BIOPHARMACEUTICS INC, 10-K, 1999-02-19

BIOPHARMACEUTICS INC
10-K, 1999-02-19
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, 1998
Commission file number: 0-17750

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

Delaware 13-3186327
-------------------- ----------------------------
State of Corporation (I.R.S. Employer ID. 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 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, 1998 was $3,300,322. On such date, the mean price
at which the stock was sold was $0.19 per share.

The number of shares of Common Stock, $.001 Par Value, outstanding as of
November 30, 1998 was 17,370,118, exclusive of outstanding, unexercised options.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

<PAGE>

BIOPHARMACEUTICS, INC.

FORM 10-K
(Filed for Fiscal Year Ended September 30, 1998

TABLE OF CONTENTS
Page No.
Part I.

Item 1. Business . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings. . . . . . . . . . . . . . 9
Item 4. Submission of Matters to
a Vote of Security Holders . . . . . . 10

Part II.

Item 5. Market for Registrant's Common
Stock and Related Shareholder
Matters . . . . . . . .. . . . . . . . . 10
Item 6. Selected Financial Data . . .. . . . . . 11
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations . . . . .. . . . . . . . . . . . 12
Item 8. Financial Statements and Supplementary Data 13
Item 9. Disagreements on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . 13

Part III.

Item 10. Directors and Executive Officers . . . . . . . 13
Item 11. Executive Compensation . . . . . . . . . . . 14
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . 16
Item 13. Certain Relationships and Transactions . . 17

Part IV.

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

Exhibit Index . . . . . . . . . . . . . . . . 17

<PAGE>

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

Recent Developments

On December 11, 1998, the Company completed the sale of its wholly owned
subsidiary, Caribbean Medical Testing Center Inc. (''CMT''), which was in the
business of multi-phase specialty medical testing and laboratory services
throughout Puerto Rico. Under the terms of the sale, common stock of CMT was
sold for $4,700,000, payable as follows: $600,000 to be held in escrow for
specified outstanding taxes, $2,600,000 in cash and the waiver of the Company's
guaranty of a $1,500,000 note held by the purchaser. In addition and as part of
its settlement with other creditors, the Company settled an outstanding
indebtedness to Dondo Associates, Inc. ("Dondo") by assigning $2,600,000 of the
cash proceeds from the CMT sale to Dondo in exchange for the cancellation of the
Company's outstanding promissory note (incurred by the Company as a result of
the acquisition of CMT) to Dondo totaling $4,117,715 inclusive of interest. A
fee of $50,000 was paid to a Director of the Company by Dondo for services
rendered on its behalf in said transaction. The results of operations of CMT for
the fiscal year have been classified as discontinued operations and prior
periods have been restated.(See Certain Relationships and Related Transactions)

In connection with the Company's restructuring plan, (discussed below) the
manufacturing operations of its generic pharmaceutical products subsidiary were
discontinued effective September 30, 1998. The Company is presently liquidating
the entire Manufacturing operations. The operations of this division for the
three years ended September 30, 1998 have been reported as discontinued
operations in the accompanying consolidated statement of operations.

<PAGE>

Fiscal 1998 Operations

Background

The Company's business operations, in fiscal year 1997, were principally
conducted through three wholly owned subsidiaries: Biopharmaceutics, Inc.
("Biopharm"), a New York corporation, engaged in the manufacturing of
pharmaceutical products, Quality Health Products, Inc. ("QHP"), a company
organized to market the line of Feminine Hygiene Products acquired in March 1996
from London International Group, Inc.("LIG"), and Caribbean Medical Testing
Center, Inc. ("CMT"), a company engaged in specialty medical testing and
laboratory services in Puerto Rico, acquired in June 1997 from the founder of
that company, a non-affiliated person.

In addition, the Company holds the license rights to Mitolactol ("DBD"), a
cytotoxic chemotherapy agent which holds "Orphan Drug Status" for both the
treatment of cervical cancer and brain cancer . On September 25, 1996, the
Company entered into a Joint Venture Agreement with Advanced Biological Systems,
Inc. (now ABS Group, Inc. "ABS") to finance the final development and completion
of the regulatory process for Mitolactol. (See Joint Venture)

Current Operations

As previously announced in July 1998 and disclosed to shareholders in a
Letter to Shareholders dated September 1998, the Company's Board of Directors
effectuated a restructuring of management and adopted a plan to restructure
operations with a view to reducing overhead, long-term and short-term debt and
retaining only those operations deemed to have the best likelihood to produce
future profits. In this regard, it was determined that the feminine hygiene
Branded products operation was to constitute the Company's core business.

Feminine Hygiene Products

In March 1996, the Company through QHP, acquired certain feminine hygiene
Branded products from London International Group, Inc. ("LIG"). LIG is one of
the largest latex products manufacturers in the U.S. The brands acquired are
sold under the names Vaginex*, Koromex*, Koroflex* and Feminique* and have been
established on average more than thirty years with Koromex* being established
since 1933.* Trademarks

<PAGE>

Sales of these Brands are being made to food and drug chains, drug
wholesalers, domestic and overseas distributors, clinics and domestic government
agencies. The Company's sales are conducted by eight independent Sales
Representative Organizations. Each of these representative organizations calls
on the key accounts that carry the lines. The Company expects its sales
representatives to expand sales of the lines by expanding the customer base and
by receiving greater support from the Company in promoting the products.

At one time, sales of these 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 the Company's Branded products. In addition, no sales
are currently being made to mass merchandisers such as Wal-Mart, K-Mart, Target,
Venture or Ames. The Company expects to be making a concerted sales effort to
introduce QHP's Brands to these accounts.

Biotechnology

In November 1993, the Company acquired three principal assets from Amswiss
Scientific, Inc. a non-affiliated Canadian Corporation (Amswiss); (i) the
license rights to DBD, (ii)certain patent rights, including the U.S.A. patent to
a peptide, Nitroso N-Beta Chloroethyl Carbamoyl ("NNB"), and (iii) were
agreements with the Central Research Institute for Chemistry of the Hungarian
Academy of Sciences ("CRIC"), and a group of scientists associated with the
Semmelweiss Medical University, Budapest, Hungary (the "Group") for the
development of two anti-sense oligonucleotides which have displayed anti-tumor
and anti-metastatic activity.

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 had also obtained from Amswiss, DBD's Orphan
Drug Status for the treatment of cervical cancer and brain cancer, granted by
the U.S. Food and Drug Administration ("FDA"). 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").

DBD has gone through various Phase II and Phase III clinical trials with
approximately 2400 patients in the U.S. and approximately an additional 3100
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.
<PAGE>

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. In September 1996, the Company entered into a Joint Venture Agreement
with ABS Group, Inc. for the further development of DBD (See "Joint Venture").

Joint Venture

On September 25, 1996, the Company entered into a Joint Venture Agreement
with Advanced Biological Systems, Inc. (a Utah Corporation) to finance the final
development of DBD (also known as Mitolactol). The Joint Venture agreement
provided, among other things, the payment of a total of a minimum of $2,750,000
to the Company in cash and/or securities for the sub-license. Payment terms
included 425,000 shares of restricted common stock of ABS and $150,000 paid in
1996. The balance of the payments were to occur in varying amounts of common
shares and or cash coinciding with filings with the Food and Drug Administration
and the approval of various investigational new drug applications. Additionally,
a contribution to the joint venture by ABS of $1,000,000 was to be made in
varying amounts through August 1997, of which only $400,000 has been contributed
as of September 30, 1998. The Company was to share in the net profits from the
sale of the approved drug on a 60/40 basis until it recovered at least
$2,000,000, then share on the basis of 55/45 on subsequent profits. In October
1998, the Agreement was amended whereby ABS was granted an irrevocable 10%
interest in any monies due the Company in the event of any sale of any cancer
drug of the joint venture. In addition, the additional funding requirements of
ABS were canceled. The Company is attempting to fund the process of DBD's
regulatory approval through other sources.

The Company in 1996 recorded an income of $400,750, representing the note
received of $150,000 and $250,750, the value of the aforementioned 425,000
shares. The value of the restricted common shares was based upon an independent
appraisal made by an investment banking firm. The market value at September 30,
1998 was negligible, and the Company wrote off the value of the restricted
common shares.

Discontinued Operations

On December 11, 1998, the Company completed the sale of its wholly owned
subsidiary, Caribbean Medical Testing Center Inc. (CMT), which was in the
business of multi-phase specialty medical testing and laboratory services
throughout Puerto Rico. Under the terms of the sale, common stock of CMT was
sold for $4,700,000, payable as follows: $600,000 to be held in escrow to pay
specified outstanding taxes, $2,600,000 in cash and the waiver of the Company's
guaranty of a $1,500,000 note held by the purchaser. In addition and as part of
its settlement with other creditors, the Company settled an outstanding
indebtedness to Dondo Associates, Inc.(''Dondo'')by assigning $2,600,000 of the
cash proceeds from the CMT sale to Dondo in exchange for the cancellation of the
Company's outstanding promissory note (incurred by the Company as a result of
the acquisition of CMT) to Dondo totaling $4,117,715 inclusive of interest. The
results of operations of CMT for the fiscal year have been classified as
discontinued operations and prior periods have been restated accordingly. (see
Note 15(b) of Notes to Consolidated Financial Statements and Certain
Relationships and Related Transactions).
<PAGE>

In connection with the Company's restructuring plan, the manufacturing
operations of its generic pharmaceutical products subsidiary were discontinued
effective September 30, 1998. The Company is presently liquidating the entire
manufacturing operation. The operations of this division for the three years
ended September 30, 1998 have been reported as discontinued operations in the
accompanying consolidated statement of operations.(see Note 15(c) of Notes to
Consolidated Financial Statements)

Pursuant to a September 1996, Board of Directors Resolution, the Company
filed a Chapter 7 Bankruptcy petition on December 13, 1996 in United States
District Court for the Eastern District of New York for its subsidiary, Biopharm
Lab, Inc. As a result, the Company wrote off the excess of liabilities over the
subsidiaries assets, which was reflected as a gain on disposal of discontinued
operations in its consolidated statement of operations for the year ended
September 30, 1996.

Employees

As of September 30, 1998, the Company had 40 employees.

Related-Financing

In March, 1995, the Board of Directors approved an offering pursuant to
Regulation S of 4,500,000 shares. In connection with this offering, the Company
received approximately $217,000 during the year ended September 30, 1996,
resulting from the sale of 1,273,071 shares of common stock. During January
1996, the Board of Directors authorized the issuance of additional shares of
common stock pursuant to offerings under Regulation S to fund the working
capital needs of the Company. In connection with this Resolution, the Company
received approximately $2,363,000 from January 1996 to September 1996, resulting
from the sale of 10,572,257 shares of common stock.

In March of 1997 the Board of Directors authorized an offering of
convertible debentures with interest at 10% per annum payable in cash or common
stock at the Company's option . The debentures can be converted at the holder's
option at any time after the 181st day of the date of issuance into the
Company's common stock in its entirety or in multiples of $1,000, at a
conversion price equal to the greater of $.54 per share or 75% of the closing
price per share over the five consecutive trading days immediately prior to the
date of exercising the conversion rights. The Company received $575,000, as of
June 1997 from these debentures.

During August and September, 1997, the Company authorized additional shares
of common stock pursuant to offerings under Regulation S for the funding of the
purchase of CMT. In connection, the Company received $1,375,000, resulting from
the sale of 3,115,385 shares of common stock.
<PAGE>

In June, 1998 the Board of Directors authorized additional offerings
pursuant to Regulation S of 1,500,000 shares of common stock for working capital
requirements. The Company received approximately $183,000, resulting from the
sale of 232,100 shares of its common stock.

In December 1998 the Board of Directors authorized the issuance of Rule 144
restricted shares of common stock in a private placement to raise up to
$1,000,000 in order to provide immediate and essential working capital and to
further develop the Quality Health Products, Inc. line of feminine hygiene
Branded products. This funding is expected to be used to help increase the value
and market share of the Brand names and for the purchase of inventory. As a
result of this private placement, the Company raised $800,000; $100,000 in
December, 1998, $500,000 in January 1999 and $200,000 in February 1999.

ITEM 2. PROPERTIES

On January 15, 1999, the Company signed a lease for 15,000 square feet of
the facility in Bellport, New York, which contains the Company's headquarters,
warehousing. The lease is for one year with an option to renew for an additional
year. The current space is adequate to meet the Company's requirements for the
foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

On July 28, 1998, the Company's former President tendered his resignation
and then commenced an action on September 15, 1998 against the Company asserting
non-payment of, among other things, salary of $23,000 and fees arising from a
consulting agreement aggregating approximately $94,000. The Company intends to
vigorously defend this lawsuit and has filed counterclaims for breach of
contract and breach of fiduciary duty. Due to uncertainties inherent in
litigation and the Company's intention to pursue its counterclaims, only $23,000
of accrued payroll have been provided for in the accompanying financial
statements.

The Company has accrued estimated settlements of pending litigation
aggregating $219,000 and recorded this amount in its consolidated statements of
operations for the year ended September 30, 1998. These claims are substantially
in connection with alleged legal services performed and disputes over
merchandise purchased.

In October 1997, a Settlement Agreement was entered into where by the
Company paid Amswiss Scientific, Inc. ("Amswiss"), $250,000 in November, 1997
and issued 115,000 shares of the Company's common stock to Amswiss, valued at
$186,300, as a result of an action against the Company in 1996 arising from the
alleged failure of the Company to file a registration statement with the
Securities and Exchange Commission for certain shares and warrants of the
Company owned by Amswiss. The operations for the year ending September 30, 1997
reflected a charge aggregating to $436,300 for this settlement. In addition,
pursuant to the settlement agreement, the Company issued warrants to purchase
200,000 shares of common stock. These unexpired warrants, exercisable at $4.50
per share, expire in November, 1999. (See Note 14 of Notes to Consolidated
Financial Statements).
<PAGE>

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

Not Applicable

PART II

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

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

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, 1995, the Company was listed on the OTC Bulletin Board under the symbol
"BIOP."

On May 2, 1996, the Company's symbol was changed to BOPH. In June 1997 the
Company had a 1 for 4 reverse stock split and the symbol was changed to BOPM.

As of November 30, 1998, there were approximately 900 holders of record of
Common Stock and approximately 4,500 holders in street name. On that date, the
Company's Common Stock closed at $0.19 per share on the 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,
1995 to September 30, 1998 was as follows: The trading ranges for Fiscal years
1996 and the first half of Fiscal 1997 have been restated to reflect the 1 for 4
reverse stock split of June 1997.

High Low

Oct. 1 - Dec. 31, 1995 $2.40 $1.00
Jan. 1 - Mar. 31, 1996 $2.12 $0.84
Apr. 1 - June 30, 1996 $1.72 $1.12
July 1 - Sept. 30, 1996 $1.28 $1.00

Oct. 1 - Dec. 31, 1996 $2.20 $0.96
Jan. 1 - Mar. 31, 1997 $2.80 $1.84
Apr. 1 - June 30, 1997 $2.50 $1.56
July 1 - Sept. 30, 1997 $2.50 $1.68

Oct. 1 - Dec. 31, 1997 $2.50 $1.81
Jan. 1 - Mar. 31, 1998 $1.95 $1.25
Apr. 1 - June 30, 1998 $1.44 $0.55
July 1 - Sept. 30, 1998 $0.75 $0.13

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

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

1998 1997 1996 1995 1994
Selected Operating Data (*)

Continuing Operations:
Revenues $1,999 $3,529 $1,705 -0- -0-
Net Profit(Loss) (1,758) 141 244 -0- -0-
Net Profit(Loss) Per Share (0.11) 0.01 0.03 -0- -0-

Discontinued Operations:
Net (Loss) $(3,473) $(96) $(270) $(960) $(4,671)
Net (Loss) Per Share (0.20) (0.01) (0.03) (1.66) (1.07)

Selected Balance Sheet Data
Total Assets $3,930 $16,331 $5,817 $1,421 $10,472
Total Liabilities 4,088 11,977 5,424 3,639 3,095
Long-Term Debt 2,002 4,581 3,026 1,131 1,525

Shareholders' Equity (Deficiency
in Assets) $(157) 4,353 393 (2,218) 6,567
Dividends Declared None None None None None

*Recasted to reflect the continuing operations of the Feminine Hygiene and
Family Planning Products division which began operations in March 1996, date of
acquisition.

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FNANCIAL 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 short and long term debt, convertible
debentures or notes and the sale of common stock in the Company. The Company
incurred $2,000,000 of long term debt in fiscal 1996 for the acquisition of the
feminine hygiene product line. In fiscal 1997, the Company incurred long term
debt of $575,000 with the issuance of Convertible debentures. As of September
30, 1998 all other long term debt incurred was converted to common stock, repaid
or canceled. The Company also raised capital from the sales of common shares the
proceeds of which were as follows: $2,547,658 in fiscal 1996, $1,075,000 in
fiscal 1997 and $182,556 in fiscal 1998. As of September 30, 1998, the Company
had cash of approximately $34,000.

With the restructuring of the Company, the feminine hygiene Branded
products have become the core business with which the Company expects to grow.
The acquisition price of approximately $3,600,000 in March 1996 was financed by
a combination of Regulation S common stock sales, and notes for $2,000,000 whose
payment was restructured in December, 1998.(See Notes 6(a) and 9(a) of Notes to
Consolidated Financial Statements) The Brands which were acquired have been
established approximately thirty years on average and are sold under the names
Vaginex*, Koromex*, Koroflex* and Feminique*. LIG is one of the largest
manufacturers of latex products in the U.S.*Trademark

Sales of these Brands are being made to food and drug chains, drug
wholesalers, domestic and overseas distributors, clinics, and domestic
government agencies. The Company's sales are conducted by eight independent
Sales Representative Organizations. Each of these representative organizations
call on the key accounts who carry the lines. The Company expects its sales
representatives to expand sales of the lines by expanding the customer base and
by receiving greater support from the Company in promoting the products.

The Company believes that the foregoing, along with the additional capital
of $800,000 raised in connection with the private placement of up to $1,000,000
of common stock (as authorized in December 1998) and the restructuring of its
long term debt will be adequate to meet its current objectives.

RESULTS OF OPERATIONS

1998 compared to 1997

Sales and Revenues for the fiscal year ended September 30, 1998 totals
$1,998,972 versus $3,529,114 for the prior fiscal year. The drop in revenues for
the feminine hygiene product line was due to supply problems resulting from cash
flow difficulties related to the discontinued divisions. The Company operated at
a gross profit of 52% as compared with 59.9% in the prior year. The decline in
gross profit is directly related to a shift in product mix during the year. The
increase in selling, general and administrative expenses is due primarily to
increases in advertising allowances, legal fees and expenses for the feminine
hygiene line.
<PAGE>

Amortization of intangibles of $207,065 is the amortization of Tradenames
and Trademarks, which compares with the $192,000 of amortization in the prior
fiscal year. Other expenses for fiscal 1998 consist of accrued expenses of
approximately $219,000 for possible settlements of pending litigation. The write
off of $297,051 relates to the Company's write-off of an investment in ABS
Group, Inc.'s restricted shares totaling $250,750 and the write-off of $46,301
in miscellaneous licensing costs.

1997 compared to 1996

Sales and Revenues for the fiscal year ended September 30, 1997 totaled
$3,529,114 compared to sales of $1,705,337 in 1996. The feminine hygiene product
line was acquired in March 1996. The Company operated at a 59.9% gross profit in
fiscal 1997 compared to a 52.6% gross profit in the prior fiscal year due to a
shift in product mix. The increase in selling, general and administrative
expenses in 1997 from 1996 is primarily due to increased freight, commissions
and other expenses associated with the increased sales volume in 1997.

Amortization of intangibles of $192,000 represents the amortization of
Tradenames and Trademarks which compares to the $99,600 of amortization of
Tradenames and Trademarks 1996.(which were acquired in March, 1996) Other
expenses in fiscal 1997 include the settlement of the Amswiss lawsuit in
September 1997 in the amount of $436,300, consisting of $250,000 in cash and the
balance of $186,300 by the issuance of 115,000 shares of common stock. Interest
expense for the year ended September 30, 1997 included $114,212 of interest
incurred in the acquisition of CMT and $152,232 of interest on the note payable
for the feminine hygiene product line.

1996 compared to 1995

Amortization of intangibles of $99,600 represents tradenames and trademarks
amortization from assets acquired in the feminine hygiene acquisition in March
1996. It compares to the amortization of the Amswiss assets of $545,377 which
were written off in September 1995 and other license amortization of $30,887.
Other income for 1996 includes income related to the contribution of licenses
and rights to the joint venture of $400,750 . Interest expense of $282,069 for
the year ended September 30, 1996 includes $100,688 related to the $2,000,000 in
notes payable used in the financing of the acquisition of the feminine hygiene
product line.
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Financial Statements and Schedules, at page F-1, which immediately
follows page 25.

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, 1998, as to
all directors and executive officers of the Company during its fiscal year ended
September 30, 1998.

RUSSELL CLEVELAND, age 60, in addition to being a Director of the Company,
is Chairman of the Board of Directors of the Company. Mr. Cleveland is the
principal founder of Renaissance Capital Inc. Mr. Cleveland serves as a director
of Danzer Corporation; Tutogen Medical Inc; Sunrise Media Inc.; Renaissance
Capital Growth and Income Fund III, Inc.; Renaissance US Growth and Income
Trust, PLC (London); and Renaissance Capital Partners, Ltd. Mr. Cleveland is a
graduate of the Wharton School of Business, University of Pennsylvania.

JONATHAN ROSEN, age 36, is a Director of the Company and was appointed
Acting President & Chief Executive Officer of the Company at the time of Mr.
Fine's resignation. Since 1985 Mr. Rosen has been a director and officer of
various public corporations, many of which he helped finance. He has terminated
his recent positions at most of the other companies in which he was involved in
order to focus fully on his role at Biopharmaceutics, Inc.

VINCENT H. PONTILLO age 49, has been Controller since May 12, 1997. Mr.
Pontillo has been active in the pharmaceutical business as an accounting
executive since 1985, with Controller positions at Twin Labs, Inc., Evergood
Products and Admiral Plastics Corporation.
<PAGE>

JOHN FIGLIOLINI, age 37, is a Director of the Company. Mr. Figliolini is an
investment banker and has worked in the securities industry since 1982, raising
over $250M in venture capital financing. He is currently the President and owner
of Phillip Louis Trading, Inc. a NASD registered broker dealer which makes
markets in many small cap stocks, in addition to providing investment banking
services.

JAMES MURPHY, age 48 is a Director of the Company. Mr. Murphy is President,
Chief Executive Officer and Chairman of the Board of Bentley Pharmaceutical.
Previously, Mr. Murphy served as Vice President of Business Development at
MacroChem Corporation. He also spent fourteen years in pharmaceutical research
with SmithKline Corporation.

BARRY WEISBERG, age 53 is a Director of the Company. Mr. Weisberg is a
former Director and President of Lannett Company, Inc., a generic pharmaceutical
manufacturer, Divisional Vice President of Moore Medical Corporation, Inc. a
national drug distributor and wholesaler. Additionally Mr. Weisberg was a Vice
President of Sales for NMC Laboratories, Inc., a generic pharmaceutical
manufacturer.

EDWARD FINE, age 56, had been President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since 1987. Mr. Fine resigned
from the Company on July 28, 1998 (See Legal Proceedings).

INGRID FINE, age 57, had been Vice President of Purchasing for the Company.
As of September 1, 1998, Mrs. Fine was no longer employed by the Company. Mrs.
Fine is the spouse of Edward Fine, the Company's Former President.

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, 1998 for services rendered
in all capacities to the company and its subsidiaries for each of the Company's
last three fiscal years.
<PAGE>

Summary Compensation Table
Long Term All Other
Annual Compensation Compensation Compensation**
Awards*

Securities
Underlying
Name and Principal Position Year Salary Bonus Options

Jonathan Rosen 1998 $ 32,000 None None
Acting President and CEO

Edward Fine(1) 1998 $186,718 None None $12,000
Chairman of the Board 1997 130,000 None None 12,000
and CEO, President 1996 130,000 None None 12,000

Vincent H. Pontillo 1998 $ 75,000 None None
Controller 1997 25,000 1,200 None

Ingrid Fine (2) 1998 $ 73,000 0 None
Vice President 1997 65,000 None None
1996 65,000 None None

Executive Officers of 1998 $ 366,718 None None
Company as a Group 1997 220,000 1,200 None
1996 195,000 None None

** Represents aggregate annual cost of automobiles provided and maintained
for Edward Fine and Ingrid Fine during fiscal years indicated

(1) Mr. Fine resigned as of July 28, 1998 and all employment contracts were
terminated

(2) Mrs. Ingrid Fine's position was terminated as of September 1, 1998.

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

NONE
<PAGE>

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, 1998 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:

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

Jonathan Rosen 47,500 0.27%
Barry Weisberg 2,750 0.01%
John Figliolini 1,261,387 7.26%
Russell Cleveland(1) 8,103 0.05%

Renaissance Capital Partners Ltd. 2,736,063 15.75%
Targas Stitung 1,000,000 5.75%
Rolcan Finance Ltd. 1,000,000 5.75%
Preferact Ltd. 1,000,000 5.75%
Arista Capital Growth Fund Ltd 2,436,344 14.03%
Veco Capital Fund Ltd. 1,061,408 6.11%

All Directors and Officers as
a Group (4 persons) 1,319,740 8.15%

(1) Does not include 2,736,063 shares of common stock owned by Renaissance
Capital Partners Ltd.. of which Russell Cleveland is a principal.(See Certain
Relationships and Related Transactions)

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Russell Cleveland, a director of the Company, is also a major shareholder
and principal of Renaissance.

John Figliolini, a Director of the Company, acted as a paid consultant to
Dondo Associates, Inc. in connection with the sale of CMT and substantially
assisted in obtaining the ultimate cancellation of the Company's indebtedness to
Dondo.(See Business Operations - Recent Developments and Discontinued
Operations)

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

<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/ Jonathan Rosen
---------------------
Jonathan Rosen
Acting President and
Chief Executive Officer

By: /s/ Vincent H. Pontillo
-----------------------
Vincent H. Pontillo
Secretary/Controller
<PAGE>

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/Jonathan Rosen
- -------------------------------------

JONATHAN ROSEN Acting President, Chief Executive
Officer and Director February 4, 1999

/s/ Russell Cleveland
- -------------------------------------

RUSSELL CLEVELAND Chairman of the Board February 4, 1999

/s/ John Figliolini
- -------------------------------------
JOHN FIGLIOLINI Director February 4, 1999

- -------------------------------------
JAMES MURPHY Director

/s/ Barry Weisberg
- -------------------------------------
BARRY WEISBERG Director February 9, 1999

<PAGE>

FARBER, BLICHT & EYERMAN, LLP
Cetified Public Accountants 255 Executive Drive,Suite215 Telephone:516)576-7040
Plainview, NY 11803-1715 Facsimile: (516) 576-1232

EXHIBIT 24

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the inclusion of our report on the 1998 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, 1998.

/s/ Farber, Blicht and Eyerman LLP

Plainview, New York
February 10, 1999

<PAGE>

BIOPHARMACEUTICS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30,
1998, 1997 AND 1996

<PAGE>

BIOPHARMACEUTICS, INC.
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
INDEX

Page
Number

Auditor's Report ...... 1

FINANCIAL STATEMENTS:

Consolidated Balance Sheets as of
September 30, 1998 and 1997 ... 2 - 3
Consolidated Statements of Operations for the
Years Ended September 30, 1998, 1997 and 1996 . 4
Consolidated Statements of Shareholders' Equity
(Deficiency in Assets) for the Years Ended
September 30, 1998, 1997 and 1996 ............. 5 - 7
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1998, 1997 and 1996 . 8 - 9
Notes to Consolidated Financial Statements ..... . 10 - 29

FINANCIAL STATEMENT SCHEDULES:

Schedule VIII - Valuation Accounts ............. 1

<PAGE>

FARBER, BLICHT & EYERMAN, LLP
Certified Public Accountants 255 Executive Drive,Suite215Telephone:(516)576-7040
Plainview, NY 11803-1715 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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1998, in conformity with generally
accepted accounting principles. Also in our opinion, the related consolidated
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.

/s/Farber Blicht and Eyerman LLP

Plainview, New York
December 11, 1998 (except for Notes 2, 9 and 13,
the latest of which is dated February 4, 1999)

<PAGE>

BIOPHARMACEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997

ASSETS

1998 1997
---- ----
Current assets:
Cash $ 34,421 $ 502,304
Trade receivables, less allowance
for doubtful accounts of $15,000;
$92,000 in 1997 290,268 1,430,110
Inventories 179,401 603,134
Prepaid expenses and other
current assets 124,958 312,983
----------- -----------
Total current assets 629,048 2,848,531

Property, plant and equipment, at
cost, net of accumulated depreciation
and amortization 1,005 1,164,462
Investment in restricted securities - 250,750
Intangible assets, at cost, net of
related amortization 3,300,425 11,951,677
Licensing costs, net of accumulated
amortization - 46,301
Sundry - 68,865
----------- -----------
$ 3,930,478 $16,330,586
=========== ===========

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

<PAGE>

BIOPHARMACEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
1998 1997
---- ----
Current liabilities:
Accounts payable - trade $ 180,147 $ 1,309,344
Accrued expenses 1,423,319 934,564
Obligation relating to settlement
of litigation - 250,000
State income taxes payable 29,000 90,000
Current maturities of long-term
debt 104,341 4,812,824
Net liability of discontinued
operations 349,269 -
----------- ----------
Total current liabilities 2,086,076 7,396,732
----------- ----------
Long-term debt 1,426,688 4,005,689
----------- ----------
Convertible debentures payable 575,000 575,000
----------- ----------
Commitments and contingencies - -

Shareholders' equity (deficiency
in assets):
Common stock - par value $.001
per share:
Authorized - 75,000,000 shares
Issued - 17,370,118 shares;
16,816,732 shares in 1997 17,370 16,817
Additional paid-in capital 33,871,890 33,710,648
Deficit (33,101,934) (27,870,414)
------------ ------------
787,326 5,857,051
Less treasury stock, at cost
(413,728 shares) (944,612) (944,612)
Notes receivable from officers
and employees - (559,274)
------------ -------------
(157,286) 4,353,165
------------ ------------
$ 3,930,478 $16,330,586
============ ============

<PAGE>

BIOPHARMACEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

1998 1997 1996
---- ---- ----

Sales $ 1,998,972 $3,529,114 $1,705,337
----------- ---------- ----------

Costs and expenses:
Cost of sales 960,185 1,414,783 807,662
Selling, general and
administrative 1,826,642 992,837 672,420
Amortization of intangibles 207,065 192,000 99,600
---------- ---------- ----------
2,993,892 2,599,620 1,579,682
---------- ---------- ----------
(994,920) 929,494 125,655
----------- ---------- ----------

Other income (deductions):
Costs of settlement of
litigation (238,478) (436,300) -
Write-off of investment in
restricted securities (250,750) - -
Write-off of licensing costs (46,301) - -
Income related to contribution
of licenses and rights to
joint venture - - 400,750
Interest expense (227,754) (322,948) (282,069)
----------- ---------- ----------
(763,283) (759,248) 118,681
----------- ------------ ----------
Income (loss) from continuing
operations before provision
for state income taxes (1,758,203) 170,246 244,336
Provision for state income
taxes - 29,000 -
------------ ------------ ----------
Income (loss) from continuing
operations (1,758,203) 141,246 244,336
------------ ----------- ----------

Discontinued operations:
Operating loss (1,259,416) (96,254) (1,043,802)
Gain (loss) on disposal (2,213,901) - 773,659
------------ ----------- -----------
(3,473,317) (96,254) (270,143)
------------ ----------- -----------
Net income (loss) $(5,231,520) $ 44,992 $ (25,807)
============ =========== ===========

Earnings (loss) per common
share:
Continuing operations $ (.11) $ .01 $ .03
Discontinued operations (.20) (.01) (.03)
------------ ----------- -----------
Net loss $ (.31) $ - $ -
============ =========== ===========

BIOPHARMACEUTICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
Common Shares Notes
-------------- Receivable
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, 1995 26,535,750 $26,536 $27,149,038 $(27,889,599) $(944,612) $(559,274) $(2,217,911)

Shares issued in connection
with the Company's
Regulation S offerings,
net of related expenses
of $31,973 11,845,328 11,845 2,535,813 - - - 2,547,658
Shares issued as
commission to investment
banker in connection with
the aforementioned
Regulation S offerings 2,220,000 2,220 (2,220) - - - -

Shares issued in
connection with the
Company's acquisition
of the feminine hygiene
product line 270,000 270 88,830 - - - 89,100

Net loss for year ended
September 30, 1996 - - - (25,807) - - (25,807)

---------- -------- ----------- ------------ --------- --------- -----------
Balance, September 30, 1996 40,871,078 $40,871 $29,771,461 $(27,915,406) $(944,612) $(559,274) $ 393,040
========== ======== =========== ============= ========== ========== ===========
</TABLE>

<PAGE>

BIOPHARMACEUTICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(continued)
<TABLE>
<CAPTION>

Common Shares Notes
-------------- Receivable
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, 1996 40,871,078 $40,871 $29,771,461 $(27,915,406) $(944,612) $(559,274) $ 393,040

Shares issued in exchange
for convertible debentures 1,200,000 1,200 298,800 - - - 300,000
Reverse stock split on a
one-for-four basis (31,553,308) (31,553) 31,553 - - - -
Shares issued in
connec
tion with legal and
other services rendered 23,764 24 44,652 - - - 44,676
Shares issued in connection
with the Company's
Regulation S Offerings, net
of related expenses
of $300,000 3,115,385 3,115 1,071,885 - - - 1,075,000
Shares issued as commission
in connection with the
purchase of Caribbean
Medical Testing Center, Inc. 550,000 550 1,043,200 - - - 1,043,750
Shares issued in connection
with settlement of
litigation 115,000 115 186,185 - - - 186,300
Shares issued in exchange
for convertible debentures 2,494,813 2,495 1,244,912 - - - 1,247,407
Forgiveness of interest on
indebtedness to officer - - 18,000 - - - 18,000
Net income for the year
ended September 30, 1997 - - - 44,992 - - 44,992
---------- ------- ----------- ------------ ---------- --------- ----------
Balance, September 30, 1997 16,816,732 $16,817 $33,710,648 $(27,870,414) $(944,612) $(559,274) $4,353,165
========== ======= =========== ============= =========== ========== ==========
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------

<PAGE>

BIOPHARMACEUTICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(continued)
<TABLE>
<CAPTION>

Common Shares Notes
------------- Receivable
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, 1997 16,816,732 $16,817 $33,710,648 $(27,870,414) $(944,612) $(559,274) $4,353,165

Shares issued in connection
with legal and consulting
services rendered 430,000 430 459,570 - - - 460,000

Shares issued in connection
with the Company's
Regulation S offerings 232,100 232 182,324 - - - 182,556

Cancellation of notes
receivable and return of
related stock issued under
granted stock options (171,525) (172) (559,102) -

Shares issued in connection
with the exercise of
stock options 62,811 63 78,450 - - - 78,513

Net loss for the year
ended September 30, 1998 - - - (5,231,520) - - (5,231,520)
---------- -------- ----------- ------------- ---------- --------- -----------
17,370,118 $17,370 $33,871,890 $(33,101,934) $(944,612) $ - $ (157,286)
========== ======== ============ ============= =========== ========= ===========

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

BIOPHARMACEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

1998 1997 1996
---- ---- ----
Cash flows from operating activities:

Income (loss)from continuing operations $(1,758,203) $ 141,246 $ 244,336
Loss from discontinued operations (3,473,317) (96,254) (270,143)

Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization -
discontinued operations 828,635 385,245 209,605
Amortization - continuing operations 188,400 188,400 94,200
Loss on write-off of:
Property and equipment 1,199,422 - -
Intangible assets 7,885,844 - -
Licenses 46,301 15,000 -
Investment in restricted securities 250,750 - -
Cancellation of indebtedness in
connection with sale of Caribbean
Medical Testing Center, Inc. (6,094,707) - -
Gain on disposition of equipment - - (62,500)
Issuance of common shares in
settlement of litigation - 186,300 -
Issuance of common shares for legal
and consulting services rendered 260,000 44,676 -
Income related to contribution of
licenses and rights to joint venture - - (400,750)

Changes in certain assets and liabilities:
Accounts receivable 1,139,842 (462,144) (318,500)
Inventories 423,733 (64,775) (44,688)
Other current assets 188,006 (117,128) (108,886)
Accounts payable - trade (901,129) (173,832) (89,288)
Accrued expenses 590,590 234,652 (44,479)
Obligation relating to settlement
of litigation (250,000) 250,000 -
Net liability from discontinued
operations 349,269 - -
State income taxes payable (61,000) 90,000 -
Deferred revenue - (172,515) -
Customer credit balances - - (196,320)
Medicare judgment payable - - (50,000)
Sundry 68,865 (1,465) (2,610)
--------- ---------- ---------
Net cash provided by (used in)
operating activities 881,301 447,406 (1,040,023)
---------- -------- -----------
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------

<PAGE>

BIOPHARMACEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

1998 1997 1996
---- ---- ----

Balance carried forward $ 881,301 $ 447,406 $(1,040,023)
---------- ---------- ------------

Cash flows from investing activities:

Purchase of property, plant and equipment (287,573) (162,657) (32,091)
Acquisition of Caribbean Medical Testing
Center, Inc. - (6,000,000) -
Proceeds from sale of marketable securities - 97,500 -
Intangible assets acquired - (62,181) (3,682,325)
Cash overdraft - (59,745) -
--------- ----------- ------------
Net cash used in investing activities (287,573) (6,187,083) (3,714,416)
--------- ----------- ------------

Cash flows from financing activities:

Proceeds from bank loan 110,000 - -
Proceeds from issuance of convertible
debentures - 575,000 -
Short-term debt incurred - 1,250,000 -
Repayments of short-term debt - (1,250,000) -
Collection of notes receivable - 150,000 -
Proceeds from Company's Regulation S
offerings and the exercise of
stock options, net of related
expenses of $31,973 in 1996 261,069 1,375,000 2,547,658
Long-term debt incurred - 4,892,715 4,269,175
Repayments of long-term debt (1,432,680) (795,509) (2,104,283)
----------- ---------- -----------
Net cash provided by (used in)
financing activities (1,061,611) 6,197,206 4,712,550
----------- --------- -----------
Net increase (decrease) in cash (467,883) 457,529 (41,889)
Cash at beginning of year 502,304 44,775 86,664
---------- ---------- ------------
Cash at end of year $ 34,421 $ 502,304 $ 44,775
========== ========== ===========

Supplemental disclosure of cash flow
information:
Cash paid during year:
Interest $ 371,000 $ 235,000 $ 4,000
========== =========== ===========

Non-cash financing activities:
Reference is made to financial statements notes for certain non-cash
financing activities.

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 1. Summary of Significant Accounting Policies

a) The Company

Biopharmaceutics, Inc. (the "Company"),after its current restructuring
(Note 2), is a distributor of consumer feminine hygiene and family planning
products which are sold nationwide to major chain stores, distributors and
wholesalers.

On December 11, 1998, the Company sold its wholly owned subsidiary,
Caribbean Medical Testing Center, Inc. (''CMT''), for $4,700,000. CMT was
acquired by the Company in June, 1997 (Note 6) and is engaged primarily in the
business of multi-phasic specialty medical testing and laboratory services
throughout Puerto Rico. The Company also discontinued its manufacturing of
generic pharmaceutical products (Note 15). Both CMT and its generic
pharmaceutical operations are reflected in the consolidated statements of
operations as discontinued operations.

The Company also restructured its joint venture arrangement with ABS Group,
Inc. (Note 14), to commercialize Mitolactol, a cancer drug.

b) Principles of consolidation

The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
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

The Company amortized its intangible assets on the straight-line method
over their estimated useful lives of either fifteen or twenty years (Note 6).

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

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 1. Summary of Significant Accounting Policies (continued)

e) Depreciation and amortization (continued)

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

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, 1998.

g) Earnings per common share of common stock

Statement of Financial Accounting Standards No. 128,''Earnings Per Share'',
became effective in the fourth quarter of 1997 and requires two presentations of
earnings per share - ''basic'' and ''diluted''. Basic earnings per share is
computed by dividing income available to common stockholders by the
weighted-average number of common shares for the period. The computation of
diluted earnings per share is similar to basic earnings per share, except that
the weighted average number of common shares is increased to include the number
of additional common shares that would have been outstanding if the potentially
dilutive common shares had been issued. On June 13, 1997, the Board of Directors
of the Company approved a reverse stock split of the Company's common stock on a
one-for four basis. All per share amounts in the accompanying financial
statements have been restated to reflect this reverse stock split. Only basic
earnings per share is presented as all common stock equivalents are either
anti-dilutive or not material for the periods presented.

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 1. Summary of Significant Accounting Policies (continued)

g) Earnings per common share of common stock (continued)

For the years ended September 30, 1998, 1997 and 1996, the weighted average
number of shares outstanding used in the per share computation were 17,000,237,
15,253,588 and 8,566,277, respectively, after giving effect to the reverse stock
split.

h) Research and development expenses

The Company expenses research and development costs as incurred. Research
and development costs for the three years ended September 30, 1998 were not
significant.

i) Fair value of financial instruments

At September 30, 1998, the carrying amounts of the Company's financial
instruments included in its current assets and current liabilities approximate
fair value. Additionally, the carrying amounts of the Company's long-term debt
also approximates their fair value as of September 30, 1998.

j) Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

k) Concentration of credit risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of sales, trade accounts
receivable and cash. The Company grants credit to customers located throughout
the United States. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral from its
customers. For the year ended September 30, 1998, the Company had sales to three
unrelated customers of approximately $297,000 (14.9% of sales), $293,000 (14.7%
of sales) and $254,000 (12.7% of sales). In fiscal 1997, the Company had sales
to two unrelated customers of approximately $475,000 (13.5% of sales) and
$351,000 (10% of sales). In fiscal 1996, sales to two unrelated customers
aggregated approximately $159,000 (9.3% of sales) and $155,000 (9.1% of sales).
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 1. Summary of Significant Accounting Policies (continued)

k) Concentration of credit risk (continued)

The Company places its cash with financial institutions insured by the
Federal Deposit Insurance Corporation (''FDIC''). At times, such cash balances
may be in excess of the FDIC insurance limit.

As of September 30, 1998, the Company had receivables from two unrelated
customers of approximately $46,000 (15.9% of accounts receivable) and $43,000
(14.8% of accounts receivable), respectively. As of September 30, 1997, the
Company had receivables from two unrelated customers of approximately $221,000
(15.5% of accounts receivable) and $191,000 (13.4% of accounts receivable),
respectively.

l) Accounting for stock-based compensation

In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No 123"), which establishes a fair value method for
accounting for stock-based compensation plans either through recognition or
disclosure. The Company has adopted the disclosure - only provisions of SFAS No.
123. (Note 11). The adoption of this standard did not impact the Company's
consolidated results of operations, financial position or cash flows.

m) Year 2000 compliance

Management has taken steps to examine the Company's potential exposure to
business interruption due to possible year 2000 computer software failures, and
has determined that currently there are no apparent conflicts which will prevent
the present software from operating properly at year 2000. Management has also
made similar inquiries of their major suppliers and customers and at this time
are aware of no material conflicts that would jeopardize the operations of the
Company.

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 2. Basis of Preparation

On August 27, 1998, the Company's Board of Directors unanimously approved a
restructuring plan of the Company. As a result, the Company's subsidiary in
Puerto Rico, CMT, was sold on December 11, 1998 (Note 15) and the manufacturing
operations of its generic pharmaceutical products were discontinued, effective
September 30, 1998. The Company is presently liquidating the entire
manufacturing operations of this subsidiary.

The Company is presently engaged as a distributor of consumer feminine
hygiene and family planning products sold under the brand names of Vaginex,
Koromex and Feminique (Note 6). Management has directed all its efforts to
transform the Company into a leading provider of women's health care products.
The Company raised $800,000 of working capital through the issuance of shares of
common stock in December, 1998 and in January and February, 1999 and anticipates
additional issuances of shares of common stock. The Company has restructured its
long-term debt (Note 9) and plans to initiate an aggressive market research
plan, an incentive commission plan for its salesmen and the purchasing of
sufficient inventory to fulfill the projected demand in the market. It also
anticipates the attainment of operating profits in the upcoming year. The
Company believes that the results of the aforementioned actions will generate
enough working capital to offset its existing working capital deficiency of
$1,457,028 at September 30, 1998.

Note 3. Inventories

The components of inventories are as follows:

September 30,
---------------------------------------
1998 1997 1996
----- ----- -----

Raw materials, work-in-process
and finished goods (*) $ - $315,675 $384,466
Finished goods - feminine
hygiene products 179,401 287,459 153,893
-------- -------- --------
$179,401 $603,134 $538,359
======== ======== ========

(*) Relating to the Company's discontinued operations (Note 15).

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:
September 30,
-------------
1998 1997
---- ----

Prepaid fees $105,000 $133,000
Prepaid insurance 15,000 130,000
Sundry 4,958 49,983
-------- --------
$124,958 $312,983
======== ========

Note 5. Property, Plant and Equipment

Property, plant and equipment consists of the following:

September 30,
-------------
1998 1997
---- ----

Land $ - $ 91,725
Equipment, furniture and fixtures - 2,096,406
Building and leasehold improvements - 1,061,985
Tools and dies 1,415 237,839
Transportation equipment - 247,997
Medical and laboratory equipment - 851,453
-------- ----------
1,415 4,587,405
Less accumulated depreciation and
amortization 410 3,422,943
-------- ----------
$ 1,005 $1,164,462
======== ==========

Substantially all of the Company's property, plant and equipment in 1997
relates to discontinued operations (Note 15).

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 6. Intangible Assets and Acquisitions

(a) The Company, through one of its subsidiaries, acquired three branded
consumer product lines (namely Koromex, Vaginex and Feminique) from London
International U.S. Holdings, Inc. ("London Int'l") for a purchase price of
$3,600,000 in March, 1996. Pursuant to the acquisition agreement, $100,000 was
paid upon the signing of the agreement and $1,500,000 paid at the closing. In
May and June, 1997, $500,000 was paid to London Int'l with the remaining balance
of the purchase price to be paid as follows: i) $660,000 on or before April 1,
1998 and ii) $840,000 on April 1, 1999, with interest at 8.5%, payable
semi-annually through October, 1997, then quarterly to maturity. On December 15,
1998, the payment terms were modified (Note 9). The obligation is guaranteed by
the Company and is collateralized by a security interest in all accounts
receivable, inventory and the trademarks and trade names purchased.

At September 30, 1998, intangible assets represent the assets acquired from
London Int'l (trademarks, trade names and its customer base), costing $3,600,000
and associated brokerage fees and legal costs incurred totaling $171,425.
Amortization expense based on a 20 year useful life, aggregated $188,400 for
each of the two years ended September 30, 1998, and $94,200 for the year ended
September 30, 1996.

The acquisition of the aforementioned product lines were recorded under the
purchase method of accounting, and accordingly, the results of operations for
the period from March, 1996 are included in the accompanying consolidated
financial statements. Results of operations from October 1, 1995 through
February 29, 1996 are not available for pro-forma presentation of the results of
operations for the year ended September 30, 1996.

(b) Effective June 2, 1997, the Company acquired all of the outstanding
shares of CMT (Note 1) for $7,500,000. Under the terms of the Stock Purchase
Agreement, the Company paid $6,000,000 through September, 1997. The Company
signed a promissory note, as amended, for the balance of the purchase price of
$1,500,000, which was to mature in November, 1999 and bore interest at 10.5% per
annum (Note 9). The acquisition of CMT was recorded under the purchase method of
accounting and, accordingly, the results of its operations from June 2, 1997 are
included in the accompanying consolidated financial statements within
discontinued operations, as CMT was sold on December 11, 1998 (Note 15). The
unamortized excess of the purchase price, inclusive of related legal fees and
commissions over the net assets of the Company acquired which had been
classified as goodwill was charged to discontinued operations. Amortization, for
the year ended September 30, 1998 and 1997, aggregated $577,008 and $192,338,
respectively.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 6. Intangible Assets and Acquisitions (continued)

The components of intangible assets, as of September 30, 1998 and 1997,
which were acquired in the aforementioned acquisitions, are as follows:

1998 1997
---- -----
Trademarks, tradenames and
customer base acquired from
London Int'l $ 3,771,425 $ 3,771,425
Goodwill recognized in the
purchase of CMT - 8,655,190
----------- -----------
3,771,425 12,426,615
Less: accumulated amortization 471,000 474,938
----------- -----------
$ 3,300,425 $11,951,677
=========== ===========

Note 7. Licensing Costs

During 1998, the Company wrote off $46,301, representing its investment in
an exclusive license to a patented process for a non-invasive test to diagnose
Alzheimer's disease.

Note 8. Accrued Expenses

Accrued expenses consist of the following:

September 30,
-------------
1998 1997
---- ----

Professional fees $ 567,000 $406,000
Commissions 124,000 129,000
Interest 586,000 218,000
Sundry 146,319 181,564
---------- --------
$1,423,319 $934,564
========== ========

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 9. Long-term Debt

Long-term debt consists of the following:

September 30,
-------------
1998 1997
---- ----
Note payable - in connection with
purchase of the feminine hygiene
product lines (a) $1,515,929 $1,500,000

Obligation resulting from settlement
of litigation with the United States
Attorney's Office - 35,000

Obligation in connection with settlement
of legal fees with former legal counsel - 122,792
Obligation for commissions due broker
for the financing of the acquisition
of CMT - 300,000
Other 15,100 35,100
--------- ---------
1,531,029 1,992,892
--------- ---------
Long-term debt in connection with
discontinued operations (Note 15):
Promissory note payable relating to
purchase of CMT (Note 6) - 1,500,000
Additional promissory notes relating
to acquisition funding of CMT, payable
in monthly installments of $175,000 to
maturity with interest on the unpaid
balance at 9% per annum. The Company
was in default of this agreement at
September 30, 1998 - 4,892,715
Mortgage notes - payable in monthly
installments aggregating $2,988 plus
interest, at varying rates and maturing
June, 2008 and June, 2009 - 401,156
Other - 31,750
--------- ---------
- 6,825,621
--------- ---------
Total 1,531,029 8,818,513
Less: current maturities 104,341 4,812,824
---------- ----------
$1,426,688 $4,005,689
========== ==========

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 9. Long-term Debt (continued)

(a) On December 15, 1998, effective September 30, 1998, the Company
modified the payment terms of its outstanding debt, the related accrued interest
and accounts payable to London Int'l. The amended terms provide for monthly
payments ranging from $21,000 per month increasing to $43,621 per month, with
the final payment due on or before October 1, 2003. The obligation bears
interest at 9.5% per annum and in the event of default, the entire unpaid
balance becomes due and payable on demand.

The following is a schedule of principal repayments of all long-term debt
at September 30, 1998:

1999 $ 104,341
2000 205,285
2001 301,327
2002 393,915
2003 482,883
Thereafter 43,278
----------
$1,531,029
==========
Note 10. Convertible Debentures Payable

The Company sold $219,000 and $356,000 of convertible debentures in May,
1997 and June, 1997, respectively. The $575,000 of convertible debentures
outstanding at September 30, 1998 mature either in May, 2002 or June, 2002, with
optional redemptions available in May and June, 2000 at 105% of par. Interest on
the debentures accrues at 10% per annum and is payable in cash or stock, at the
Company's option, on a quarterly basis. The debentures can be converted at the
holder's option into the Company's common stock in its entirety, or in multiples
of $1,000, at conversion prices equal to the greater of $.54 per share or 75% of
the closing price per share over the five consecutive trading days immediately
prior to the date of exercising the conversion right. The convertible debentures
have non-separable restricted warrants which permit the warrant holder to
purchase in the aggregate a combined total of 230,000 shares of common stock at
$.75 per share. These warrants expire two years subsequent to the issuance date
of the debentures.

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 10. Convertible Debentures Payable (continued)

The Company had outstanding at September 30, 1996 an aggregate of
$1,402,941 of convertible debentures that were due to mature on October 1, 1998.
In December, 1996, the Company entered into a Debenture Conversion Agreement
whereby $300,000 of convertible debentures were converted into 1,200,000 shares
of the Company's common stock. The Company, effective as of September 30, 1997,
converted the remaining outstanding indebtedness together with $144,466 of
accrued interest into 2,494,813 shares of common stock.

Note 11. 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 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. At September 30, 1998, the Company had 70,000 options outstanding under
this plan.

In March, 1997, the Company adopted a qualified stock option plan entitled
the 1997 Employee and Consultant Stock Option Plan and a separate 1997
Non-qualified Stock Option Plan (the "Plans"). The plans reserved for future
issuance a total of 6,500,000 shares and 720,000 shares, respectively. The
annual meeting of stockholders on July 29, 1998 voted to cancel the 1997 stock
option plans and all outstanding options related thereto.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------

<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 11. Stock Options (continued)

Information regarding stock options as at and for the three years ended
September 30, 1998 is summarized below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Option Option Option
Shares Price Shares Price Shares Price
------- -------------- -------- -------- ------- ---------
<S> <C> <C> <C> <C>
Shares under option:
Outstanding -
beginning of year 3,980,586 $ 0.50 - $1.88 597,500 $0.50 653,500 $0.50
Granted - 1997
qualified plan - - 3,405,600 1.88 - -
Issued 1997
qualified plan - - 22,514 1.88 - -
Terminated 3,910,586 0.50 - 1.88 - - (56,000) 0.50
Outstanding -
end of year 70,000 0.50 3,980,586 0.50 - 1.88 597,500 0.50

</TABLE>
In 1997, the Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standard No 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). Accordingly, no compensation cost has been recognized in the
accompanying statement of operations for the stock option plans for the year
ended September 30, 1997. No options were granted during the year ended
September 30, 1998. Had compensation cost for the Company's two stock option
plans been determined based on the fair value at the vesting date for awards in
1997 consistent with the provisions of SFAS No. 123, the Company's net income
and earnings per share would have been decreased to the pro forma amounts
indicated below:

For the year ended
September 30, 1997
------------------

Net income - as reported $44,992
Net income - pro forma (unaudited) 15,319
Earnings per share - as reported -
Earnings per share - pro forma (unaudited) -
The fair values of each option granted is estimated on the vesting date
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997: dividend yield of 0%, expected volatility
of 30.00%, risk-free interest rate of 6.0% and expected lives of 10 years.

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 12. Income Taxes

The Company, as of September 30, 1998, has available approximately
$27,775,000 of net operating loss carry forwards (expiring through the year
2013) 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 carry forward 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 approximately
$11,000,000. The amount of the valuation allowance is reviewed periodically.

The net operating loss carryforwards expire as follows:

Year Amount

2001 $ 368,000
2002 2,675,000
2003 1,958,000
2004 1,107,000
2005 1,862,000
2006 903,000
2007 642,000
2008 3,003,000
2009 4,581,000
2010 9,491,000
2013 1,185,000
-----------
$27,775,000
===========

For the year ended September 30, 1997, the Company provided a provision for
state income taxes of $90,000, with $29,000 remaining unpaid at September 30,
1998. This income tax expense is based upon pre-tax accounting income adjusted
for, among other things, the amortization of the goodwill (not deductible for
income tax purposes) recognized with the purchase of CMT. No provision was
provided for the year ended September 30, 1998.

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 13. Commitments and Contingencies

(a) The operations and offices of the Company and its subsidiaries are
conducted from leased premises in Bellport, New York. The Company entered into
an agreement in January, 1999 to lease 15,000 square feet of this facility for
one year, with an option to renew for an additional year. Total rent expense for
each of the two years ended September 30, 1997 was approximately $158,000, and
rent expense for the year ended September 30, 1998 approximated $163,000.

(b) The Company has operating policies in place to ensure its operations
are in conformity with regulatory agencies for environmental matters relating to
the generation or handling of hazardous substances. While the Company does not
believe that any such claims or assertions exist, there may be potential
liabilities of which the Company is not aware which would result in an adverse
effect upon the Company's financial position.

(c) The Company has accrued estimated settlements of pending litigation
aggregating $219,000 and recorded this amount in its consolidated statement of
operations for the year ended September 30, 1998. The claims are substantially
in connection with alleged legal services performed and disputes over
merchandise purchased.

(d) On July 28, 1998, the Company's former President tendered his
resignation and then commenced an action on September 15, 1998 against the
Company asserting non-payment of, among other things, salary of $23,000 and fees
under a consulting agreement aggregating approximately $94,000. The Company
intends to vigorously defend this lawsuit and has filed counterclaims for breach
of contract and breach of fiduciary duty. Due to uncertainties inherent in
litigation and the Company's intention to pursue its counterclaims, only $23,000
of accrued payroll have been provided for in the accompanying consolidated
financial statements.

(e) As of September 30, 1998, the Company is involved in various other
legal actions, none of which Management believes will have a material adverse
affect on the operations of the Company.

Note 14. Joint Venture Arrangement

In October, 1997, the Company settled an action arising from the alleged
failure of the Company to file a registration statement with the Securities and
Exchange Commission for certain shares and warrants of the Company owned by
Amswiss Scientific, Inc. (''Amswiss''). Pursuant to the Settlement Agreement,
the Company paid to Amswiss $250,000 in November, 1997 and issued 115,000 shares
of the Company's common stock valued at $186,300. The accompanying statement of
operations for the year ended September 30, 1997 reflects a charge aggregating
$436,300 for this settlement. In addition, the Company was required to issue
warrants to purchase 200,000 shares of common stock. These unexpired warrants,
exercisable at $4.50 per share, expire in November, 1999.

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 14. Joint Venture Arrangement (continued)

During September, 1996, the Company entered into a joint venture agreement
with Advanced Biological Systems, Inc., which subsequently changed its name to
ABS Group, Inc. ("ABS"), for the completion of the regulatory process to
commercialize for ultimate sale certain cancer drugs purchased by the Company
from Amswiss. All funding for the joint venture was to be provided for by ABS
and the Company was to be responsible for handling the management of the
project. For the two years ended September 30, 1998, the joint venture incurred
a combined loss of approximately $517,000.

The joint venture agreement provided, among other things, the payment of a
total of a minimum of $2,750,000 to the Company in cash and/or securities for
the sub-license. Payment terms included 425,000 shares of restricted common
stock of ABS and $150,000 paid in 1996. The balance of the payments were to
occur in varying amounts of common shares and or cash coinciding with filings
with the Food and Drug Administration and the approval of various
investigational new drug applications. Additionally, a contribution to the joint
venture by ABS of $1,000,000 was to be made in varying amounts through August,
1997, of which only $400,000 has been contributed as of September 30, 1998. The
Company was to share in the net profits from the sale of the approved drug on a
60/40 basis until it recovered at least $2,000,000, then share on the basis of
55/45 on subsequent profits. In October, 1998, the Agreement was amended whereby
ABS was granted an irrevocable 10% interest in any monies due the Company in the
event of any sale of any cancer drug of the joint venture. In addition, the
additional funding requirements by ABS were canceled. The Company is currently
attempting to find other companies to fund the cost of DBD's registration
process with the FDA.

The Company in 1996 recorded as income $400,750, representing the note
received of $150,000 and $250,750, the value of the aforementioned 425,000
shares. The value of the restricted common shares was based upon an independent
appraisal made by an investment banking firm. The market value at September 30,
1998 was negligible, and the Company wrote off the value of the restricted
common shares.

Note 15. Gain (Loss) on Discontinued Operations

(a) In September 1996, pursuant to a Board of Directors resolution, the
Company filed a Chapter 7 Bankruptcy petition in the United States District
Court for the Eastern District of New York on December 13, 1996 for its
subsidiary, Biopharm Lab, Inc. As a result of the Chapter 7 Bankruptcy filings,
the Company wrote off the excess of liabilities over the subsidiaries assets,
which is reflected as a gain on disposal of discontinued operations in its
consolidated statement of operations for the year ended September 30, 1996.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 15. Gain (Loss) on Discontinued Operations (continued)

(b) On December 11, 1998, the Company completed the sale of its wholly
owned subsidiary, CMT, which is in the business of multi-phase specialty medical
testing and laboratory services throughout Puerto Rico. Under the terms of the
sale, the common stock of CMT was sold for $4,700,000, payable as follows:
$600,000 to be held in escrow for outstanding taxes, $2,600,000 in full
settlement of promissory notes payable of $4,117,715 and the return of a note
payable to the purchaser of $1,500,000. The forgiveness of debt of $1,517,715,
on the settlement of the aforementioned note payable was credited to
discontinued operations. The current results of operations of CMT have been
classified as discontinued operations and prior periods have been restated,
accordingly. In addition, the Company wrote-off the excess of CMT's assets over
liabilities as a loss on disposal of discontinued operations in its consolidated
statement of operations for the year ended September 30, 1998.

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

September 30,
-------------
1998 1997
---- ----
(Note 6)

Net sales $5,359,490 $2,477,871
Gross profit 2,322,884 1,603,035
Net operating (loss) profit
from discontinued operations (1,004,332) 89,546

The components of CMT's net assets at September 30, 1998 that were written
off are as follows:

Current assets $ 473,640
Goodwill (net) 7,885,844
Property and equipment (net) 1,054,294
Accounts payable and accrued expenses (1,495,170)
Debt (6,094,707)
-------------
$ 1,823,901
=============
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 15. Gain (Loss) on Discontinued Operations (continued)

(c) In connection with the Company's restructuring plan, the manufacturing
operations of its generic pharmaceutical products were discontinued, effective
September 30, 1998. The operations of this division for the three years ended
September 30, 1998 have been reported as discontinued operations in the
accompanying consolidated statement of operations.

A summary of the operating results of the discontinued operations for the
Company's manufacturing operations are as follows:
September 30,
---------------------------------------------
1998 1997 1996
---- ---- ----

Net sales $1,949,421 $2,116,289 $2,019,885
Gross profit (loss) (231,101) (186,642) (313,509)
Net operating loss
from discontinued
operations (*) (255,084) (185,800) (1,043,802)

The components of assets and liabilities of the discontinued manufacturing
operations at September 30, 1998 are as follows:

Cash overdraft $ (23,019)
Accounts receivable (net) 265,815
Prepaid expenses 89,965
Inventory 245,299
Property and equipment (net) 115,714
Security deposit 25,200
Accounts payable (755,217)
Accrued expenses (313,026)
----------

Net current liability of
discontinued operations $(349,269)
===========

(*) Net of intercompany allocated management fees.

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 16. Common Stock

In March, 1995, the Board of Directors approved an offering pursuant to
Regulation S of 4,500,000 shares. In connection with this offering, the Company
received approximately $217,000 during the year ended September 30, 1996,
resulting from the sale of 1,273,071 shares of common stock. During January,
1996, the Board of Directors authorized the issuance of additional shares of
common stock pursuant to offerings under Regulation S to fund the working
capital needs of the Company. In connection with this resolution, the Company
received approximately $2,363,000 from January, 1996 to September, 1996,
resulting from the sale of 10,572,257 shares of common stock.

During August and September, 1997, the Company authorized additional shares
of common stock pursuant to offerings under Regulation S for the funding of the
purchase of CMT. In this connection, the Company received $1,375,000, resulting
from the sale of 3,115,385 shares of common stock.

In June, 1998, the Board of Directors authorized additional offerings
pursuant to Regulation S of 1,500,000 shares of common stock for working capital
requirements. The Company received approximately $183,000, resulting from the
sale of 232,100 shares of its common stock.

During the year ended September 30, 1998, the Company reacquired certain
shares issued and held in escrow in connection with the exercise of options
(issued to various officers and employees under a former 1988 stock option
plan), and canceled the related notes receivable, aggregating $559,274.

Note 17. Business Segment Information

The Company's operations prior to its restructuring (Note 2) were
classified into generic pharmaceutical products, feminine hygiene products and
medical testing and laboratory services. Subsequent to the restructuring and
sale of CMT, the Company's statement of operations for the three years ended
September 30, 1998 only includes the operations of its feminine hygiene
products. The operations of the generic pharmaceutical division and CMT are
included in the loss on discontinued operations for the three years then ended.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------

<PAGE>

BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 18. Fourth Quarter Adjustments

Year Ended September 30, 1998
------------------------------

The net loss in the fourth quarter for the year ended September 30, 1998
was increased by the following more significant adjustments:

Loss and estimated costs on disposal
of discontinued operations $(2,214,000)
Increase in allowance for
doubtful accounts for CMT and
estimated sales discounts for
Feminine Hygiene Products division (578,000)
Inventory obsolescence (100,000)
Estimated costs of litigation and
legal fees (420,000)
------------
$(3,312,000)
============

Year Ended September 30, 1997
-----------------------------

The net income in the fourth quarter for the year ended September 30, 1997
was decreased by the following more significant adjustments:

Amortization of goodwill recognized
in the acquisition of CMT $ (192,000)
Settlement of litigation (436,000)
------------
$ (628,000)
============

Year Ended September 30, 1996
-----------------------------

The net loss in the fourth quarter for the year ended September 30, 1996
was decreased by the following more significant adjustments:

Gain on disposal of discontinued
operations $ 725,000

Income related to contribution of
licenses to joint venture 401,000
-----------
$ 1,126,000
===========
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------

<PAGE>
BIOPHARMACEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Note 19. Unaudited Quarterly Financial Data

The following is a summary of unaudited quarterly operating results for the
years ended September 30, 1998, 1997 AND 1996 (in thousands of dollars except
per share amounts).

Year Ended September 30, 1998
-----------------------------

First Second Third Fourth
Quarter Quarter Quarter Quarter(1)
------- ------- ------- ----------
Continuing operations:
Revenues $ 622 $ 620 $ 445 $ 312
Gross profit 404 379 189 67
Net loss (10) (53) (308) (1,387)
Loss per share - - (.02) (.09)

Discontinued operations:
Net income (loss) $ 412 $1,363 $(989) $(4,259)
Income (loss) per share .03 .08 (.06) (.25)

Year Ended September 30, 1997
-----------------------------

First Second Third Fourth
Quarter Quarter Quarter Quarter(1)
------- ------- ------- ----------
Continuing operations:
Revenues $ 783 $ 912 $ 772 $ 1,062
Gross profit 453 489 515 657
Net income (loss) 19 (70) 250 (58)
Income (loss) per share - (.01) .02 -

Discontinued operations:
Net income (loss) $ (4) $ 86 $ 5 $ (183)
Income (loss) per share - .01 - (.01)

Year Ended September 30, 1996
-----------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter(1)
--------- -------- -------- ----------
Continuing operations:
Revenues $ - $ 91 $ 747 $ 867
Gross profit - 50 392 455
Net income (loss) (113) (76) 173 260
Income (loss) per share (.01) (.01) .02 .03

Discontinued operations:
Net income (loss) $(352) $ (262) $(171) $ 515
Income (loss) per share (.04) (.03) (.02) .06

(1) See Note 18.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------

<PAGE>

BIOPHARMACEUTICS, INC.
FORM 10-K
EXHIBIT
FOR THE YEAR ENDED SEPTEMBER 30, 1998

EXHIBIT 10.9A

<PAGE>

BIOPHARMACEUTICS, INC.
SCHEDULE VIII - VALUATION ACCOUNTS

<TABLE>
<CAPTION>
Balance at Charged to Charged Other Balance
Beginning costs and other charges at End
Description of Period expenses accounts add (deduct) of Period
- ----------- ----------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year Ended September 30, 1999 $92,000 $481,000 (1) $(558,000) $15,000

Year Ended September 30, 1997 $25,000. $99,000 $(32,085) $92,000

Year Ended September 30, 1996 $22,000 $19,000 $(16,000) $25,000

</TABLE>
(1) Included in the net current liability of discontinued operations and
loss on disposal of discontinued operations.
<PAGE>

FINANCIAL DATA SCHEDULE
to
FORM 10- K for year ended September 30, 1998
of
Biopharmaceutics, Inc.

THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF BIOPHARMACEUTICS, INC. FOR THE YEARS ENDED SEPTEMBER 30, 1998,
1997 AND 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.

The following is the Financial Data Schedule submitted under Article 5 of
Regulation S-X and Appendix A to Item 601(c) of Regulation S-X for the fiscal
years ended September 30, 1998 and 1997,

Year ended Year ended
Item No. Item Description 9/30/98 9/30/97
- -------- ---------------- ---------- -----------

5-01(1) Cash and Cash items $ 34,421 $ 502,304
5-02(2) Marketable Securities ---
5-02(3)(a)(1) Notes and Accounts Receivable 290,268 1,430,110
5-02(4) Allowance for doubtful accounts 15,000 92,000
5-02(6) Inventory 179,401 603,134
5-02(9) Current Assets 629,048 2,848,531
5-02(13) Property Plant and Equipment 1,415 4,587,405
5-02(14) Accumulated Depreciation 410 3,422,943
5-02(18) Total Assets 3,930,478 16,330,586
5-02(21) Total Current Liabilities 2,086,076 7,396,732
5-02(22) Long Term Debt 2,001,688 4,580,689
5-02(28) Preferred Stock- Mandatory Redemption
---
5-02(29) Preferred Stock - No Mandatory Redemption
---
5-02(30) Common Stock /equity(Deficit) (157,286) 4,353,165
5-02(31) Other Stockholder Equity ---
5-02(32) Total Liability and Stockholders'
Equity 2,086,076 16,330,586
5-03(b)1(a) Net Sales 1,998,972 3,529,114
5-03(b)1 Total Revenues 1,998,972 3,529,114

<PAGE>

Year ended Year ended
Item No. Item Description 9/30/98 9/30/97
------- ---------------- ---------- ------------

5-03(b)2(a) Cost Of Tangible Goods Sold $ 960,185 $ 1,414,783
5-03(b)2 Total Cost and Expenses Applicable to
Sales Revenue 960,185 1,414,783
5-03(b)3 Other Costs and Expenses 2,362,171 1,429,137
5-03(b)5 Provision for Doubtful Accounts and Notes
15,000 92,000
5-03(b)(8) Interest and Amortization Debt Expenses
434,819 514,948
5-03(b)(10) Income (loss) Before Taxes and Other
Items (1,758,203) 170,246
5-03(b)(11) Income Tax expense 29,000
5-03(b)(14) Income (loss) Continuing Operations
(1,758,203) 141,246
5-03(b)(15) Discontinued Operations (3,473,317) (96,254)
5-03(b)(17) Extraordinary Items ---
5-03(b)(18) Cumulative Effect Changes in Accounting
Principles ---
5-03(b)(19) Net Income (loss) (5,231,520) 44,992