
----------- ----------- -----------
Net increase (decrease) in cash (42,340) 98,838 (331,857)
Cash at beginning of year 129,004 30,166 362,023
----------- ----------- -----------
Cash at end of year $ 86,664 $ 129,004 $ 30,166
=========== =========== ===========
Supplemental disclosure of
cash flow information:
Cash paid during year:
Interest $ 60,000 $ 147,000 $ 214,000
=========== =========== ===========

Non-cash financing activities:
Reference is made to Notes 9,
15 and 18 for certain non-cash
financing activities.

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

10
<PAGE>

BIOPHARMACEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

Note 1. Summary of Significant Accounting Policies
------------------------------------------

a) The Company
-----------

Biopharmaceutics, Inc. (the "Company") was incorporated in the
State of Nevada on August 15, 1983, under the name of Health Care Facilities
Corporation. After two subsequent name changes, the Company on March 28, 1988,
changed the Company's name to that of an acquired company, Biopharmaceutics,
Inc., and reincorporated in the State of Delaware.

b) Principles of consolidation
---------------------------

The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and trans-
actions have been eliminated in consolidation.

c) Revenue recognition
-------------------

Sales are recognized as products are shipped.

d) Inventory valuation
-------------------

Inventories are stated at the lower of cost (first-in, first-out)
or market.

e) Depreciation and amortization
-----------------------------

Licensing costs are being amortized on the straight line method
over the life of the license agreements.

The Company depreciates its property and equipment on the
straight-line method for financial reporting purposes. For tax reporting
purposes, the Company uses the straight-line or accelerated methods of
depreciation.

Leasehold improvements are amortized over four to ten years.
Equipment, furniture and fixtures generally have been assigned ten and seven
year lives and tools and dies, four year lives.

11
<PAGE>

BIOPHARMACEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

Note 1. Summary of Significant Accounting Policies (continued)
------------------------------------------

e) Depreciation and amortization (continued)
-----------------------------

Expenditures for maintenance, repairs, renewals and betterments
are reviewed by management and only those expenditures representing improvements
to plant and equipment are capitalized. At the time plant and equipment are
retired or otherwise disposed of, the cost and accumulated depreciation accounts
and the gain or loss on such disposition is reflected in operations.

f) Deferred income taxes
---------------------

Deferred income taxes are provided based on the provisions of
SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"), to reflect the tax
effect of differences in the recognition of revenues and expenses between
financial reporting and income tax purposes based on the enacted tax laws in
effect at September 30, 1995.

g) Loss per share
--------------

Loss per share is computed based on the weighted average number
of common shares outstanding. In computing loss per share, common share
equivalents are omitted because they are antidilutive.

h) Research and development expenses
---------------------------------

The Company expenses research and development costs as incurred.
For the years ended September 30, 1995, 1994 and 1993, research and development
costs aggregated approximately $62,000, $633,000 and $5,000, respectively.

Note 2. Basis of Preparation
--------------------

For the fiscal year ended September 30, 1995, the Company's
operations included the manufacture and distribution of its generic
pharmaceutical products along with the manufacturing, marketing and selling of
its branded consumer product, Treo, a three-way outdoor protection product, that
under a licensing agreement it had been marketing since 1992.

12
<PAGE>

BIOPHARMACEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

Note 2. Basis of Preparation (continued)
--------------------

On November 16, 1995, a court order was issued by the United States
District Court enjoining the Company from selling Treo (Note 16), and as a
result thereof, the Company decided to discontinue its consumer product
operations. The loss resulting therefrom is reflected as discontinued
operations in the accompanying consolidated statement of operations for the
three years ended September 30, 1995.

The Company has incurred net losses of $9,607,790, $4,670,765 and
$3,079,464 for the years ended September 30, 1995, 1994 and 1993, respectively.
At September 30, 1995, the Company had a working capital deficit of $1,630,616
and an accumulated deficiency in assets of $2,217,911. As part of management's
plan to refocus the Company's efforts on its operations to attain profitable
levels, the Company signed a letter of intent on January 3, 1996 to purchase,
among other things, the Feminine Hygiene Product Brands of London International,
U.S. Holdings, Inc. The purchase price of $3,600,000 for the acquired assets
was paid with $100,000 on January 10, 1996, and the balance payable as follows:
i) $200,000 payable to an escrow ccount upon execution of the Asset Purchase
Agreement, ii) $1,300,000 payable at closing, and iii) $2,000,000 payable
within three years with interest at 8.5% per annum. The Company anticipates the
$1,500,000 will be financed by an investment banker and the remaining
indebtedness to be paid from operations.

The Company acquired three new customers that Management estimates
will increase its revenue by approximately $2,000,000 in 1996. The Company
anticipates that with its expanded pharmaceutical customer base and the
acquisition of its new feminine hygiene product line, the Company will become
profitable. The Company is of the opinion that with the funds raised subsequent
to September 30, 1995 (Note 18) and further issuances of common stock pursuant
to regulation S offerings and other financing, that it can generate adequate
capital resources to achieve its new objectives.

13
<PAGE>

BIOPHARMACEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

Note 3. Inventories
-----------

The components of inventories are as follows:

September 30,
---------------------------------
1995 1994 1993
--------- ---------- --------
Chemical raw materials and
packaging materials $320,485 $ 581,992 $371,148
Work in process 115,251 211,033 91,421
Finished goods 57,935 508,813 91,950
-------- ---------- --------
$493,671 $1,301,838 $554,519
======== ========== ========

Note 4. Property, Plant and Equipment
-----------------------------

Property, plant and equipment consists of the following:

September 30,
-----------------------
1995 1994
---------- ----------
Equipment, furniture and fixtures $1,844,345 $1,865,309
Leasehold improvements 570,349 570,349
Tools and dies 215,454 193,927
---------- ----------
2,630,148 2,629,585
Less accumulated depreciation and
amortization 2,186,881 1,956,809
---------- ----------
$ 443,267 $ 672,776
========== ==========
Note 5. Licensing Costs
---------------

During the year ended September 30, 1994, the Company acquired an
exclusive license to a patented process for a non-invasive test to diagnose
Alzheimer's disease. This license agreement provides, among other things, for
the payment of a royalty fee equal to 5% of the net sales price of licensed
products, with a minimum annual royalty of $25,000 beginning in the fourth year
of the agreement. The term of the license expires in 2009, at which time the
Company can continue to sell the products without any royalty fee.

14
<PAGE>

BIOPHARMACEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

Note 5. Licensing Costs (continued)
---------------

Additionally, the Company entered into an exclusive license during
August, 1994 to market a patented antiviral composition method, with a royalty
due equal to 5% of net sales and a minimum annual royalty of $25,000 beginning
with the fourth year of the agreement. The Company will incur a one-time payment
of $40,000 upon reaching $250,000 in sales of products resulting from this
license. The license will terminate with the expiration of the aforementioned
patent.

The Components of licensing costs are as follows:

September 30,
--------------------
1995 1994
-------- --------
Exclusive license - Treo $ --- $200,000
Exclusive license - Alzheimer's patent 62,188 62,188
Exclusive license - Antiviral patent 15,000 15,000
-------- --------
77,188 277,188
Less: accumulated amortization 6,887 61,426
-------- --------
$ 70,301 $215,762
======== ========

The Company wrote-off $114,574 representing the unamortized portion
of its exclusive license to manufacture, market and distribute Treo (Note 16).

Note 6. Accrued Expenses
----------------

Accrued expenses consist of the following:

September 30,
------------------------
1995 1994
---------- --------
Legal and audit fees $ 509,000 $307,000
Commissions 139,000 41,000
Interest expense 255,000 140,000
Sundry 140,676 185,374
---------- --------
$1,043,676 $673,374
========== ========

15
<PAGE>

BIOPHARMACEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

Note 7. Medicare Judgment Payable
-------------------------

On November 17, 1995, the Court reduced a fine which was originally
imposed on the Company in 1989 to $50,000. In December, 1995, $25,000 was paid,
with the balance payable before May 13, 1996. The 1995 consolidated statement of
operations reflect a credit of $229,524, representing the difference between
the Court reduced settlement and the original fine, along with interest thereon
totaling $279,524.

Note 8. Long-term Debt
--------------

Long-term debt consists of the following:

September 30,
---------------------
1995 1994
-------- --------
Obligation from litigation settlement with
the United States Attorney's office (a) $190,000 $250,000

Note payable (b) 130,982 ---

Note payable (Note 15) --- 250,000
-------- --------
320,982 500,000
Less current maturities 190,000 125,000
-------- --------
$130,982 $375,000
======== ========

(a) In July, 1993, the Company's pharmaceutical subsidiary settled its
litigation with the United States Attorney's Office for $350,000 in
connection with investigations directed at the generic drug industry,
involving alleged misconduct in the filing and obtaining of approval of
Abbreviated New Drug Applications. In connection with the settlement, the
United States Attorney's office has an outstanding judgment against the
Company for failure to pay, in its entirety, its fourth installment due
July 7, 1995. In addition, the final payment of $125,000, plus accrued
interest on the full settlement, is payable on July 7, 1996. As a pre-
condition of the settlement, if the subsidiary defaulted on any of the
agreed upon payments, the unpaid balance of the settlement could become
immediately due and payable, with interest charged at the statutory rate
from the closing date for the unpaid balance. It is unknown at this time
whether the U.S. Attorney's office will seek to enforce its right to
accelerate the payment of the obligation and interest thereon.

16
<PAGE>

BIOPHARMACEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

Note 8. Long-term Debt (continued)
--------------

(b) On December 31, 1994, the Company issued a note payable to one of its
convertible debenture holders (Note 9) for $130,982, representing all
accrued interest to said date. The note matures October 1, 1998 and bears
interest at 12.5% per annum, payable in quarterly installments.

Note 9. Convertible Debentures Payable
------------------------------

The Company had outstanding at September 30, 1995 an aggregate of
$1,000,000 of convertible debentures after its conversion of $150,000 of said
debentures into 600,000 shares of common stock in June, 1995. The debentures
mature on October 1, 1998, with optional redemptions available on October 1,
1995 at 110% of par, and each subsequent year to maturity at 105% of par. The
debentures bear interest at the rate of 12.5% per annum which is payable in
quarterly installments. Under the terms of the debentures, mandatory principal
redemption installments are to be made quarterly to maturity in the amount of
$30 per $1,000 of the remaining outstanding principal, commencing October 1,
1995. The Company has obtained an extension until October 1, 1996 for the
aforementioned redemption installments. The debentures, as amended on February
9, 1996, can be converted at any time into the Company's common stock in its
entirety or in multiples of $1,000, at a conversion price equal to the lesser of
$.25 or 80% of the bid price per share, as defined.

The debentures further provide that the Company maintain a minimum
current ratio and interest coverage, as defined, and must maintain a certain
minimum stockholders' equity. On February 9, 1996, the Company received waivers
of the defaults that have occurred under the agreements prior hereto and
through April 1, 1996 from the debenture holders. If an event of default exists
or occurs, as defined, subsequent to April 1, 1996, the debentures and interest
thereon may become due and payable at the discretion of the debenture holders.

Note 10. Stock Options
-------------

In 1993, the Company adopted a stock option plan under which selected
eligible key employees of the Company are granted the opportunity to purchase
shares of the Company's common stock. The plan provides that 750,000 shares of
the Company's authorized common stock be reserved for issuance under the plan
as either incentive stock options or non-qualified options. Options are granted
at prices not less than 100 percent of the fair market value at the date of
grant and are exercisable over a period of ten years (subject to an initial one
year restrictive period) or as long as that person continues to be employed or
serve on the Board of Directors, whichever is shorter. Under the 1993 plan, no
options may be granted subsequent to January 5, 2003.

17
<PAGE>

BIOPHARMACEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

Note 10. Stock Options (continued)
-------------

During the year ended September 30, 1994, options under a previously
adopted 1988 stock option plan for 686,100 common shares were exercised and paid
for by the issuance of non-interest bearing notes, payable on demand,
aggregating $559,274 and cash of $686. The notes are collateralized by the
shares issued (Note 18). Under the 1988 plan, which expired in November, 1993,
53,600 options were canceled during the year ended September 30, 1994. Under
the 1993 stock option plan, 534,500 options were canceled with 653,500 options
being granted during the year ended September 30, 1995.

Information regarding stock options at September 30, 1995 and 1994 is
summarized below:

1995 1994
-------------------- ------------------------
Option Option
Shares under option: Shares Price Shares Price
Outstanding - --------- ----------- ---------- -----------
beginning of year 534,500 $1.25-$2.25 1,271,200 $0.88-$1.25
Granted - 1993 plan 653,500 $0.50 3,000 $2.25
Exercised (686,100) $0.81-$0.88
Terminated:
1988 plan --- --- (53,600) $.075-$.088
1993 plan (534,500) $1.25-$2.25 --- ---
Outstanding - end
of year 653,500 $0.50 534,500 $1.25-$2.25
Exercisable - end
of year:
1993 plan --- --- 531,500 ---

Note 11. Loss Per Share
--------------

For the years ended September 30, 1995, 1994 and 1993, the average
number of shares outstanding were 23,150,793, 18,549,265 and 10,408,444,
respectively.

Note 12. Income Taxes
------------

The Company, as of September 30, 1995, has available approximately
$26,900,000 of net operating loss carryforwards (expiring through the year 2010)
to reduce future Federal and state income taxes. Since there is no guarantee
that the related deferred tax asset will be realized by reduction of taxes
payable on taxable income during the carryforward period, a valuation allowance
has been computed to offset in its entirety the deferred tax asset attributable
to this net operating loss in the amount of $10,800,000.

18
<PAGE>

BIOPHARMACEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

Note 13. Commitments and Contingencies
-----------------------------

The operations and offices of the Company are conducted from leased
premises in Bellport, New York. The Company is negotiating for a new lease and
is currently on a month to month basis.

Total rent expense for the years ended September 30, 1995, 1994 and
1993 was approximately $158,000, $156,000 and $149,000, respectively.

Note 14. Employment Contract
-------------------

The Company has an employment agreement with its President and Chief
Executive Officer for a period of five years, commencing October 1, 1994, for an
annual salary of $130,000 per year, plus certain fringe benefits. Pursuant
to the terms of the agreement, the Officer will receive a bonus based upon the
profitability of the Company, (5% of the annual pre-tax profit up to a maximum
bonus of $1,500,000 per year).

Note 15. Loss on Write-off of Intangible Assets
--------------------------------------

In November, 1993, the Company and Amswiss Scientific, Inc.
("Amswiss") completed a transaction whereby the Company agreed to purchase all
of Amswiss' rights to certain pharmaceutical assets, including all agreements,
licenses, applications, approvals, trademarks and trade names, for which the
Company issued to Amswiss four million shares of its common stock and warrants
to purchase an additional two million shares at $2.00 per share.

19
<PAGE>

BIOPHARMACEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

Note 15. Loss on Write-off of Intangible Assets (continued)
--------------------------------------

The agreement provided, that of the shares and warrants issued to
Amswiss, 800,000 common shares and warrants to purchase 400,000 common shares
would be subject to forfeiture and cancellation in the event the Company is
unable to obtain final Federal Drug Administration ("FDA") approval of certain
New Drug Applications ("NDA's") on or before December 31, 1995. The Company has
re-evaluated its investment in the Amswiss assets as of September 30, 1995.
Due to the Company's present lack of working capital, the cost of the NDA filing
and new diagnostic techniques for cervical cancer that significantly reduce
potential future sales of the Amswiss Drugs, the Company decided to write-off
the adjusted unamortized acquired Amswiss assets aggregating $5,526,587. At
September 30, 1995, the Company decided not to proceed with the filing of the
NDA's and as a result of this decision, the Company recorded the forfeiture of
the aforementioned 800,000 common shares and warrants which resulted in a charge
to common stock and additional paid-in-capital aggregating $1,381,647. With
respect to the shares and warrants issued to Amswiss that were not subject to
forfeiture, Amswiss was granted registration rights for one half of the shares
and warrants six months after closing and the balance of the shares and
warrants, one year after the closing. As of September 30, 1995, Amswiss has
exercised their right to request a registration of one half of their available
shares and warrants. At September 30, 1995, the Company, canceled a contingent
non-negotiable, non-interest bearing $250,000 note, issued to Amswiss, which was
also due upon the FDA approval by December 31, 1995.

Additionally, Amswiss was to receive a three (3%) percent royalty on
future sales of the drug, and if the Company offers to sell its common shares in
a registered public offering, Amswiss will receive as additional compensation
$125,000 from the net proceeds thereof.

Note 16. Loss on Discontinued Operations
-------------------------------

In August, 1992, the Company obtained an exclusive license for the
mass market manufacture and distribution of Treo for an initial period of seven
years, with options to extend for another ten years. The license agreement
provided, among other things, for the payment of an 8.5% royalty fee with a
minimum royalty of $300,000 for the calendar year 1995, increasing to $900,000
in 1999.

20
<PAGE>

BIOPHARMACEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

Note 16. Loss on Discontinued Operations (continued)
-------------------------------

The Company had been engaged in litigation with its Treo licensor
since 1994 over, among other things, the promotion and marketing of the
product. As a result of a November 16, 1995 preliminary court order issued by
the United States District Court, Eastern District of New York, the Company
was enjoined from selling Treo during the 1996 selling season. As a result of
the Court's decision, the Company decided to discontinue the manufacturing of
Treo and reclassified its results of operations as discontinued operations in
the accompanying consolidated statement of operations. The Company will be
appealing the Courts decision in an attempt to recover various costs incurred.

A summary of the operating results of discontinued operations are as
follows:

September 30,
--------------------------------------
1995 1994 1993
----------- ----------- -----------

Net Sales $ 1,030,500 $ 608,449 $ 240,871
Gross profit 598,421 297,301 98,515
Net operating loss from
discontinued operations (429,936) (1,245,924) (787,534)

The components of assets and liabilities of the discontinued operations
included in the Consolidated Balance Sheets are as follows:

September 30,
--------------------------------
1995 1994
----------- -----------
Cash $ 69,574 $ 23,116
Accounts receivable (net) 116,306 237,064
Inventories --- 659,855
Prepaid expenses and other
current assets --- 29,688
Property, plant & equipment
(net) 3,006 4,881
Intercompany payable (2,622,191) (1,940,957)
Accounts payable (616,030) (838,994)
Accrued expenses (192,989) (117,649)
Customer credit balances
payable (196,320) (80,461)
----------- -----------
$(3,438,644) $(2,023,457)
=========== ===========

<PAGE>

BIOPHARMACEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

Note 17. Sales Concentration
-------------------

During the year ended September 30, 1995, the Company's sales to one
customer were $416,000 (27.1%) and $351,000 to another customer (22.9%). The
customer, which represents 27.1% in fiscal 1995, represented 15.5% in fiscal
1994 and 23.3% in fiscal 1993. Sales to the other major customer in 1994 and
1993 were $1,110,000 (54.0%) and $910,000 (45.7%), respectively.

Note 18. Common Stock
------------

In July, 1992, the Board of Directors approved the offering pursuant
to Regulation S of 2,550,000 shares and warrants to purchase an additional
550,000 shares of common stock to certain non-United States persons.
In connection with this offering, the Company received approximately $2,194,000
from October, 1992 to January, 1993.

In April, 1994, the Board of Directors approved an additional
offering pursuant to Regulation S of 4,000,000 shares. In connection with this
offering, the Company received approximately $1,025,000 from May, 1994 to
September, 1994, resulting from the sale of 1,448,570 shares of common stock. In
1995, an additional 2,436,042 shares of common stock were sold for approximately
1,026,000.

During the year ended September 30, 1994, options for the issuance
of 686,100 common shares were exercised (Note 10). Additionally, 122,339 shares
were issued from Treasury in exchange for trade obligations and for the
purchase of an exclusive license for a patented process to diagnose Alzheimer's
disease (Note 5).

In March, 1995, the Board of Directors approved another offering
pursuant to Regulation S of 4,500,000 shares. In connection with this offering,
the Company received approximately $1,220,000 from March, 1995 to September,
1995, resulting from the sale of 3,109,937 shares of common stock. Subsequent
to September 30, 1995, an additional 1,273,071 shares of common stock were sold
or approximately $217,000.

22
<PAGE>

BIOPHARMACEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

Note 19. Fourth Quarter Adjustments
--------------------------

Year Ended September 30, 1995
-----------------------------

The net loss in the fourth quarter for the year ended September 30,
1995 was increased (decreased) by the following more significant adjustments:

Loss on write-off of intangible
assets $5,526,587
Settlement of medicare judgement (229,524)
Loss on disposal of
discontinued operations 1,191,607
----------
$6,488,670
==========

Years Ended September 30, 1994 and 1993
---------------------------------------

There were no significant adjustments that either increased or
decreased the net loss in the fourth quarter of the years ended September 30,
1994 and 1993.

Note 20. Unaudited Quarterly Financial Data
----------------------------------

The following is a summary of unaudited quarterly operating results
for the years ended September 30, 1995, 1994 and 1993 (in thousands of dollars
except per share amounts).

Year Ended September 30, 1995
---------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter(1)
------- ------- ------- -------
Continuing operations:
Revenues $ 486 $ 525 $ 191 $ 331
Gross profit (140) (126) (242) (262)
Net loss (676) (307) (980) (6,023)
Loss per share (.03) (.01) (.05) (.26)

Discontinued operations:
Net income (loss) $ 32 $ 363 $480 $(2,497)
Income (loss) per share -- .02 .02 (.11)

(1) See Note 19

23
<PAGE>

BIOPHARMACEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993

Note 20. Unaudited Quarterly Financial Data (continued)
----------------------------------

Year Ended September 30, 1994
---------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------

Continuing operation
Revenues $ 551 $ 488 $ 519 $ 499
Gross profit (103) (139) (102) (142)
Net loss (564) (634) (1,271) (956)
Loss per share (.03) (.03) (.07) (.05)

Discontinued operations:
Net loss $(111) $(180) $(541) $(414)
Loss per share (.01) (.01) (.03) (.02)

Year Ended September 30, 1993
---------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------

Continuing operations:
Revenues $ 496 $ 547 $ 382 $ 564
Gross profit (115) (129) (176) (111)
Net loss (369) (433) (923) (567)
Loss per share (.04) (.04) (.09) (.05)

Discontinued operations:
Net loss $(50) $(118) $(376) $(244)
Loss per share (.01) (.01) (.04) (.02)

24
<PAGE>

BIOPHARMACEUTICS, INC.

FORM 10-K

EXHIBIT

FOR THE YEAR ENDED SEPTEMBER 30, 1995

EXHIBIT 10.9A

<PAGE>

BIOPHARMACEUTICS, INC.

SCHEDULE VIII - VALUATION ACCOUNTS

Balance at Charged to
beginning costs and Charged to Other changes Balance at
Description of Period expenses other accounts add (deduct) End of Period
----------- ---------- ---------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:

Year ended September 30, 1995 $27,000 $ --- $ --- $ (5,000) $22,000
======= ======= ======= ======== =======

Year ended September 30, 1994 $26,000 $ 1,418 $ --- $ (418) $27,000
======= ======= ======= ======== =======

Year ended September 30, 1993 $33,000 $40,676 $ --- $(47,676) $26,000
======= ======= ======= ======== =======

</TABLE>

25
<PAGE>

EXHIBIT 24

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in Registration Statement Number
2-87952 on Form S-1, originally filed on November 18, 1983, as amended through
Amendment No. 2, filed on February 21, 1984, and effective March 5, 1984, of
our report on the 1995 consolidated financial statements and schedules of
Biopharmaceutics, Inc. and subsidiaries included in the Annual Report on Form
10-K of Biopharmaceutics, Inc. for the year ended September 30, 1995.

Plainview, New York
February 13, 1995