<PAGE>
                     
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-K/A-2

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

                  For the fiscal year ended September 30, 1996
                         Commission file number: 1-9370


                             Biopharmaceutics, Inc.

             (Exact name of Registrant as specified in its Charter)

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

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

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

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

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


     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
  
                             Yes   x         No
                                 -----          -----

     The aggregate market value of the voting stock owned by  non-affiliates  of
the  Registrant  on November 30, 1996 was  $15,576,080.  On such date,  the mean
price at which the stock was sold was $0.50 per share.
         
     The number of shares of Common Stock,  $.001 Par Value,  outstanding  as of
November  30,  1996,  was  40,457,350,  exclusive  of  outstanding,  unexercised
options.

                    DOCUMENTS INCORPORATED BY REFERENCE: 

(a) Annual Report on Form 10-K for the Fiscal Year Ended September 30,1996
(b) Form 10-K/A-1 for the Fiscal Year Ended September 30, 1996


                                       1
<PAGE>

                                     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)  Exhibit - Exhibit 27 -- ART.5 FDS FOR 9/30/96 10-K

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

         8-K dated October 9, 1996,  announcing the Joint Venture Agreement with
Advanced Biological Systems, Inc.

         8-K dated December 12, 1996,  announcing the  appointment  of  Johathan
Rosen to its Board of Directors. 
                                        

<PAGE> 


                                   SIGNATURE


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

                                        BIOPHARMACEUTICS, INC.



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


Bellport, N.Y.
May 30, 1997


























<PAGE>













                           BIOPHARMACEUTICS, INC.

                     CONSOLIDATED FINANCIAL STATEMENTS

                          YEARS ENDED SEPTEMBER 30,
                            1996, 1995 AND 1994


















<PAGE>








                        BIOPHARMACEUTICS, INC.

           CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

                                INDEX



                                                                Page
                                                               Number

Auditor's Report ............................................     1

FINANCIAL STATEMENTS:

Consolidated Balance Sheets as of
 September 30, 1996 and 1995 ................................   2 - 3
Consolidated Statements of Operations for the
 Years Ended September 30, 1996, 1995 and 1994 ..............     4
Consolidated Statements of Shareholders' Equity (Deficiency
 in Assets) for the Years Ended September 30, 1996, 1995
 and 1994 ...................................................   5 - 7
Consolidated Statements of Cash Flows for the
 Years Ended September 30, 1996, 1995 and 1994 ..............   8 - 9
Notes to Consolidated Financial Statements ..................  10 - 28


FINANCIAL STATEMENT SCHEDULES:

Schedule VIII - Valuation Accounts ..........................     29













<PAGE>






FARBER, BLICHT & EYERMAN, LLP
Certified Public Accountants
             255 Executive Drive, Suite 215           Telephone: (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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended September 30, 1996, in conformity with generally
accepted  accounting  principles.  Also in our  opinion,  the related  financial
statement  schedule,  when  considered  in  relation  to the basic  consolidated
financial  statements taken as a whole, present fairly in all material respects,
the information set forth therein.




                               /s/FARBER,BLICHT & EYERMAN LLP

Plainview,  New York  
November 14,1996 (except for notes 5
10, 16 and 17, the latest of which
is dated March 24, 1997).

<PAGE>



                                          
                                           





                         BIOPHARMACEUTICS, INC.

                     CONSOLIDATED BALANCE SHEETS

                     SEPTEMBER 30, 1996 AND 1995

                                ASSETS






                                                  1996         1995
Current assets:
 Cash                                        $   44,775   $   86,664
 Trade receivables, less allowance   
  for doubtful accounts of $25,000;
  $22,000 in 1995 (Schedule VIII)               587,457      268,957
 Note receivable (Note 16)                      150,000         -
 Inventories (Note 3)                           538,359      493,671
 Prepaid expenses and other
  current assets                                136,839       27,953
                                             ----------     --------

         Total current assets                 1,457,430      877,245

Property, plant and equipment, at
 cost, net of accumulated depreciation
 and amortization (Note 4)                      333,653      443,267
Investment in restricted securities
 (Note 16)                                      250,750         -
Intangible assets, at cost, net of
 accumulated amortization (Note 5)            3,677,225         -
Licensing costs, net of accumulated
 amortization (Note 6)                           64,901       70,301
Sundry                                           32,729       30,119
                                             ----------   ----------
                                             $5,816,688   $1,420,932
                                             ==========   ==========


The accompanying notes are an integral part of these financial statements


<PAGE>






                         BIOPHARMACEUTICS, INC.

                      CONSOLIDATED BALANCE SHEETS

                      SEPTEMBER 30, 1996 AND 1995


        LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)


                                               1996          1995
                                               ----          ----
Current liabilities:
 Accounts payable - trade                $   938,577   $ 1,027,865
 Accrued expenses (Note 7)                   727,238     1,043,676
 Customer credit balances payable               -          196,320
 Medicare judgment payable (Note 8)             -           50,000
 Current maturities of long-term
  debt (Note 9)                              732,100       190,000
                                         -----------   -----------

         Total current liabilities         2,397,915     2,507,861
                                         -----------   -----------

Long-term debt (Note 9)                    1,622,792       130,982
                                         -----------   -----------

Convertible debentures payable
 (Note 10)                                 1,402,941     1,000,000
                                         -----------    ----------

Commitments and contingencies
 (Notes 14 and 15)

Shareholders' equity (deficiency in assets)
  in assets)  (Notes 10,11,16 and 18):
  Common stock - par value $.001 per share:
    Authorized - 75,000,000 shares
    Issued - 40,871,078 shares;
     26,535,750 shares in 1995                40,871        26,536
  Additional paid-in capital              29,771,461    27,149,038
  Deficit                                (27,915,406)  (27,889,599)
                                         -----------   -----------
                                           1,896,926      (714,025)
Less treasury stock, at cost
 (413,728 shares in 1996 and 1995)          (944,612)     (944,612)
 Notes receivable from officers
   and employees                            (559,274)     (559,274)
                                          -----------  -----------
                                             393,040    (2,217,911)
                                          -----------  -----------

                                         $ 5,816,688   $ 1,420,932
                                         ===========   ===========



               The accompanying notes are an integral

                  part of these financial statements.


<PAGE>

                        BIOPHARMACEUTICS, INC.

                CONSOLIDATED STATEMENTS OF OPERATIONS

       FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994


                                     1996         1995         1994
                                     ----         ----         ----

Sales                           $3,725,221  $ 1,532,649  $ 2,057,383
                                ----------  -----------  -----------

Costs and expenses:
 Cost of sales                   3,141,054    2,303,224    2,542,912
 Selling, general and
  administrative                 1,434,036    1,031,354    1,575,870
 Research and development
  expenses                          14,426       62,311      633,154
 Amortization of intangibles        99,600      576,264      483,659
                                ----------  -----------  -----------
                                 4,689,116    3,973,153    5,235,595
                                ----------  -----------  -----------
                                  (963,895)  (2,440,504)  (3,178,212)
                                ----------  -----------  -----------

Other income (deductions):
 Loss on write-off of
  intangible assets (Note 16)         -      (5,526,587)       -
 Settlement of medicare
  judgement (Note 8)                  -         229,524        -
 Income related to contribution
  of licenses and rights to
  joint venture (Note 16)          400,750         -           -
 Gain on disposition of equipment   62,500        2,758        -
 Interest expense (including
  interest to officer of
  $6,165 in 1995; $12,500 in
  1994)                           (298,821)    (251,438)    (246,629)
                                 ---------- -----------  -----------
                                   164,429   (5,545,743)    (246,629)
                                ----------  -----------  -----------

Loss from continuing operations   (799,466)  (7,986,247)  (3,424,841)
                                ----------  -----------  -----------

Discontinued operations (Note 17):
 Operating loss                       -        (429,936)  (1,245,924)
 Gain (loss) of disposal           773,659   (1,191,607)       -
                                ----------  -----------   -----------
                                   773,659   (1,621,543)  (1,245,924)
                                ----------  -----------   -----------

Net loss                        $  (25,807) $(9,607,790) $(4,670,765)
                                ==========  ===========  ===========

Primary gain (loss) per share (Note 12):

  Continuing operations         $     (.02) $     (.35) $    (.18)  
  Discontinued operations              .02        (.07)      (.07)
                                ----------  -----------  -----------

Net loss                        $    -     $      (.42) $    (.25)
                                 ========== ===========  ===========




                     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, 1996, 1995 AND 1994

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

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

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

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

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

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

Net loss for year ended
 September 30, 1994                             -              -        (4,670,765)    -                          (4,670,765)
                                 ---------   -------    -----------   ------------  ----------   ----------       ----------
Balance, September 30, 1994     21,189,771   $21,189    $26,331,310   $(18,281,809)$(944,612)    $ (559,274)      $6,566,804
                                ----------   -------    -----------   ------------  ----------   -----------      ----------
     The accompanying notes are an integral part of these financial statements

</TABLE>


<PAGE>





                          BIOPHARMACEUTICS, INC.

    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)

               YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

                                (continued)

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

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

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

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

Net loss for year ended
 September 30, 1995                  -              -                -       (9,607,790)             -                (9,607,790)
                                -------------------------------------------  ------------  -----------------------  ------------

Balance, September 30, 1995     26,535,750       $26,536    $27,149,038    $(27,889,599)   $(944,612)    $(559,274)  $(2,217,911)
                                ==========       =======    ===========    ============    =========     =========  ============



<FN>


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


<PAGE>


                            BIOPHARMACEUTICS, INC.

     CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)

                 YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

                                  (continued)

<TABLE>                                  
<CAPTION>
                                                                                                          
                                                                                                              
                                                                                                       Notes
                                                                                                     Receivable
                                        Common Shares        Additional                                from
                                 Number of                    Paid-in                  Treasury      Officers &
                                  Shares          Amount      Capital       Deficit      Stock       Employees          Total
                                ----------------------------------------- ---------    ---------     ----------     -----------
<S>                             <C>              <C>       <C>            <C>           <C>           <C>           <C>
Balance, September 30, 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 (Note 5)             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
                                =================================================================     =========     ============
<FN>
                 The accompanying notes are an integral

                    part of these financial statements.

</FN>
</TABLE>

<PAGE>


                           BIOPHARMACEUTICS, INC.

                    CONSOLIDATED STATEMENTS OF CASH FLOWS

            FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

Cash flows from operating
 activities:                                1996         1995         1994
 -----------                                ----         ----         ----

Loss from continuing operations      $  (799,466)    $(7,986,247)  $(3,424,841)
Gain (loss) from discontinued
 operations                              773,659      (1,621,543)   (1,245,924)
Adjustments to reconcile net
 loss to net cash used in
 operating activities:
  Depreciation and amortization          303,805         835,304       761,374
  Loss on write-off of
   intangible assets                        -          5,526,587         -
  Loss on write-off of licenses             -            114,574         -
  Gain on disposition of equipment      (62,500)          (2,758)        -
  Income related to contribution
   of licenses and rights to
   joint venture                       (400,750)            -            -

Changes in certain assets and liabilities:
  Accounts receivable                  (318,500)         155,853       (19,025)
  Inventories                           (44,688)         808,167      (747,319)
  Other current assets                 (108,886)          24,808        73,118
  Accounts payable - trade              (89,288)        (274,017)      732,242
  Accrued expenses                      (44,479)         370,301        72,524
  Customer credit balances             (196,320)         115,859        24,961
  Medicare judgment payable             (50,000)        (229,524)       31,000
  Deferred costs                           -                -          128,757
  Sundry                                 (2,610)          21,365       (20,380)
                                     -----------      -----------   -----------

Net cash used in
 operating activities                (1,040,023)      (2,141,271)   (3,633,513)
                                     -----------      -----------   -----------
Cash flows from investing activities:

Purchase of property, plant
 and equipment                          (32,091)         (36,773)      (94,226)
Payments for licensing agreements           -             -            (35,000)
Proceeds from sale of property,
 plant and equipment                        -             10,000          -
Intangible assets acquired           (3,682,325)          -           (180,646)
                                     -----------      ----------    -----------
Net cash used in
 investing activities                (3,714,416)         (26,773)     (309,872)
                                     -----------      ----------    -----------
Balance carried forward              (4,754,439)      (2,168,044)   (3,943,385)
                                     -----------      ----------    -----------

       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, 1996, 1995 AND 1994



                                         1996            1995           1994
                                         ----            ----           ----

Balance brought forward              $(4,754,439)   $(2,168,044)  $(3,943,385)
                                     -----------    -----------   -----------

Cash flows from financing activities:

Revolving credit loan activity:
 Borrowings                               -              -          1,855,000
 Repayments                               -              -         (2,071,488)
Repayment of term debt                    -              -            (75,765)
Proceeds of Company's
 Regulation S offerings, net
 of related expenses of
 $31,973; $190,891 in 1995;
 $296,040 in 1994                      2,547,658      2,054,722     4,433,790
Long-term debt incurred                4,269,175        130,982        -
Repayments of long-term debt          (2,104,283)       (60,000)     (100,000)
Proceeds from the exercise
 of stock options                          -              -               686
                                      -----------    -----------   -----------

Net cash provided by
 financing activities                  4,712,550      2,125,704     4,042,223
                                      -----------     ----------   -----------

Net increase (decrease)
 in cash                                 (41,889)       (42,340)       98,838
Cash at beginning of year                 86,664        129,004        30,166
                                      -----------    -----------   -----------

Cash at end of year                  $    44,775    $    86,664   $   129,004
                                      ===========    ===========   ===========

Supplemental disclosure of cash flow information:
  Cash paid during year:
   Interest                          $     4,000    $    60,000   $   147,000
                                     ===========     ===========  ===========



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



  The accompanying notes are an integral part of these financial statements

<PAGE>






                         BIOPHARMACEUTICS, INC.

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994



Note 1.  Summary of Significant Accounting Policies

           a)  The Company

     Biopharmaceutics,  Inc.  (the  "Company")  is  a  manufacturer  of  generic
pharmaceutical products and a distributor of consumer feminine hygiene products.
These  products  are  sold  nationwide  to  major  chain  stores,  distributors,
wholesalers and clinics.

           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  amortizes its intangible  assets on the  straight-line  method
over their  estimated  useful life of twenty  years.  Licensing  costs are being
amortized on the straight-line method over the life of the license agreements.

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

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


<PAGE>





                             BIOPHARMACEUTICS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994



Note 1.  Summary of Significant Accounting Policies (continued)

           e)  Depreciation and amortization (continued)

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

     The  Company  adopted  Financial  Accounting  Standards  ("FAS")  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" for the year ended  September 30, 1996.  The adoption of FAS 121
had no material effect on the financial statements.

          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, 1996.

          g)  Loss per share

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

         h)  Research and development expenses

     The Company expenses  research and development  costs as incurred.  For the
years ended  September 30, 1996, 1995 and 1994,  research and development  costs
aggregated approximately $14,000, $62,000, and $633,000, respectively.


<PAGE>






                           BIOPHARMACEUTICS, INC.

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994


Note 1.  Summary of Significant Accounting Policies (continued)

          i)  Fair value of financial instruments

     Effective  for fiscal years ending  after  December 15, 1995,  Statement of
Financial  Accounting Standards No. 107 requires entities with total assets less
than $150 million to disclose the fair value of financial instruments recognized
in the balance  sheet.  At  September  30,  1996,  the  carrying  amounts of the
Company's  financial  instruments  included  in its  current  assets and current
liabilities  approximate  fair  value  because  of the short  maturity  of those
instruments.   The  carrying  amounts  of  the  Company's  long-term  debt  also
approximates  their fair value as of September 30, 1996 based upon the borrowing
rates  currently  available  to the  Company  for loans with  similar  terms and
maturities.

          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. The most significant estimates made are for recoverability
of property and equipment,  intangibles and accounts receivable.  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, 1996, the Company had sales to three
unrelated customers of approximately $492,000 (13.2% of sales),  $461,000 (12.4%
of sales) and $446,000 (12.0% of sales).  In fiscal 1995, sales to two customers
aggregated  approximately  $416,000  (27.1% of  sales)  and  $351,000  (22.9% of
sales).

     The  Company  places its cash with  financial  institutions  insured by the
FDIC. At times, such cash balances may be in excess of the FDIC insurance limit.


<PAGE>






                         BIOPHARMACEUTICS, INC.

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994



Note 1.  Summary of Significant Accounting Policies (continued)

          k)  Concentration of credit risk (continued)

     As of September 30, 1996,  the Company had  receivables  from two unrelated
customers of  approximately  $82,000 (14.0% of accounts  receivable) and $65,000
(11.1% of accounts  receivable),  respectively.  As of September  30, 1995,  the
Company had  receivables  from five unrelated  customers  averaging  $46,000 per
customer (17.1% of accounts receivable).

          l)  Accounting for stock-based compensation

     In October 1995, SFAS No. 123,  "Accounting for Stock-Based  Compensation",
was issued.  SFAS No. 123  establishes  a fair value method for  accounting  for
stock-based  compensation  plans either through  recognition or disclosure.  The
Company  intends to adopt the employee  stock-based  compensation  provisions of
SFAS No. 123 by disclosing  the pro forma net income per share amounts  assuming
the fair value method was adopted October 1, 1995. The adoption of this standard
did not impact the  Company's  consolidated  results  of  operations,  financial
position or cash flows.

Note 2.  Basis of Preparation

     For the fiscal year ended  September  30, 1996,  the  Company's  operations
included the manufacture and distribution of its generic pharmaceutical products
along with the  marketing  and selling of its newly  acquired  feminine  hygiene
product lines; Vaginex, Koromex and Feminique (See Note 5).

     The Company  recorded net losses of $25,807,  $9,607,790 and $4,670,765 for
each of the years ended  September  30, 1996,  1995 and 1994,  respectively.  At
September 30, 1996, the Company had a working  capital  deficit of $940,485.  As
part of management's  plan to refocus the Company's efforts on its operations to
attain  profitable  levels,  the Company  acquired the Feminine  Hygiene Product
Brands of London  International  U.S.  Holdings,  Inc.  for a purchase  price of
$3,600,000 (See Note 5).

     In  addition,  on  September  25,  1996,  the Company  entered into a Joint
Venture  Agreement to finance the  commercialization  of certain  cancer related
drugs (see Note 16).



<PAGE>





                           BIOPHARMACEUTICS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994



Note 2.  Basis of Preparation (continued)

     The Company anticipates that its expanding pharmaceutical customer base and
the acquisition of its new feminine hygiene product line will enable the Company
to reach profitability. The Company is of the opinion that with the funds raised
from the joint venture,  possible further  issuances of common stock pursuant to
Regulation  S  offerings,  and other  financing  it may  consider  necessary  to
strengthen  its working  capital  position,  it can  generate  adequate  capital
resources to achieve its objectives.

Note 3.  Inventories

                    The components of inventories are as follows:

                                              September 30,
                                       1996       1995        1994

   Chemical raw materials and
    packaging materials             $292,278     $320,485 $  581,992
   Work in process                    68,943      115,251    211,033
   Finished goods                    177,138       57,935    508,813
                                    --------     --------  ----------

                                    $538,359     $493,671 $1,301,838
                                    ========     ========  ==========


Note 4.  Property, Plant and Equipment

           Property, plant and equipment consists of the following:

                                                    September 30,
                                                 1996         1995

   Equipment, furniture and fixtures (*)     $1,710,986    $1,844,345
   Leasehold improvements                       572,244       570,349
   Tools and dies                               227,996       215,454
                                             ----------    ----------
                                              2,511,226     2,630,148
   Less accumulated depreciation and
    amortization                              2,177,573     2,186,881
                                             ----------    ----------

                                             $  333,653    $  443,267
                                             ==========    ==========

(*) Partially secured (Note 9(c)).


<PAGE>





                             BIOPHARMACEUTICS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994


Note 5.  Acquisition of Feminine Hygiene Product Line

                    In  March,   1996,   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.  Pursuant  to  the  acquisition
agreement,  as amended,  $100,000 was paid upon the signing of the agreement and
$1,500,000 paid at the closing.  The balance of the purchase price of $2,000,000
is payable as follows: i) $500,000 on or before May 15, 1997, ii) $660,000 on or
before April 1, 1998 and iii) $840,000 on April 1, 1999,  with interest at 8.5%,
payable  semi-annually  through  October,  1997, then quarterly to maturity (see
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.

                    The  assets   purchased  from  London  Int'l   consisted  of
trademarks,  trade names and its customer base. No  obligations  were assumed by
the Company. The intangible assets acquired are comprised of the following:

               Purchase price                $3,600,000
               Broker's fees (including cash
                and securities)                 159,100
               Related legal costs incurred      12,325
                                             __________
                                             $3,771,425
                                             ==========
                    Amortization  expense for the year ended  September 30, 1996
aggregated $94,200.

                    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.

                    The following unaudited pro forma financial  information for
the  Company  gives  effect to the  acquisition  as if it occurred on October 1,
1994,  after  giving  effect  to  the  interest  expense   associated  with  the
acquisition  funding of the  product  line.  These pro forma  results  have been
prepared  for  comparative  purposes  only and in  management's  opinion  do not
purport to be indicative of the results of operations  which actually would have
resulted  had the  acquisition  occurred  on the date  indicated,  or of  future
results of operations of the Company. The pro forma results follow:


<PAGE>

                         BIOPHARMACEUTICS, INC.

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994



Note 5.  Acquisition of Feminine Hygiene Product Line (continued)

                                                     Pro forma
                                             Years Ended September 30,      
                                                    (unaudited)
                                                  1996           1995
          Net Sales                           $5,660,883    $ 5,876,819
          Gain (loss) from continuing 
           operations                         $   14,006    $(6,227,332)
          Gain (loss) from discontinued
           operations                         $  773,659    $(1,621,543)
          Per share data:
              Continuing operations           $     -       $      (.27)
              Discontinued operations                .02           (.07)




Note 6.  Licensing Costs

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

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

                    The  components  of  aforementioned  licensing  costs are as
follows:

                                                     September 30,
                                                   1996         1995

     Exclusive license - Alzheimer's patent      $62,188      $62,188
     Exclusive license - Antiviral patent         15,000       15,000
                                              ----------    ---------
                                                  77,188       77,188
     Less: accumulated amortization               12,287        6,887
                                              ----------     ---------
                                                 $64,901      $70,301
                                              ========================



<PAGE>


                         BIOPHARMACEUTICS, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994


Note 7.  Accrued Expenses

                    Accrued expenses consist of the following:

                                                    September 30,
                                                  1996         1995

    Professional fees                       $  255,000    $  509,000
    Commissions                                 88,000       139,000
    Interest expense                           274,000       255,000
    Sundry                                     110,238       140,676
                                            ----------    ----------
                                             $ 727,238    $1,043,676
                                            ==========    ==========


Note 8.  Medicare Judgment Payable

                    In  November,  1995,  the  Court  reduced  a fine  which was
originally imposed on the Company in 1989 to $50,000,  which was paid on May 10,
1996.  The 1995  consolidated  statement  of  operations  reflect  a  credit  of
$229,524,  representing the difference  between the Court reduced settlement and
the original fine, with interest thereon totaling $279,524.


Note 9.  Long-term Debt

                    Long-term debt consists of the following:

                                                    September 30,
                                                 1996          1995
Obligation from litigation settlement with
 the United States Attorney's office (a)    $   95,000       $190,000

Note payable (b)                                   -          130,982

Liability in connection with settlement
 of legal fees (c)                             224,792           -
Bridge Loan payable (d)                         35,100           -
Note payable - in connection with
 purchase of the feminine hygiene
 product lines (Note 5)                      2,000,000           -
                                            ----------      ---------
                                             2,354,892        320,982
Less: current maturities                       732,100        190,000
                                            ----------      ---------       
                                            $1,622,792       $130,982       
                                            ==========      =========
<PAGE>



                           BIOPHARMACEUTICS, INC.

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994


Note 9.  Long-term Debt (continued)

     (a) In July,  1993,  the Company's  pharmaceutical  subsidiary  settled its
litigation with the United States  Attorney's  Office for $350,000 in connection
with  investigations  directed at the generic drug industry,  involving  alleged
misconduct  in the  filing  and  obtaining  approval  of  Abbreviated  New  Drug
Applications  ("ANDA's").  In connection with the settlement,  the United States
Attorney's  office has a claim  against  the  Company for failure to pay, in its
entirety,  its last  installment due July 8, 1996, plus accrued  interest.  As a
precondition of the settlement, if the subsidiary defaulted on any of the agreed
upon payments, the unpaid balance of the settlement could become immediately due
and payable,  with interest  charged at the statutory rate from the closing date
for the unpaid balance.  It is unknown at this time whether the U.S.  Attorney's
office  will  seek to  enforce  its  right to  demand  the full  payment  of the
outstanding  obligation and interest  thereon.  The Company is currently  making
monthly  payments to liquidate  the debt and at October 31, 1996,  the remaining
outstanding balance was $85,000.

     (b) On December 31, 1994,  the Company  issued a note payable to one of its
convertible debenture holders for $130,982, representing all accrued interest to
said date.  The note  matures  October 1, 1998 and bears  interest  at 12.5% per
annum,  payable in quarterly  installments.  The Company on  September  30, 1996
issued convertible  debentures in exchange for the  aforementioned  note payable
and issued  additional  debentures  for accrued  interest  of  $271,959  through
September 30, 1996 on all the outstanding debentures (Note 10).

     (c) In March,  1996,  the Company  entered into a stipulation of settlement
agreement  with its former legal counsel for unpaid legal fees.  The  settlement
provides for monthly payments of $7,000,  increasing to $12,000,  with the final
payment due on or before  August 1, 1998.  In the event of  default,  the entire
unpaid balance will become immediately due and payable, with interest due on the
unpaid  principal  balance from the date of default at the rate of 9% per annum.
This  obligation is  collateralized  by certain  manufacturing  equipment of the
Company.

     (d) On May 13, 1996, the Company  entered into a bridge loan agreement with
a financial  institution  under which it borrowed  $382,383.  The loan agreement
provides,  among other  things,  for  monthly  principal  repayments  of amounts
varying  from  $15,000 to  $22,000.  The loan  matures  on October 7, 1996.  All
accrued  interest  was to be paid in  October,  1996 at a rate of 1%  above  the
commercial prime lending rate. The loan is collateralized by all receivables and
tangible  assets of the  Company.  The  Company  is not in  compliance  with the
payment terms of the agreement.

<PAGE>





                           BIOPHARMACEUTICS, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

Note 9.  Long-term Debt (continued)

                    The  following is a schedule of principal  repayments of all
long-term debt at September 30, 1996:

                          1997            $  732,100
                          1998               782,792
                          1999               840,000
                                          ----------
                                          $2,354,892
                                          ==========     
Note 10. Convertible Debentures Payable

     The Company had  outstanding at September 30, 1996 and 1995 an aggregate of
$1,402,941  and  $1,000,000 of convertible  debentures,  respectively.  In June,
1995,  the Company  converted  $150,000 of the  aforementioned  debentures  into
600,000  shares of common  stock.  The Company at September 30, 1996 issued four
additional convertible debentures aggregating $402,941 (Note 9(b)).

     The  convertible  debentures  outstanding  at September  30, 1995 mature on
October 1, 1998, with optional redemptions  available on October 1, 1996 at 110%
of par, and each subsequent year to maturity at 105% of par. The debentures bear
interest  at the  rate  of  12.5%  per  annum  which  is  payable  in  quarterly
installments.  Under the original terms of the debentures,  mandatory  principal
redemption  installments  were to be made quarterly to maturity in the amount of
$30 per $1,000 of the remaining  outstanding  principal,  commencing  October 1,
1996.  The  Company  obtained  an  extension  until  December  15,  1996 for the
aforementioned  redemption  installments.  The  debentures,  as amended,  do not
require mandatory principal redemption  requirements and can be converted at any
time into the Company's  common stock in its entirety or in multiples of $1,000,
at conversion  prices equal to the lesser of $.25,  $.27 or 80% of the bid price
per share, dependent upon when the debentures were issued.

     The debentures  further provide that the Company maintain a minimum current
ratio and interest  coverage,  as defined,  and must maintain a certain  minimum
stockholders'  equity. On December 17, 1996, the Company received waivers of the
defaults  that have  occurred  under the  agreements  prior  hereto and  through
January 31, 1997 from the debenture  holders.  If an event of default  exists or
occurs,  as defined,  subsequent to January 31, 1997 the debentures and interest
thereon may become due and payable at the discretion of the debenture holders.

     The Company entered into a Debenture  Conversion  Agreement on December 15,
1996,  whereby $300,000 of convertible  debentures were converted into 1,200,000
shares of the Company's common stock.

<PAGE>






                           BIOPHARMACEUTICS, INC.

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994



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 (subject to an initial one year
restrictive  period) or as long as that person continues to be employed or serve
on the Board of Directors, whichever is shorter. Under the 1993 plan, no options
may be granted subsequent to January 5, 2003.

     Information  regarding  stock  options  as at and for the two  years  ended
September 30, 1996 is summarized below:

                              1996                     1995
                       ------------------       -----------
                                   Option                    Option
                       Shares      Price        Shares       Price
Shares under option:
 Outstanding -
  beginning of year     653,500    $0.50        534,500      $1.25-$2.25
 Granted                   -          -         653,500         $0.50
 Terminated             (56,000)   $0.50       (534,500)     $1.25-$2.25
 Outstanding - end
  of year               597,500    $0.50        653,500         $0.50
 Exercisable - end
  of year               597,500    $0.50           -              -


Note 12. Loss Per Share

     For the years ended  September 30, 1996,  1995 and 1994, the average number
of shares outstanding were 34,265,107, 23,150,793 and 18,549,265, respectively.




<PAGE>






                          BIOPHARMACEUTICS, INC.

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994



Note 13. Income Taxes

     The  Company,  as  of  September  30,  1996,  has  available  approximately
$26,750,000  of net operating  loss carry  forwards  (expiring  through the year
2011) 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 $10,700,000.


Note 14. Commitments and Contingencies

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

     Total  rent  expense  for  the two  years  ended  September  30,  1996  was
approximately $158,000 and $156,000 for the year ended September 30, 1994.

     (b)The Company is involved in an  administrative  proceeding  commenced by,
and pending  before a Regents Review  Committee of the New York State  Education
Department.  The  proceeding  was  commenced  to  determine  whether  or not the
Company's  license to operate as a manufacturer in New York should be revoked or
suspended,  based upon the  Company's  1993  guilty  plea in Federal  Court on a
variety of charges related to ANDA filings with the Food and Drug Administration
("FDA") in 1988 and 1989  (Note  9(a)).  A hearing  before  the  Regents  Review
Committee is scheduled to take place in March, 1997.  Company's legal counsel is
of the opinion that there is ample basis for  reaching a reasonable  disposition
of this matter without affecting the Company's manufacturing operations.

     Amswiss Scientific,  Inc. ("Amswiss") (Note 16) commenced an action against
the Company in the U. S. District Court for the southern district of New York on
December 16, 1996.  Amswiss  asserted a claim for an amount to be ascertained at
trial, but believed by Amswiss to be at least two million dollars, plus cost and
attorney's  fees  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.

     As of September  30, 1996,  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.

<PAGE>






                       BIOPHARMACEUTICS, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994



Note 15. Employment Contract

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

Note 16. Joint Venture Agreement

     In November, 1993, the Company acquired from Amswiss all of Amswiss' rights
to  certain   pharmaceutical   assets,   including  all  agreements,   licenses,
applications,  approvals,  trademarks  and trade  names,  for which the  Company
issued to Amswiss  four  million  shares of its  common  stock and  warrants  to
purchase  an  additional  two  million  shares  valued at $2.00 per  share.  The
acquisition  agreement  provided,  that of the  shares  and  warrants  issued to
Amswiss,  800,000  common shares and warrants to purchase  400,000 common shares
would be subject to  forfeiture  and  cancellation  in the event the  Company is
unable to obtain final FDA approval of certain New Drug  Applications  ("NDA's")
on or before December 31, 1995. The Company  re-evaluated  its investment in the
Amswiss  assets as of September 30, 1995.  Due to the Company's  lack of working
capital at the time,  the cost of the NDA filing and new  diagnostic  techniques
for cervical  cancer that  significantly  reduce  potential  future sales of the
Amswiss  Drugs,  the  Company  decided to  write-off  the  adjusted  unamortized
acquired Amswiss assets aggregating $5,526,587.

     In addition,  as a result of the  Company's  non-filing  of the NDA's,  the
Company recorded the forfeiture of the aforementioned  800,000 common shares and
warrants   which   resulted  in  a  charge  to  common   stock  and   additional
paid-in-capital  aggregating $1,381,647. With respect to the shares and warrants
issued to Amswiss  that were not  subject to  forfeiture,  the  Company  granted
registration  rights for one half of the shares and  warrants  six months  after
closing and the balance of the shares and warrants,  one year after the closing.
As  of  September  30,  1995,   Amswiss  exercised  their  right  to  request  a
registration  of one half of their available  shares and warrants.  At September
30, 1995,  the Company also canceled a contingent  non-negotiable,  non-interest
bearing $250,000 note, issued to Amswiss, which was due upon the FDA approval by
December 31,  1995.  See Note 14 for  commencement  of an action by Amswiss with
regard to the aforementioned registration.



<PAGE>






                        BIOPHARMACEUTICS, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994


Note 16. Joint Venture Agreement (continued)

     On September 25, 1996, the Company  entered into a joint venture  agreement
with Advanced Biological Systems,  Inc., who subsequently  changed their 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 will be provided for by ABS and
the Company will be responsible for handling the management of the project.

     The joint venture agreement provides,  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, previously acquired from Amswiss. Payment terms include 425,000
shares of restricted  common stock of ABS and $150,000 in cash  represented by a
promissory  note payable on or before  October 31,  1996.  Said note was paid in
full on November 1, 1996.  The balance of the  payments  are to occur in varying
amounts of common  shares and or cash  coinciding  with filings with the FDA and
the approval of various investigational new drug applications.  Additionally,  a
contribution to the joint venture of $1,000,000 is to be made by ABS as follows:
i) $400,000  by October 31,  1996,  ii)  $300,000 by February  28, 1997 and iii)
$300,000 by August 31, 1997. Of the first $400,000  contribution,  only $150,000
has been made.  The Company  would share in the net profits from the sale of the
approved  drug on a 60/40 basis until it had recovered at least  $2,000,000  and
then share on the basis of 55/45 on subsequent profits.

     The Company in 1996  recorded  as income  $400,750,  representing  the note
received of $150,000 (which was collected in November,  1996) and $250,750,  the
value of 425,000 shares of ABS restricted common shares issued,  pursuant to the
joint venture  agreement.  The value of the  restricted  common shares was based
upon an independent appraisal made by an investment banking firm.

Note 17. Gain (Loss) on Discontinued Operations

     In August,  1992,  the Company  obtained an exclusive  license for the mass
market  manufacture  and  distribution  of Treo. The Company had been engaged in
litigation  with its Treo  licensor  since 1994 over,  among other  things,  the
promotion  and  marketing  of the  product.  As a result of a November  16, 1995
preliminary  court order issued by the United  States  District  Court,  Eastern
District of New York, the Company was enjoined from selling Treo during the 1996
selling season.  As a result of the Court's decision,  the Company  discontinued
the  manufacturing  of Treo  and  reclassified  its  results  of  operations  as
discontinued operations in the accompanying consolidated statement of operations
for the year ended September 30, 1995.

<PAGE>






                        BIOPHARMACEUTICS, INC.

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994



Note 17. Gain (Loss) on Discontinued Operations (continued)

     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., the  distributor of Treo. As a result  thereof,  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.

     A summary  of the  operating  results  of  discontinued  operations  are as
follows:
                                              September 30,
                                      1996         1995         1994

  Net Sales                         $   -     $ 1,030,500  $   608,449
  Gross profit                          -         598,421      297,301
  Net operating loss from
   discontinued operations              -        (429,936)  (1,245,924)


     The  components of assets and  liabilities of the  discontinued  operations
included in the Consolidated Balance Sheets are as follows:
                                                September 30,
                                           1996               1995

  Cash                               $       107         $    69,574
  Accounts receivable (net)                 -                116,306
  Property, plant & equipment (net)         -                  3,006
  Intercompany payable                (2,720,889)         (2,622,191)
  Accounts payable                          -               (616,030)
  Accrued expenses                          -               (192,989)
  Customer credit balances payable          -               (196,320)
                                      -----------         -----------

                                     $(2,720,782)        $(3,438,644)
                                      ===========         ===========



<PAGE>





                            BIOPHARMACEUTICS, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994


Note 18. Common Stock

     In June,  1993,  the Board of  Directors  approved an offering  pursuant to
Regulation S of 3,750,000 shares, as amended.  In connection with this offering,
the Company received  approximately  $3,705,000 from October, 1993 to September,
1994,  resulting  from the sale of 3,349,851  shares of common stock.  In April,
1994,  the Board of  Directors  approved  an  additional  offering  pursuant  to
Regulation S of 4,000,000 shares. In connection with this offering,  the Company
received approximately  $1,025,000 from May, 1994 to September,  1994, resulting
from the sale of  1,448,570  shares  of common  stock.  In 1995,  an  additional
2,436,042 shares of common stock were sold for approximately $1,026,000.

     During the year ended September 30, 1994, options under a former 1988 stock
option for the issuance of 686,000  common shares were exercised and paid for by
the  issuance of  non-interest  bearing  notes,  payable on demand,  aggregating
$559,274 and cash of $686.  The notes are  collateralized  by the shares issued.
Additionally,  122,339  shares were issued from  Treasury in exchange  for trade
obligations and for the purchase of an exclusive  license for a patented process
to diagnose Alzheimer's disease (Note 6).

     In March,  1995, the Board of Directors  approved another offering pursuant
to Regulation S of 4,500,000  shares.  In  connection  with this  offering,  the
Company received approximately  $1,220,000 from March, 1995 to September,  1995,
resulting  from the sale of  3,109,937  shares of common  stock.  An  additional
1,273,071 shares of common stock were sold for approximately $217,000 during the
year ended September 30, 1996.

     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.

Note 19. Business Segment Information

     The  Company's  operations  (Note  2) have  been  classified  into  generic
pharmaceutical   products   and   feminine   hygiene   products.   The   generic
pharmaceuticals  segment involves the manufacturing,  repacking and distributing
of  over-the-counter  drugs. The feminine hygiene product lines, which began its
operations in April,  1996,  after its  acquisition  from London Int'l in March,
1996 (Note 5),  involves the marketing  and  distribution  of its products.  The
Company's operations for its branded consumer product line (Treo), for the years
ended  September  30,  1995 and 1994 are  included  in the loss on  discontinued
operations for those years (Note 17).

<PAGE>






                        BIOPHARMACEUTICS, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994



Note 19. Business Segment Information (continued)

     Summarized financial information by business segment is as follows:

                                                      1996
Net sales:
 Pharmaceuticals                                  $ 2,020,000
 Feminine hygiene products                          1,705,000
                                                  -----------
                                                  $ 3,725,000
                                                  ===========
Operating gain (loss):
 Pharmaceuticals                                  $(1,452,000)
 Feminine hygiene products                            488,000
                                                  -----------
                                                  $ ( 964,000)
                                                  ===========

Total assets:
 Pharmaceuticals                                  $ 1,200,000
 Feminine hygiene products                          4,216,000
                                                  -----------
                                                  $ 5,416,000(1)
                                                  ===========
Depreciation and amortization:
 Pharmaceuticals                                  $   210,000
 Feminine hygiene products                             94,000
                                                  -----------
                                                  $   304,000
                                                  ===========
Capital expenditures:
 Pharmaceuticals                                  $    32,000
 Feminine hygiene products                               -
                                                  -----------
                                                  $    32,000
                                                  ===========
     (1) Total  assets do not include  assets  relating to the  Company's  joint
venture agreement (Note 16).
<PAGE>






                           BIOPHARMACEUTICS, INC.

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

Note 20: Fourth Quarter Adjustments

                    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                           $  (724,659)

                Income related to contribution of
                     licenses to joint venture               (400,750)
                                                          ------------
                                                          $(1,125,409)
                                                          ============
                    Year Ended September 30, 1995

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

                Loss on write-off of intangible
                  assets                                   $5,526,587
                Settlement of medicare judgement             (229,524)
                Loss on disposal of
                  discontinued operations                   1,191,607
                                                           ----------
                                                           $6,488,670
                                                           ==========
                    Year Ended September 30, 1994

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



<PAGE>






                        BIOPHARMACEUTICS, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994


Note 21. Unaudited Quarterly Financial Data

     The following is a summary of unaudited quarterly operating results for the
years ended  September 30, 1996,  1995 and 1994 (in thousands of dollars  except
per share amounts).
                                 Year Ended September 30, 1996
                             First      Second     Third     Fourth
                            Quarter    Quarter    Quarter   Quarter(1)
Continuing operations:
  Revenues                  $ 457      $ 625      $1,166    $ 1,477
  Gross profit               (178)        12         290        460
  Net profit (loss)          (465)      (322)        (48)        36
  Loss per share             (.01)      (.01)         -          -

Discontinued operations:
  Net income (loss)         $  -       $(16)      $   50    $   740
  Income per share             -          -           -         .02


                                 Year Ended September 30, 1995
                             First      Second     Third     Fourth
                            Quarter    Quarter    Quarter   Quarter(1)
Continuing operations:
  Revenues                  $ 486       $ 525     $  191   $   331
  Gross profit               (140)       (126)      (242)     (262)
  Net loss                   (676)       (307)      (980)   (6,023)
  Loss per share             (.03)       (.01)      (.04)     (.23)

Discontinued operations:
  Net income (loss)         $  32       $ 363     $  480   $(2,497)
  Income (loss) per share      -          .02        .02      (.09)


                                 Year Ended September 30, 1994
                             First      Second     Third     Fourth
                            Quarter    Quarter    Quarter   Quarter
Continuing operations:
  Revenues                  $ 551      $ 488      $  519    $   499
  Gross profit               (103)      (139)       (102)      (142)
  Net loss                   (564)      (634)     (1,271)      (956)
  Loss per share             (.03)      (.03)       (.07)      (.05)

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

(1)  See Note 20.


<PAGE>












                           BIOPHARMACEUTICS, INC.

                               FORM 10-K

                                EXHIBIT

                  FOR THE YEAR ENDED SEPTEMBER 30, 1996

                             EXHIBIT 10.9A




<PAGE>









                                  BIOPHARMACEUTICS, INC.

                          SCHEDULE VIII - VALUATION ACCOUNTS

<TABLE>
<CAPTION>

                                     Balance at  Charged to  Charged      Other      Balance
                                     beginning    costs and  to other    charges      at end
       Description                   of period    expenses   accounts  add (deduct)   period
<S>                                  <C>           <C>        <C>        <C>         <C>  
Allowance for doubtful accounts:

  Year ended September 30, 1996      $22,000       $18,697    $  -       $(15,697)   $25,000
                                     =======       =======    ======     ========    =======

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

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

</TABLE>









<PAGE>






FARBER, BLICHT & EYERMAN, LLP
Certified Public Accountants                        Telephone: (516) 576-7040
255 Executive Drive, Suite 215
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 1996  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, 1996.






                              /s/FARBER, BLICHT & EYERMAN,LLP


Plainview, New York
May 22, 1997