<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-K


(Mark One)
[X]      Annual report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 For the Fiscal Year ended September 30, 1999
OR

[ ]      Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 For the transition period from         to

                        Commission File Number 001-13835

                         OPHIDIAN PHARMACEUTICALS, INC.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its Charter)

             DELAWARE                                 39-1661164
 --------------------------------            ------------------------------
 (State or Other Jurisdiction of                    (IRS Employer
 Incorporation or Organization)                   Identification No.)

                  5445 EAST CHERYL PARKWAY, MADISON, WI 53711
             -----------------------------------------------------
             (Address of Principal Executive Offices and Zip Code)

                                  608.271.0878
              ----------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)

Securities to be registered pursuant to Section 12 (b) of the Act:

             Title of Class           Name of each exchange on which registered
             --------------           -----------------------------------------
     Common Stock $.0025 par value           Pacific Exchange, Inc.
     Common Stock purchase warrants          Pacific Exchange, Inc.

Securities to be registered pursuant to Section 12 (g) of the Act:

            (Title of Class)
            ----------------
     Common Stock $.0025 par value
     Common Stock purchase warrants

Indicate by check mark whether the Registrant: (1) filed all reports required to
be filed by section 13 or 15(d) 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 __

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of voting common equity held by non-affiliates of the
Registrant (1,152,827 shares) as of November 30, 1999, was approximately
$4,900,000. The aggregate market value was computed by reference to the "last"
price of such common equity as of that date as shown on the NASDAQ System.

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

                                                 OUTSTANDING
                  Class                        NOVEMBER 30, 1999
            ---------------------              -----------------
            Common Stock, $0.0025
                par value                         1,156,087

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                               TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                             PAGE NO.
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<S>     <C>                                                                                                  <C>
                                     PART I
ITEM 1   BUSINESS                                                                                                 3
ITEM 2.  PROPERTIES                                                                                              17
ITEM 3.  LEGAL PROCEEDINGS                                                                                       17
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                                    17

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.                                  18
ITEM 6.  SELECTED FINANCIAL DATA                                                                                 20
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                   21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                              25
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Balance Sheets - September 30, 1999, and September 30, 1998.                                           F-4

         Statements of Operations - Fiscal Year ended September 1999, 1998 and 1997, and the period
         from inception (November 11, 1989) to September 30, 1999                                               F-6

         Statements of Shareholders' Equity - Fiscal Year ended September 1990, (inception,
         November 11, 1989) to September 30, 1999                                                               F-7

         Statements of Cash Flows - Fiscal Year ended September 1999, 1998 and 1997, and the period
         from inception (November 11, 1989) to September 30, 1999                                               F-10

         Notes to Financial Statements                                                                          F-11

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                    25

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                      26
ITEM 11. EXECUTIVE COMPENSATION                                                                                  29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                          33
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                                                         34

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                                        37

INDEX TO EXHIBITS                                                                                                38
SIGNATURES                                                                                                       40


</TABLE>

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PART I
ITEM 1.  BUSINESS

This Form 10-K contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results projected in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those risks elaborated upon
in the Company's Registration Statement on FORM S-1, effective May 7, 1998, and
which are listed below.

 1.  Development stage company; limited operating history; no product revenues
     and no assurance of profitability
 2.  Need for substantial additional funds
 3.  No assurance of successful product development or a commercialization
 4.  No current marketing, sales or manufacturing capability
 5.  Risk of raw materials
 6.  Uncertainty regarding patents and proprietary rights
 7.  No assurance of Food & Drug Administration ["FDA"] approval
 8.  Government regulation
 9.  Dependence on qualified personnel
10.  Relationships of scientific advisors with other entities
11.  Competition
12.  Technological changes and uncertainty
13.  Uncertain availability of health care reimbursement; health care reform
14.  Risk of product liability; uncertainty of availability of product liability
     insurance
15.  Management's concentration of ownership
16.  Management's broad discretion in use of proceeds
17.  Potential adverse effect of shares eligible for future sale
18.  Absence of dividends
19.  Price volatility
20.  Potential adverse effect of representative's warrants
21.  Potential adverse effect of redemption of warrants
22.  Potential adverse effect of Bates-Merwin warrants
23.  Potential adverse effect of substantial shares of common stock reserved
24.  Representatives' influence on the market
25.  Current prospectus and state blue sky registration required to exercise
     warrants
26.  Limitation of liability and indemnification

                       BUSINESS HIGHLIGHTS AND OBJECTIVES

Ophidian Pharmaceuticals, Inc. ("Ophidian", "Registrant" or the "Company"), a
development stage company, is engaged in the discovery and development of human
pharmaceuticals formulated with hyperimmune polyclonal antibodies. The Company
has developed proprietary methods for antibody manufacturing and formulation
that make this technology medically and economically advantageous for the
treatment of specific infectious, inflammatory, and other diseases. The
technology permits oral delivery of active antibodies to the lumen of the
intestinal tract for effective topical delivery to the targeted disease area.

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The Company's commercial objective is to develop value by generating:

- operating profits from the manufacture of proprietary drug substances;
- milestone payments and license fees for products and development know-how,
  and;
- royalties or profit sharing from commercial partners on the sales of
  proprietary products.

The Company's lead product in development, OPHD 001, is for the treatment of
Clostridium difficile-associated disease ("CDAD"), and is in Phase II clinical
testing. CDAD is a bacterial infection that afflicts about 1 million
hospitalized patients annually representing a worldwide revenue opportunity of
$150-200 million.

The Company's second product, OPHD 002, is for the treatment of inflammatory
bowel disease ("IBD"). Crohn's disease, a major form of IBD, afflicts about
350,000 persons in the U.S. which results in about 800,000 physician visits
annually and represents a worldwide revenue opportunity of about $500 million.
Clinical trials for this product are expected to begin in late 2000.

The following business factors are expected to drive value growth in Ophidian:

- Rapid product development timeline - OPHD 001 is in a Phase II clinical
  trial expected to be completed in 2000; OPHD 002 is planned to begin
  clinical testing in late 2000.
- Products meet established market needs - Well-understood clinical
  end-points; reduced oral antibiotics; safe active substance; targeted
  antibody action in intestinal tract; competitive pricing.
- Products have significant revenue/profit potential - first two products
  could generate $700 million annually in revenues.
- Partners to support development - the Company is currently engaged in
  numerous partner discussions for an array of products.
- Established operations - Experienced management team in place; proprietary
  manufacturing systems developed; pilot manufacturing facility financed and
  under construction.
- Exploitation of intellectual property assets - substantial patent portfolio
  provides a base for licensing opportunities; expanding product applications
  portfolio from core antibody technology and manufacturing capabilities.

                   BUSINESS INITIATIVES AND CAPITAL STRATEGY

Ophidian is engaged in several business initiatives to build corporate value by
advancing its core technology and lead products. As a top priority, the Company
is carrying out development activities to advance the clinical testing of OPHD
001 and to bring OPHD 002 to the clinic as quickly as possible. To support these
activities and secure the marketing capabilities for product commercialization,
we are engaged in discussions with numerous partner candidates. We are also
discussing the outlicensing of various applications of our intellectual property
portfolio for diagnostics and vaccines that are outside of our current strategic
development interests. Outlicensing agreements could provide substantial capital
to the Company on both short and long-term bases. Furthermore, the Company
believes that its manufacturing physical plant and related natural products
bio-processing capabilities will be the subject of OEM manufacturing agreements
after the pilot facility becomes operational in the second quarter of fiscal
2000. While

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contract manufacturing is not the primary mission of the Company, important
revenues could be obtained to help offset operations expenses until proprietary
drugs are commercialized.



              OPHIDIAN'S TECHNOLOGY AND LEAD PRODUCT APPLICATIONS

PASSIVE ANTIBODY THERAPEUTICS

    In the late 1800's, von Behring and Kitasato injected serum from animals
    resistant to diphtheria into normal animals and demonstrated that the normal
    animals became resistant to the disease. This first example of passive
    antibody immunization lead to the early development of crude antisera in
    animals for a range of infectious diseases and acute poisonings. These drugs
    are remarkably effective and demonstrate the immunochemical power of
    polyclonal antibodies in neutralizing complex biological targets. However,
    manufacturing difficulties, poor potency, poor purity, and undesirable side
    effects have limited broader application of passive immune therapy using
    animal antibodies. To overcome some of these problems, immunoglobulin from
    human serum donors became available, but with limited disease application,
    high cost, and transmissible disease risk.

    Modern technologies now make passive antibodies the therapy of choice for
    numerous disease applications. Improved potency and purity can be achieved
    with monoclonal antibodies or immunoaffinity purification of polyclonal
    antibodies. Advances in recombinant antigen and adjuvant technology
    facilitate the large-scale production of animal antibodies. In addition, new
    formulations permit effective oral administration of passive antibodies for
    delivery to targets in the intestinal tract.

    Ophidian uses eggs of specially immunized laying hens as a source of
    therapeutic grade polyclonal antibodies. Polyclonal antibodies are used
    because of their effective neutralization of highly active biologic
    substances, such as microbial toxins, infectious agents, and cytokines.
    These antibodies are generated using proprietary vaccines and vaccination
    methods and extracted from egg yolks using large-scale Good Manufacturing
    Practice ("GMP") processes. The antibodies are formulated for oral delivery
    to resist gastric degradation. This drug form has been shown in human
    clinical studies to be safe and well tolerated.

OPHIDIAN'S LEAD PRODUCTS USING AVIAN ANTIBODIES

OPHD 001:  Clostridium difficile-associated disease ("CDAD")

    OPHD 001 is a solid dosage form of avian polyclonal antibodies that is being
    developed for the treatment of CDAD. This bacterial infection and its
    sequelae have become significant problems in both inpatient and outpatient
    settings. It has been estimated that roughly 400,000 cases of the disease
    occur annually in the U.S. The average cost for treatment has been estimated
    at between $5,000 and up to $10,000, resulting in a total health care system
    cost burden in excess of $2 billion.

    The disease most-often arises in persons who have been treated with oral
    antibiotics that destroy beneficial gut flora. Symptoms are seen within a
    few days of antibiotic exposure and range from diarrhea, severe colitis and
    sometimes death. The only approved drug in the U.S. with a label indication
    for CDAD is oral vancomycin. While effective against Clostridium-difficile
    ("C. difficile"), its oral use has been restricted because of the emergence
    of vancomycin resistance in other organisms, such as enterococcus and
    Staphylococcus aureus. Other

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    antibiotics are used off-label, but with either undesirable side effects or
    lower efficacy. Furthermore, about 20% of patients treated initially with
    the various antibiotics will have recurrent disease that can require
    prolonged follow-up treatment. This disease increases the cost of treating
    patients with other serious diseases by prolonging length of stay and
    increasing medication, diagnostics, and other procedures. CDAD is also a
    nuisance for the health care team. The organism is difficult to eradicate
    from wards and the need for barrier precautions decreases work efficiency
    and increases costs.

    Ophidian's strategy is to deliver antibodies to the colon that neutralize
    the disease-causing toxins produced by C. difficile. The structures of these
    toxins have been well characterized as well as the essential role of the
    toxins in the organism's disease process. Antibodies that neutralize the
    toxins can deliver highly specific drug action that can rapidly halt the
    disease process. This specificity does not impair the viability of the
    beneficial normal microbial flora. Ophidian is developing the product as a
    first-line drug therapy for CDAD.

    While simple in design, Ophidian believes that several advantages can be
    obtained from the oral antibody strategy:

         -    faster resolution of symptoms can be gained when compared to
              antibiotic therapy;

         -    improved empirical therapy can also result - specifically,
              physicians may feel confident to initiate therapy based on early
              clinical presentation but before confirmation through diagnostic
              procedures;

         -    reduced disease recurrence; and,

         -    reduced oral antibiotic use, improved safety and possibly
              simplified dosing.

    Taken together, these features can result in a better treatment strategy
    that can reduce the economic burden of this disease, promoting medical
    acceptance and placement in formularies.

    Ophidian has conducted extensive pre-clinical efficacy studies using the
    well-known Syrian hamster model of CDAD. These studies have shown that
    Ophidian's CDAD antibody formulation is highly effective in both therapeutic
    and prophylactic modalities. Surprisingly, the antibody treatment was
    completely effective in preventing disease recurrence. This was an important
    finding, and truly unexpected, since the disease will routinely relapse in
    this model and animals will die shortly after termination of antibiotic
    treatment. Furthermore, animals treated with Ophidian's antibodies are
    refractory to re-infection following antibody treatment. These studies were
    first published in the journal, Infection and Immunity, in May 1998.

    Two Phase I clinical studies of OPHD 001 have been completed in healthy
    volunteers. The first study involved 12 subjects in a single-blind, placebo
    controlled, dose-escalation format. Patients were randomized and given the
    capsule form of OPHD 001 or placebo. All doses of the study drug were well
    tolerated with no observable drug-related adverse effects.

    The second Phase I study of OPHD 001 involved 23 subjects. The study was a
    single-blind, randomized, placebo-controlled, multi-dose design. Subjects
    received either a placebo, low dose, or high dose of drug every day over a
    10 day treatment course. As with the first study, all doses of the study
    drug were well tolerated with no observable drug-related adverse effects.

    Based on the successful Phase I studies of OPHD 001 Ophidian is now
    enrolling patients in a Phase II trial. The study is a double-blind,
    randomized comparator-controlled design. Ophidian plans to enroll 160
    diagnosed CDAD patients in up to 10 major medical research


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    centers throughout the U.S. Three doses of OPHD 001 and the comparator drug,
    oral vancomycin, will be evaluated. The primary end point will be safety in
    the patients with diseased intestinal tracts. Importantly, various disease
    treatment and efficacy measures, including the time to resolution of
    intestinal symptoms, severity of symptoms, disease recurrence, and patient
    well-being will be measured. Dr. Dennis Maki, who is Head of the Section of
    Infectious Diseases at the University of Wisconsin Medical Center, is the
    Principal Investigator for this study and the study is being managed by the
    Quintiles organization. Ophidian expects the trial to be completed by 2000.

    The CDAD product is a result of the Company's strategy to design new drugs
    for human diseases by targeting molecules involved in the host-pathogen
    interaction. The CDAD drug is composed of polyclonal antibodies that
    neutralize disease-causing toxins secreted by the C. difficile bacterium
    during infection of the human intestinal tract. These toxins are responsible
    for the development of diarrhea, inflammation and symptoms of colitis caused
    by C. difficile. CDAD is a common side effect of treatment with certain
    broad-spectrum antibiotics. Based on surveys and research, the Company
    estimates that CDAD arises in approximately one percent of hospitalized
    patients.

    In June 1996, Ophidian signed a collaborative development and license
    agreement and a stock purchase agreement (collectively, the "Agreements")
    with Eli Lilly and Company, Inc. ("Lilly") to join in the development of
    OPHD 001. The companies were actively engaged in collaborative development
    activities until September 15, 1998, when Ophidian was informed by Lilly of
    their intent to terminate the Agreements, and the termination became
    effective on November 1, 1998. Lilly indicated its termination decision was
    based on their commercial considerations when weighed against Lilly's other
    commercial needs and opportunities. The Agreements provided for Lilly to
    fund and conduct clinical testing, registration and marketing of OPHD 001
    worldwide and Ophidian to manufacture bulk drug for clinical and commercial
    use. During the course of the collaboration, Lilly made payments to Ophidian
    of $4.8 million for common stock and certain expense reimbursements.
    Pursuant to the Agreements, Lilly was granted a worldwide, exclusive license
    to Ophidian patents and other intellectual property relating to OPHD 001.
    Upon termination, the licenses provided to Lilly were cancelled and the
    Company regained all licensed rights to OPHD 001. In addition, Lilly's
    termination required it to provide Ophidian with copies of its registration
    dossier for OPHD 001, clinical data and unrestricted permission to use the
    dossier and data for development, registration and commercialization of the
    drug.

OPHD 002:  Inflammatory Bowel Disease ("IBD")

    Ophidian learned a great deal about antibodies delivered orally through the
    development of OPHD 001. The toxicology, pharmacokinetic, formulation, and
    Phase I data all support the safe use of this drug form and the concept of
    its topical delivery to the colon. The Company has also learned a great deal
    about optimization of manufacturing methods and formulation techniques for
    solid dosage form antibodies.

    From this knowledge and additional laboratory studies, Ophidian has found
    that oral delivery of avian polyclonal antibodies that neutralize
    inflammatory cytokines are highly effective in treating inflammatory
    intestinal diseases in animals. This topical delivery is a unique strategy
    to localize the drug effect to the intestinal tract without side effects
    associated with conventional systemic administration. Furthermore, it is
    well established that avian antibodies do not fix mammalian complement via
    the classical pathway and are not otherwise capable of participating in
    mammalian cellular immune functions. It is also interesting to note that
    hens produce very strong neutralizing antibodies to mammalian proteins,
    likely due to their phylogenetic distance from mammals. This factor, along
    with the polyclonal composition of the antibodies, results in very high
    potency for neutralizing cytokines.


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    There is a significant unmet medical need for treating IBD. It is estimated
    that IBD generates U.S. health care costs for society of over $2 billion per
    year. Although existing treatments are often effective in the short run,
    there is no long-run treatment or cure for IBD. For the treatment of IBD,
    Ophidian has developed high neutralizing potency antibodies to a
    well-established IBD cytokine - Tumor Necrosis Factor or TNF. This drug is
    designed to be orally delivered and tested clinically for the maintenance of
    Crohn's disease remission and for the management of acute disease flare-ups
    (other indications could include ulcerative colitis and other intestinal
    inflammation disorders). This strategy could reduce corticosteroid use and,
    accordingly, provide an improved side effect and safety profile, especially
    for long-term use. The Company believes that this would provide an
    improvement in delivery, efficacy and cost over current parenteral
    anti-cytokine approaches.

    Ophidian has focused its IBD development efforts to date on pre-clinical
    efficacy studies and patenting. Two animal models have been studied
    representing Crohn's disease and ulcerative colitis. In addition, the models
    provide insights into both acute and chronic disease manifestations.
    Ophidian scientists have shown that oral delivery of TNF-neutralizing
    antibodies is effective in these models in reducing various inflammation
    markers. In addition, the treatment was well tolerated and no toxicities
    were observed. Based on these studies Ophidian is working to complete the
    pre-clinical program and submit an IND to begin Phase I testing in late
    2000.

ADDITIONAL APPLICATIONS OF OPHIDIAN'S AVIAN ANTIBODIES

Antibody Blocking of Xenotransplant Rejection

    Ophidian has developed avian antibodies for injection to prevent hyperacute
    rejection of xenotransplanted organs. This work is being performed in
    collaboration with Northwestern University Medical School ("NU").

    During the course of a year, over 45,000 patients wait for an organ
    transplant to save their lives, whereas only 15,000 organ transplants are
    performed. Moreover, approximately 4,000 patients die each year waiting for
    those organs and the waiting list increases 10-15% each year. Market demand
    could be expanded if organs were more readily available so that
    transplantation could be employed proactively. Possible solutions to organ
    donor shortage being reviewed are: i) rationing organs; ii) increase cadaver
    organs available by educating donors about presumed consent, living will,
    punitive approach, marginal donors, financial incentives, living donations
    and cloning; iii) bioartificial organs; or, iv) xenotransplantation. The use
    of animals as a source of organs and tissues, xenotransplantation is gaining
    momentum as a potential solution to the shortage of donor organs.

    Of the various animals, pigs seem to be the preferred donors. Their organs
    are similar in size and physiology to human organs and because of desirable
    breeding traits, pigs are available in large numbers. The hurdles to the use
    of pigs are significant. When a pig organ is transplanted into a primate
    recipient, the organ is subjected to hyperacute rejection (HAR). HAR is seen
    virtually in minutes after anastamosis of the pig organ into a primate.
    Critical functions of the endothelium are lost. The clinical pathology of
    HAR manifests as hemorrhage, edema, platelet thrombi, and severe injury to
    the pig endothelial cells. The major causes of HAR and its damage are lysis
    and activation of the pig endothelial cells by human xeno-reactive
    antibodies and complement.

    One strategy to prevent HAR is to block the binding of naturally occurring
    antibodies reactive to the alpha-gal epitope found on the transplanted
    organ. Avian antibodies that are naturally

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    unable to trigger human complement have been produced by Ophidian and are
    being evaluated by NU in various xenotransplantation models. While in
    preclinical development, this strategy represents a substantial commercial
    opportunity. A market can be estimated by assuming that the U.S. organ
    waiting list is approximately 60,000 patients, growing at a rate of 10 -
    15%, and that each of these organs could be treated with the alpha-gal
    antibody. Accordingly, the potential U.S. market for the product at moderate
    pricing could approach $1 billion.

Other applications in therapeutic and immunodiagnostic products

    Ophidian is focusing its resources on the development of its lead drug
    products, as described above. However, the Company has maintained discovery
    and new applications activities to expand the business potential of its core
    avian antibody technology. These applications include therapies for
    immune/inflammatory diseases of the intestinal tract, infectious diseases,
    allotransplantation, and antibodies to various drug targets within the
    intestinal lumen. In these activities, the Company focuses on its antibody
    development and formulation expertise while collaborators provide the
    medical know-how in discrete disease areas. In addition, various avian
    antibodies have been evaluated as key reagents for immunodiagnostic assay
    products. The Company aggressively seeks patent protection for these new
    product applications as a foundation for ongoing business development
    initiatives.

OPHIDIAN'S "AVIAN" ANTIBODY TECHNOLOGY

    Ophidian's lead oral drugs are formulated polyclonal antibodies directed
    against disease targets in the GI tract. Avian antibodies are produced in
    chickens ("avians") and consist of the range of antibodies that the animal
    produces in response to vaccination. For complex targets, these polyclonal
    antibodies are ideally suited as a drug form because they can neutralize the
    target by binding to multiple target sites. Ophidian uses antibodies that
    are extracted from the eggs of its specially vaccinated hens. The hen is an
    inexpensive and efficient "bio-reactor" that converts about 25% of its daily
    nutritional mass into egg mass. As with other animals, serum IgG antibodies
    are produced following immunization, but in the case of the hen, the
    antibodies are transported to the egg and are found in high concentration in
    the egg yolk where the antibodies are termed IgY. Ophidian has proprietary
    production methods to extract these egg yolk antibodies to yield a dry and
    stable bulk drug substance. The dried antibody powder is compatible with
    conventional drug production methods and can be formulated into tablets or
    capsules for oral delivery. The oral formulation prevents gastric digestion
    of the antibody protein and allows its release in the bowel. This
    large-scale avian process is an effective method to produce metric ton
    quantities of high-potency antibodies.

    Ophidian has developed a comprehensive GMP quality system for this
    manufacturing approach. The Company is currently constructing a pilot plant
    in Madison, Wisconsin to support research, development and clinical trial
    antibody production needs.

    Ophidian believes the use of avian polyclonal antibodies as a drug form is
    attractive because of the following features:

         - Hens generate large quantities of antibody protein relative to their
                   body mass. Accordingly, the ratio of feed and housing costs
                   relative to bulk antibody production is favorable in contrast
                   to other large-scale animal production systems.
         - Hens can typically be immunized safely with higher doses of
                   immunogen on a body weight basis than large mammals,
                   resulting in high specific antibody output.
         - The costs of purchasing, housing and maintaining production hens can
                   be less than for other large animals.


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         - Egg yolks containing antibody can be separated using high-throughput
                   food industry automation.
         - Antibodies can be recovered using bulk fractionation techniques and
                   processed to a dry, stable powder.
         - Avian antibodies can be readily treated to control microbial load
                   and adventitious agents (e.g., sterile filtration and
                   antiviral steps).
         - The processing steps significantly deplete potential allergens found
                   in egg whites.
         - Avian antibodies can be produced in large scale economically.
         - Dried antibodies can be readily formulated into solid dosage forms
                   for oral delivery.

SAFETY OF AVIAN ANTIBODIES

    Formal studies have been performed by Ophidian and submitted to the U.S. FDA
    to show the safety and non-toxicity of orally delivered avian antibodies.
    These include acute toxicity, sub-chronic toxicity, mutagenicity,
    allergenicity and ADME studies done in several animal species. All studies
    support the safe oral use of this drug form and various doses.

    The two human clinical studies of OPHD 001 have also shown the safety and
    tolerability of avian antibodies when orally delivered. These studies are
    discussed above under the topic Ophidian's lead products using avian
    antibodies and the subheading OPHD 001.

    Numerous other studies have been carried out using parenterally administered
    avian antibodies. These studies, performed in rodents and non-human
    primates, have shown that the drugs are safe and well tolerated. Naturally,
    when large quantities of foreign protein are injected anti-antibody
    responses are observed. However, any anti-antibody responses following
    injection of avian antibodies have not been shown to be of any pathological
    significance in these studies.

THERAPEUTIC EFFICACY OF ORALLY DELIVERED AVIAN ANTIBODIES

    A Phase II study of OPHD 001 is currently in progress. Pre-clinical efficacy
    of this drug is described in Infection and Immunity, 66:2018-2025, 1998.

    A Phase I/II study of OPHD 002 is currently being planned. Pre-clinical
    efficacy of this drug is currently being submitted for publication.

    The following literature references describe parenteral therapeutic
    applications of Ophidian's avian antibodies: Therapeutic Immunology,
    2:59-66, 1995 (ricin antitoxin); Biotechnology, 8:934-938, 1990 (snakebite
    antitoxin); Toxicon, 30:1017-1025, 1992 (snakebite antitoxin); and, The
    American Society of Transplant Surgeons (Abstract of the 24th Annual
    Meeting), May 13-15, 1998 (xenograph rejection blocking).


                            COLLABORATIVE AGREEMENTS

In September 1998, the Company entered into a collaborative research program
with Northwestern University to develop novel therapeutic applications for the
avian antibody technology. The Company has provided funding in the amount of
approximately $87,000 to support this research.

In September 1991, the Company entered into an agreement with Promega
Corporation ("Promega"), Madison, Wisconsin ("Promega Agreement") to
provide marketing of the Company's technologies outside its core markets ("Core
Markets" are defined as therapeutic and

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diagnostic products and their accessory or component parts, for human or animal
use). Under the Promega Agreement, the Company granted Promega an exclusive and
confidential first right, for a period of 10 years, to review any technology
developed by the Company incidental to its Core Markets. The Promega Agreement
will terminate upon its tenth anniversary or on the date when Promega owns less
than one percent of the Company's common stock. In connection with the Promega
Agreement, Promega acquired shares of the Company for an aggregate purchase
price of $546,920. To date, one license has been negotiated under the Promega
Agreement for research reagent applications.

The Company has entered into license agreements with academic and government
agencies for the use of technologies involved in recombinant DNA research.
Maintenance of these licenses generally require annual payments and certain
royalties are payable upon the commercialization of products that employ the
technology. In aggregate, the Company pays approximately $22,000 annually
to these licensors.

                       PATENTS AND PROPRIETARY TECHNOLOGY

The Company's success will depend in part on its ability to obtain and maintain
patent protection for its technologies and to preserve its trade secrets. It is
the policy of the Company to file patent applications in the United States
and/or foreign jurisdictions. The Company currently holds 21 issued United
States or foreign patents and has 72 United States or foreign patent
applications pending. In addition, the Company has in-licensed additional
patents to complement its internal patenting program. The intellectual property
includes:

    - Methods for avian antibody processing
    - Therapeutic uses of avian antibodies
    - Vaccine constructs
    - Formulations
    - Antibody compositions
    - Diagnostic methods.

No assurance can be given that the Company's patent applications will be
approved or that any issued patents will provide competitive advantages for the
Company's technologies or development of products or will not be challenged or
circumvented by competitors. With respect to already issued patents and any
patents which may be issued from the Company's applications, there can be no
assurance that claims allowed will be sufficient to protect the Company's
technologies. Patent applications in the United States are maintained in secrecy
until a patent issues. The Company cannot be certain that others have not filed
patent applications for technology covered by the Company's pending applications
for, or may have received patents and may obtain additional patents and
proprietary rights relating to, compounds or processes that may block the
Company's patent rights or compete without infringing the patent rights of the
Company. In addition, there can be no assurance that any patents issued to the
Company will not be challenged, invalidated or circumvented, that the rights
granted thereunder will provide proprietary protection or commercial advantage
to the Company.

The Company also relies on trade secrets and proprietary know-how, which it
seeks to protect, in part, through confidentiality agreements with employees,
consultants, collaborative partners and others. There can be no assurance that
these agreements will not be breached, that the Company will have adequate
remedies for any such breach or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors. Although
potential collaborative partners and the Company's research partners and
consultants are not given access to proprietary trade secrets and know-how of
the Company until they have executed confidentiality agreements, these
agreements may be breached by the other party thereto or may otherwise be of
limited effectiveness or enforceability. The ability to develop the


                                       11
<PAGE>   12

Company's technologies and to commercialize products using such technologies
will depend on not infringing the patents of others. Although the Company is not
aware of any claim of patent infringement against it, claims concerning
patents and proprietary technologies determined adversely to the Company could
have a material adverse effect on the Company. In addition, litigation may also
be necessary to enforce any patents issued or licensed to the Company or to
determine the scope and validity of third-party proprietary rights. There can be
no assurance that the Company's issued or licensed patents would be held valid
by a court of competent jurisdiction. Whether or not the outcome of litigation
is favorable to the Company, the cost of such litigation and the diversion of
the Company's resources during such litigation could have a material adverse
effect on the Company.

In addition to the patent applications described herein, the Company intends to
aggressively pursue patent protection for any new technologies that it may
develop or consider essential for its future business development. The Company
intends to safeguard its remaining proprietary technology as trade
secrets through non-disclosure agreements with its employees and third parties.
In addition to patents and patent applications arising from the work of the
Company's employees, the Company has obtained license rights to the intellectual
property of others. These rights often allow the Company to use technology for
its own research and development and products and, in certain cases, to grant
sublicense rights to third parties. The pharmaceutical industry has experienced
extensive litigation regarding patent and other intellectual property rights.
Accordingly, the Company could incur substantial costs in defending itself in
suits that may be brought against the Company claiming infringement of the
patent rights of others or in asserting the Company's patent rights in a suit
against another party. The Company may also be required to participate in
interference proceedings declared by the United States Patent and Trademark
Office for the purpose of determining the priority of inventions in connection
with the patent applications of the Company or other parties. Adverse
determinations in litigation or interference proceedings could require the
Company to seek licenses (which may not be available on commercially reasonable
terms) or subject the Company to significant liabilities to third parties, and
could therefore have a material adverse effect on the Company.

                                  COMPETITION

The biotechnology and pharmaceutical industries are intensely competitive and
subject to rapid and significant technological change. Several other companies
have developed or are developing novel technologies for the prevention and
treatment of infectious diseases, and those competing technologies may prove
superior, either generally or in particular market segments, in terms of factors
such as cost, consumer satisfaction or drug safety or efficacy profiles. The
Company's principal competitors in the area of human disease drug research and
development include companies, such as Eli Lilly and Company, Johnson & Johnson,
SmithKline Beecham Corporation, Bristol-Myers Squibb Company, Abbott
Laboratories as well as numerous biotechnology firms. All of the preceding have
substantially greater financial, technological, marketing, personnel, and
research and development resources than the Company. In addition, the Company
may face competition from pharmaceutical and biotechnology companies that may
develop or acquire human disease technologies. Companies that complete clinical
trials, obtain regulatory approvals and commence commercial sales before their
competitors may achieve a significant competitive advantage. A number of
companies are developing new products for the treatment of the same markets
being targeted by the Company. In some instances, the Company's competitors have
products in advanced clinical trials. In addition, certain pharmaceutical
companies are currently marketing drugs for the treatment of the same diseases
targeted by the Company. The Company believes that its competitive success will
be based partly on its ability to attract and retain scientific personnel,
establish specialized research and development capabilities, gain access to
manufacturing, marketing and distribution resources, secure licenses to external
technologies, and obtain sufficient development capital. The Company intends to
obtain many of these capabilities from pharmaceutical or biotechnology companies
through collaborative or

                                       12

<PAGE>   13

license arrangements. However, there is intense competition among early stage
biotechnology firms to establish such arrangements. The Company's development
products may not be of suitable potential market size or provide a compelling
return on investment to attract other firms to commit resources to a
collaboration. Even if collaborations can be established, there can be no
assurance that the Company will secure financial terms that meet the Company's
commercial objectives.

                                 MANUFACTURING

The manufacture of Ophidian's avian antibody products requires specialized
production facilities and know-how. To-date, the Company has manufactured its
products for pre-clinical and clinical testing at contractors who provided the
facilities necessary to meet process scale requirements and government
regulations for pharmaceutical processing. Specialized pieces of processing
equipment were purchased by Ophidian and used in the contractors' facilities.
All of the manufacturing activities followed procedures and met specifications
established by Ophidian.

To meet the manufacturing needs for ongoing development of OPHD 001, OPHD 002,
and other product candidates, the Company is constructing a pilot manufacturing
facility to accommodate activities carried out previously at contractors. The
facility is expected to become operational early in calendar 2000 and have the
design and critical systems necessary to meet FDA requirements applicable to
Ophidian's products. Investments include leasehold improvements and equipment
purchases that are expected to total approximately $2,400,000. In addition,
approximately $1,000,000 of process equipment previously acquired by the Company
will be located in the facility. The Company currently employs senior management
with extensive experience in biologic product manufacturing and quality control
and these personnel are competent to operate the new pilot facility. In addition
to its own products, the facility would be suitable for the manufacture of
various other bulk biologic materials.  The Company believes that it will be
able to secure contracts from outside parties for manufacturing services and
that resulting fees would help Ophidian offset operating and overhead expenses
for the facility.

The pilot facility now under construction, when completed, would reduce the
Company's dependence on outside contractors to support currently contemplated
product development programs. However, the inability of the Company to achieve
validation or other FDA requirements could make the facility unsuitable for its
intended use. Furthermore, there can be no assurance that processes performed at
contractors will be readily transferable to Ophidian's facility or that the
projected costs for production will be achievable. The occurrence of these
events could delay product development, increase production costs, or require
additional capital expenses. The Company uses, and expects to continue to use,
contractors to perform final formulation, packaging and labeling of its
products. The inability to maintain relationships with such contractors on
reasonable terms could have a material adverse effect on the Company.

The Company has manufactured its products in a scale sufficient to support
formulation, pre-clinical and clinical development. The Company has not
manufactured any of its products at a scale suitable for commercial use. There
can be no assurance that such products can be manufactured at commercial scale
or processes will be economically feasible. The FDA inspects facilities for
adherence to highly complex manufacturing standards prior to their approval for
commercial production. Thereafter, facilities are subject to ongoing inspection
whereby manufacturing standards are strictly enforced. There can be no assurance
that facilities owned or operated by the Company will meet any pre-approval or
ongoing compliance requirements of the FDA. In order to meet commercial bulk
drug requirements of any of Ophidian's current products, substantial additional
investments in plant and equipment will be required.

                                       13
<PAGE>   14

                             GOVERNMENT REGULATION

The Company is subject to regulation under various federal laws regarding
pharmaceutical products and also various federal and state laws regarding, among
other things, occupational safety, environmental protection, hazardous substance
control and product advertising and promotion. In connection with its research
and development activities, the Company is subject to federal, state and local
laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials and wastes. The Company believes that it has complied with
these laws and regulations in all material respects and it has not been required
to take any action to correct any material noncompliance.

In the United States, pharmaceutical products are subject to rigorous regulation
by the FDA. If a company fails to comply with applicable requirements, it may be
subject to administrative or judicially imposed sanctions. These sanctions
include civil penalties, criminal prosecution of the company or its officers and
employees, injunctions, product seizure or detention, product recalls, total or
partial suspension of production and FDA refusal to approve pending new drug
applications, premarket approval applications, or supplements to approved
applications.

Prior to commencement of clinical studies involving human beings, pre-clinical
testing of new pharmaceutical products is generally conducted on animals in the
laboratory to evaluate the potential efficacy and the safety of the product. The
results of these studies are submitted to the FDA as a part of an IND
application, which must become effective before clinical testing in humans can
begin. Typically, clinical evaluation involves a time consuming and costly
three-phase process. In Phase I, clinical trials are conducted with a small
number of subjects to determine the early safety profile, the pattern of drug
distribution and metabolism. In Phase II, clinical trials are conducted with
groups of patients afflicted with a specific disease in order to determine
preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase
III, large-scale, multi-center, comparative trials are conducted with patients
afflicted with a target disease in order to provide enough data to demonstrate
the efficacy and safety required by the FDA. The FDA closely monitors the
progress of each of the three phases of clinical testing and may at its
discretion, re-evaluate, alter, suspend or terminate the testing based upon the
data which have been accumulated to that point and its assessment of the
risk/benefit ratio to the patient.

The results of the pre-clinical and clinical testing on a nonbiologic drug and
certain diagnostic drugs are submitted to the FDA in the form of an NDA for
approval prior to commencement of commercial sales. In responding to an NDA, the
FDA may grant marketing approval, request additional information or deny the
application if the FDA determines that the application does not satisfy its
regulatory approval criteria. There can be no assurance that approvals will be
granted on a timely basis, if at all. An initial IND application for the CDAD
product was filed with the FDA by Lilly in November 1997. In December 1998,
Lilly notified the FDA that sponsorship of the IND was transferred to Ophidian.
The Company anticipates that several years of clinical testing will be required
prior to FDA marketing approval. Failure to receive approval for any of its
products could have a material adverse effect on the Company.

                               OTHER REGULATIONS

Even if required FDA approval has been obtained with respect to a product,
foreign regulatory approval of a product must also be obtained prior to
marketing the product internationally. Foreign approval procedures vary from
country to country and the time required for approval may delay or prevent
marketing. In certain instances, the Company or its collaborative partners may
seek approval to market and sell certain of its products outside of the U.S.
before submitting

                                       14
<PAGE>   15


an application for U.S. approval to the FDA. The regulatory procedures for
approval of new pharmaceutical products vary significantly among foreign
countries. The clinical testing requirements and the time required to obtain
foreign regulatory approvals may differ from that required for FDA approval.
Although there is now a centralized European Union ("EU") approval mechanism in
place, each EU country may nonetheless impose its own procedures and
requirements, many of which are time consuming and expensive, and some EU
countries require price approval as part of the regulatory process. Thus, there
can be substantial delays in obtaining required approval from both the FDA and
foreign regulatory authorities after the relevant applications are filed, and
approval in any single country may not be a meaningful indication that the
product will thereafter be approved in another country.

To date, no product candidate being developed by the Company has been submitted
for approval or has been approved by the FDA or any other regulatory authority
for marketing. There can be no assurance that any such product will ever be
approved for marketing, or that the Company will be able to obtain the labeling
claims desired for its products. The Company is and will continue to be
dependent on collaborators, third party laboratories, contract manufacturers
(until completion of construction of its new facility) and medical institutions
for the conduct of pre-clinical and clinical testing of its products. If any of
these parties should fail to meet their obligations or comply with applicable
regulations, the development progress of the Company's products could be
delayed.

Finally, the Company is also subject to regulation by the Environmental
Protection Agency, the Occupational Safety and Health Administration, the
Nuclear Regulatory Agency, the Wisconsin Department of Natural Resources, and
the Wisconsin Department of Health and Social Services, regarding, among other
things, employee safety, toxic substances, and hazardous waste handling and
disposal. The Company may also be subject to regulation by other state and
federal agencies.

                               PRODUCT LIABILITY

The Company's business involves exposure to potential product liability risks
that are inherent in the production and manufacture of pharmaceutical products.
Any such claims could have a material adverse effect on the Company. The Company
has product liability insurance for its clinical trials and plans to secure
product liability insurance for its commercial products once it begins to sell
commercial products. There can be no assurance that it will be able to obtain or
maintain such insurance on acceptable terms or that the Company will be able to
secure increased coverage as the commercialization of products proceeds or that
any insurance will provide adequate protection against potential liabilities.

                                 ADVISORY BOARD

The Company has assembled an Advisory Board composed of leaders in various
diciplines relating to Ophidian's scientific or business interests. These
individuals are appointed by the Board of Directors and provide critical review
and advice pertaining to the Company's research, development, and business
development and strategies at the request of management or the Board of
Directors. Members of the Advisory Board are compensated on a case-by-case basis
based on their commitment of time and other factors. Compensation through stock
options or stock purchases may be provided.


The current members of the Advisory Board are:

Dr. Dennis G. Maki is a Professor of Medicine and Head of the Section of
Infectious Diseases at the University of Wisconsin - Madison Medical School. He
also served as Director of, and is currently an Attending Physician for, the
Center for Trauma and Life Support at the University of Wisconsin


                                       15
<PAGE>   16

Hospitals and Clinics. Dr. Maki earned his M. D. from the University of
Wisconsin Medical School. Following his Internship and Assistant Residency with
Harvard Medical Unit, Boston City Hospital, he served as Epidemic Intelligence
Service Officer, Hospital Infectious Section, U.S. Center for Disease Control in
Atlanta, Georgia. He holds Professional Certifications with the American Board
of Medical Examiners, the American Board of Internal Medicine (Infectious
Diseases and Critical Care Medicine), and the Advanced Trauma Life
Support-American College of Surgeons. Dr. Maki is recognized worldwide as a
leading authority on the prevention and control of hospital-acquired infections.

Dr. Robin D. G. Cooper worked for over 30 years at Eli Lilly and Company engaged
in the development of infectious disease drugs. His responsibilities included
participation in numerous management groups focused on new drug development and
strategic planning. His laboratory research has lead to over 40 patents and
numerous scientific publications. Dr. Cooper received a B.Sc. degree from
Imperial College, a Ph.D. from Imperial College and Queen Mary College, and a
D.Sc. from London University.

Dr. Terrence Anthony Barrett is an Assistant Professor in the Department of
Medicine at Northwestern University Medical School -- Chicago. In addition, he
is a Staff Physician at Lakeside Veteran's Hospital -- Chicago, Asst. Professor,
Department of Microbiology/Immunology at Northwestern University Medical School
and a Faculty Research Advisor, Integrated Graduate Programs, Northwestern
University Medical School. Dr. Barrett earned his BS from the University of
Notre Dame and his M.D. from the University of Illinois. He holds Professional
Certifications with the National Board of Medical Examiners, the American Board
of Internal Medicine and the American Board of Gastroenterology. Dr. Barrett has
been widely recognized through awards, grants, major committee assignments,
publications, membership in professional societies, and editorial activities in
the field of gastroenterology and specifically in the area of Crohn's disease
and ulcerative colitis.

                                   EMPLOYEES

The Company, at November 30, 1999, has 24 full-time employees. Of these, five
employees are involved in administrative duties and the remainder in research
and development. Seven of the employees hold Ph.D. degrees with substantial
post-graduate experience in biological science disciplines. In addition, the
Company's officers, directors and consultants possess substantial expertise in
biologic product development, manufacturing, and marketing. The Company expects
to add significantly to its present personnel. These additional employees will
be involved in research and development, administration, and product
manufacturing. The Company's employees are not represented by a collective
bargaining agreement, nor has the Company experienced work stoppages.

                                 RAW MATERIALS

The Company's raw materials (such as laying hens and laboratory chemicals) and
other supply items to be used in its research and manufacturing processes are
available from many different suppliers and are generally immediately available
in sufficient quantities. The Company does not anticipate any significant
problems in the availability of, or significant price increases for, required
raw materials or other production items in the foreseeable future.

                            RESEARCH AND DEVELOPMENT

In the last three fiscal years (1997-1999), the Company has spent $8,733,734 on
company-sponsored research and development activities and expects such
expenditures to continue to increase in the coming years with the initiation of
the Phase II clinical trials for OPHD 001 and the initiation of trials for OPHD
002.

                                       16

<PAGE>   17

Ophidian was incorporated in the State of Wisconsin in November 1989,
commenced business operations in August 1990 and was reincorporated in Delaware
in April 1999. The Company's principal offices and laboratories are located at
5445 East Cheryl Parkway, Madison, Wisconsin 53711 and its telephone number is
608.271.0878.

ITEM 2.  PROPERTIES

In June 1998, the Company exercised its five-year renewal option on a five-year
lease entered into on January 1, 1993, with Promega Corporation for the facility
it occupies at 5445 East Cheryl Parkway, Madison, Wisconsin. Mr. Linton was
Chairman of Ophidian's Board of Directors until March 23, 1999. He is still a
stockholder as well as the Chairman, President and a stockholder of Promega
Corporation. This facility provides the Company with approximately 10,000 square
feet of laboratory and office space, and has the potential to house additional
staff and research operations. Currently, a majority of the Company's activities
are carried out at this facility. For the twelve-month period beginning January
1, 1999, the lease provides for monthly rental payments of approximately
$21,050, which are adjusted annually by a preset amount to reflect inflationary
trends.

The Company has made significant leasehold improvements and capital purchases,
to date costing approximately $2,050,115, net of disposals. The Company's
facilities contain a fully functioning immunochemistry and infectious disease
research laboratory, four bio-containment suites, a networked computer system,
furnished office space, and a significant amount of the equipment required for
the new pilot manufacturing facility now under construction. These facilities
are designed for the production of bulk drug pharmaceuticals under GMP
guidelines pursuant to applicable federal regulations.

The current facility is capable of supporting continued product research,
development, and prototype product testing, along with all aspects of
administrative support.

To accommodate the expansion of the Company's manufacturing operations, the
Company leased, with an option to buy, facilities at 2617 Progress Road in
Madison. Initially, of the 42,458 square feet, the Company is leasing 4,870
square feet of office space and 19,559 square feet of production space. For the
twelve-month period beginning July 1, 1999, the lease provides for monthly
rental payments of $8,301, which are adjusted annually by a preset amount to
reflect inflationary trends. 18,029 square feet of space currently leased to
third parties by the landlord will be leased by the Company for $5,258 per month
as the leases expire or are terminated.

The Company also leases approximately 20,000 square feet of animal care
facilities located in Jefferson County, Wisconsin. This facility is currently
capable of housing laying hens used for avian antibody research and production.
Ophidian pays a fixed monthly fee for the care and housing of these animals, and
Ophidian may terminate the animal care agreement at any time without financial
penalty. Ophidian also maintains research animals at the University of
Wisconsin-Madison under a fee-for-services arrangement.

ITEM 3. LEGAL PROCEEDINGS

There are no material legal proceedings pending to which the Company or any of
its property is currently subject.

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

On July 23, 1999, a special meeting of stockholders was held. At this meeting,
the adoption of amendments to the Company's Certificate of Incorporation to
effect a one-for-eight reverse stock split of the issued and outstanding shares
of the Company's Common Stock, par value $0.0025 per share was approved.

                                       17
<PAGE>   18



                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS

The approximate number of record holders of the Registrant's Common Stock on
November 30, 1999, was 138. The Company estimates that as of such date there
were more than 750 beneficial holders of the Company's Common Stock. The Company
has never declared nor paid dividends on its Common Stock and does not intend to
do so for the foreseeable future.

The principal markets on which the Company's Common Stock and Common Stock
Purchase Warrants are traded are the NASDAQ SmallCap and the Pacific Exchange,
Inc. The symbols are as follows:

               NASDAQ SMALLCAP          Common Stock       OPHD
                                        Warrants           OPHDW

               PACIFIC EXCHANGE, INC.   Common Stock       OPD
                                        Warrants           OPD WS

The Company's securities were first listed on May 7, 1998, the date of the
Company's initial public offering ["IPO"]. The securities first traded as Units
consisting of one share of Common Stock and one Common Stock Purchase Warrant.
On June 12, 1998, the Company and its Underwriters agreed to separate the Units
into their individual components. The range of high and low bid quotations for
the Common Stock (adjusted for the 1-for-8 reverse stock split effective on
September 20, 1999), the Units and the Warrants on a quarterly basis from May 7,
1998, as supplied by NASDAQ(1) is as follows:

<TABLE>
<CAPTION>

          QUARTER                    UNITS              COMMON STOCK             WARRANTS
          -------                    -----              ------------             --------
                              High Bid   Low Bid    High Bid    Low Bid     High Bid   Low Bid
                              --------   -------    --------    -------     --------   -------
     <S>       <C>            <C>       <C>         <C>          <C>      <C>          <C>
     04/01/98  06/30/98       $6.6250   $4.8750     $38.000      $26.000   $1.8750     $1.0000
     07/01/98  09/30/98       N/A            N/A    $30.500       $8.000   $1.5000     $0.2500
     10/01/98  12/31/98       N/A            N/A    $24.500       $6.000   $0.6250     $0.1875
     01/01/99  03/31/99       N/A            N/A    $14.000       $6.500   $0.3750     $0.1250
     04/01/99  06/30/99       N/A            N/A    $14.000       $5.000   $0.2500     $0.1250
     07/01/99  09/30/99       N/A            N/A     $9.000       $1.000   $0.6250     $0.0625
</TABLE>


The information in this paragraph relates to the Company's Registration
Statement on Form S-1, as amended, effective May 7, 1998, Registration No.
333-33219 (the "Registration Statement"). The managing underwriters for the
offering of the securities sold pursuant to the Registration Statement (the
"Offering") were Dirks & Company, Inc. and Security Capital Trading Inc. (the
"Underwriters"). The Offering commenced on May 7, 1998, and was completed on
June 23, 1998, following the Underwriters' exercise of their options to purchase
additional Units to cover over-allotments (the "Over-Allotment Option"). The
following chart sets forth the securities registered pursuant to the Offering,
for the account of the Company, the amount sold to date and the aggregate
offering price of the amount sold to date:

                                                                       AGGREGATE
                                        OFFERING                        OFFERING
------------------------------------
1 Prices are interdealer quotations, without retail markups, markdowns or
commissions, and may not represent actual transactions.

                                       18
<PAGE>   19

<TABLE>
<CAPTION>

                             AMOUNT         PRICE PER       AMOUNT        PRICE OF
       SECURITY            REGISTERED          UNIT          SOLD       AMOUNT SOLD
       --------            ----------       ---------       ------      -----------
<S>                        <C>              <C>           <C>           <C>
Unit consisting of one      2,012,500         $6.10       1,933,088 2   $11,791,837
share of Common Stock,
par value $.0025 per
share ("Common Stock")
and one redeemable Common
Stock Purchase Warrant
("Warrant")

</TABLE>

----------------

(1) Includes 262,500 additional Units registered pursuant to an Over-Allotment
    Option granted to the Underwriters. Excludes (i) additional shares of Common
    Stock issuable upon exercise of Warrants, (ii) additional shares of Common
    Stock issuable upon exercise of certain Representatives' Warrants as defined
    in the Registration Statement, and (ii) additional shares of Common Stock
    issuable upon exercise of Warrants issuable upon exercise of
    Representatives' Warrants.

(2) Includes 183,088 additional Units purchased by Underwriters on June 23,
    1998, when they partially exercised their Over-Allotment Option by
    purchasing 183,088 Units of the 262,500 originally granted in the Option.

<TABLE>
<S>                                                    <C>
Total underwriting discounts and commissions           $1,061,265
Other expenses                                          1,373,365
                                                        ---------
Total expenses                                         $2,434,630
</TABLE>

All such expenses were direct or indirect payments to others.


  The net offering proceeds to the Company, after deducting the total expenses
  above, were $9,357,225. From May 7, 1998, to September 30, 1999, the Company
  spent a majority of these proceeds. In the table below, the first two columns
  reflect the description and allocation of funds as projected originally in the
  Offering Memorandum. This allocation was subsequently revised to reflect the
  Company's clinical development of OPHD 001 following termination of the Lilly
  Agreements in September 1998. In June 1999, the Company further revised the
  allocation of proceeds to reflect funding of its pilot manufacturing plant.

<TABLE>
<CAPTION>

                                                                  OFFERING MEMORANDUM         REVISED       REVISED
          DESCRIPTION OF USE OF PROCEEDS 1                              MAY 1998             SEPT.1998     JUN.1999
          --------------------------------                        -------------------       ----------    ---------
          <S>                                                     <C>                        <C>           <C>
          Construction of plant, building and facilities                  $ 1,100,000                -     $557,000
          Purchase & installation of machinery & equipment                  1,750,000       $1,900,000    1,300,000
          Purchase of real estate                                                   -                -            -
          Acquisition of other business(es)                                         -                -            -
          Repayment of indebtedness                                                 -                -            -
          Research & development & business operations                      5,500,000        7,300,000 2  7,500,000
          Working capital                                                   1,007,000          157,000            -
          Temporary investments                                                     -                -            -

</TABLE>

---------------

(1) Each of the following amounts is a reasonable estimate based on the
    Company's focus on development of the CDAD product. This use of the proceeds
    does not represent a material change in CDAD development focus described in
    the Prospectus of the Registration Statement,

(2) This figure includes expenditures for the initial Phase II clinical testing
    of the CDAD product.


                                       19

<PAGE>   20

ITEM 6.  SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>


                                              YEARS ENDED SEPTEMBER 30,                            NOTE A
                         --------------------------------------------------------------------
                             1995          1996          1997          1998          1999           1999
                             ----          ----          ----          ----          ----           ----
<S>                      <C>           <C>           <C>           <C>           <C>            <C>
STATEMENTS OF
OPERATIONS DATA
Revenues................ $   386,979   $   321,444   $   671,881   $   322,565    $   26,965   $  4,622,672
Operating Expense
 Research &
development.............   1,215,366     1,339,048     2,432,102     2,946,814     3,354,818     13,941,647
 General &
administrative..........     916,294     1,119,409     1,005,797     1,819,227     1,833,209      8,367,695
                         -----------   -----------   -----------   -----------    ----------   ------------
 Total operating
expenses................   2,131,660     2,458,457     3,437,889     4,766,041     5,188,027     22,309,342
                         -----------   -----------   -----------   -----------    ----------   ------------
  Operating loss........  (1,744,681)   (2,137,013)   (2,766,018)   (4,443,476)   (5,161,062)   (17,686,670)
Investment inc., net....     144,750        50,761       281,483       292,695       302,845      1,415,260
Interest expense........      (4,624)       (3,320)       (2,800)       (2,085)       (1,862)       (41,933)
Other...................         668             -             -             -             -            765
                         -----------------------------------------------------------------------------------
Net loss................ $(1,603,887)  $(2,089,572)  $(2,487,335)  $(4,152,866)  $(4,860,079)  $(16,312,578)
                         ===================================================================================
</TABLE>


          Note A: Inception (November 11, 1989) to September 30, 1999

<TABLE>
<CAPTION>

                                                                  YEARS ENDED SEPTEMBER 30,
                                                                  -------------------------
                                                 1995         1996         1997         1998         1999
                                                 ----         ----         ----         ----         ----
         <S>                                  <C>          <C>          <C>          <C>         <C>
         Net loss per share
           Basic....................            $(2.11)      $(2.73)      $(2.76)      $(4.14)     $(4.21)
           Diluted..................            $(2.11)      $(2.73)      $(2.76)      $(4.14)     $(4.21)
         Shares used to
         compute net loss per
         share
           Basic....................           761,141      764,417      901,909    1,004,234   1,154,277
           Diluted..................           761,141      764,417      901,909    1,004,234   1,154,277

</TABLE>

<TABLE>
<CAPTION>
                                                        SEPTEMBER 30,
                        --------------------------------------------------------------------------
                             1995           1996           1997           1998           1999
                             ----           ----           ----           ----           ----
<S>                     <C>           <C>            <C>            <C>            <C>
BALANCE SHEET DATA
Cash & equivalents....  $  887,577    $ 3,276,339    $ 3,547,036    $ 8,688,162    $ 3,416,490
Working capital.......   1,319,826      3,328,103      3,812,539      8,522,325      3,217,910
Total assets..........   3,408,129      5,247,761      5,975,606     11,354,118    $ 6,822,126
Long-term
obligations...........      50,856         33,914         17,956         12,069          9,687
Deficit accumulated
during development      (2,722,726)    (4,812,298)    (7,299,633)   (11,452,499)   (16,312,578)
stage.
Total shareholders'      3,156,544      4,743,260      5,397,956     10,617,713      6,186,634
equity
</TABLE>


                                       20
<PAGE>   21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS OVERVIEW

Ophidian is a development stage corporation focused on the research, development
and commercialization of therapeutic products for human and animal use. The
Company's business is focused principally on products for human disease
prevention and treatment. The company has not received any revenues from the
sale of FDA licensed products to date and does not expect to receive any such
revenues during the next three fiscal years. Except for the fiscal year ended
September 30, 1993, ("Fiscal 1993"), the Company has been unprofitable every
year since inception. The Company expects to incur additional losses over the
next several years. As of September 30, 1999, the Company had an accumulated
deficit of $16,312,578 and for the year ended September 30, 1999, ("Fiscal
1999"), incurred a net loss of $4,860,079. The Company intends to focus
resources on the development of OPHD 001, OPHD 002 and certain collaborative
activities employing the avian antibody technology. These activities principally
include preclinical and clinical development and prototype manufacturing. The
Company believes that focusing on its avian antibody technology and the lead
therapeutic candidates will maximize shareholder value. As a result of this
focus the Company has curtailed certain other activities. During 1999 the
Company terminated all research activities related to the transforming growth
factor beta ("TGF-beta") signal transduction pathway technology and certain
other research programs. The Company will need to make additional capital
investments in research and development, including equipment, needed to take
over activities previously carried out by contract manufacturers. Investments in
manufacturing facilities are currently under way. Commercialization of any of
the Company's products would require the construction of large-scale production
facilities and supporting testing laboratories. It is expected that the Company
will hire additional personnel to support increased research and development,
manufacturing, quality systems, and general business requirements to support
ongoing clinical testing. Investments in manufacturing and associated
capabilities would be required before any regulatory agency would grant approval
to market products, however, there can be no assurance that such approval will
be granted. The Company has several initiatives to secure the capital necessary
to support its business objectives. The Company is now seeking investment
capital of up to $10 million through private equity or debt transactions. The
Company is also actively engaged in discussions with potential commercial
partners that have strategic interests in markets served by Ophidian's products.
These partnerships are intended to bring financial, development, marketing and
global sales capabilities. Furthermore, the Company is engaged in certain other
discussions regarding the out-licensing of elements of its intellectual property
portfolio outside of its current product development focus. With the completion
of the new pilot manufacturing facility, the Company believes it will be able to
secure contract manufacturing agreements to help offset operating costs until
commercialization of its proprietary products.

While the Company believes it will succeed in one or more of its financing
initiatives, there can be no assurance that sufficient capital will be raised to
avoid interruption of operations.

RESULTS OF OPERATIONS

Fiscal 1999 Compared with Fiscal Year Ended September 30, 1998 ("Fiscal 1998")

Revenues. Revenues decreased $295,600 (92%) to $26,965 in Fiscal 1999 compared
with $322,565 in Fiscal 1998. Revenues in Fiscal 1998 were greater due primarily
to a National Institutes of Health grant and a Department of Defense grant.


                                       21
<PAGE>   22

Research and Development Expenses. Research and development expenses increased
by $408,004 or 14% to $3,354,818 in Fiscal 1999 compared with $2,946,814 in
Fiscal 1998. Research and development expenses in both fiscal years included
personnel, supplies, and allocated overhead in support of the Company's avian
antibody programs and other disease laboratory activities. The increased costs
in Fiscal 1999 were associated primarily with support of pre-clinical and
clinical development of the Company's product candidates OPHD 001 and OPHD 002.
These expenses were offset in part by a decline in expenses related to the
development of certain technologies (TGF-beta).

General and Administrative Expenses. General and administrative expenses
increased $13,982 or 1% to $1,833,209 in Fiscal 1999 compared with $1,819,227 in
Fiscal 1998, reflecting a small increase in costs to support expanded technology
development programs, business development activities and technology licensing.

Investment Income and Expenses. Investment income increased $10,150 or 3% to
$302,845 in Fiscal 1999 compared with $292,695 in Fiscal 1998. Income was earned
on deposits in a cash management account. The increase in investment income in
Fiscal 1999 was due to higher rates offset in the main by lower average monthly
cash balances during the year as compared with Fiscal 1998. Interest expenses
decreased $223 or 11% to $1,862 in Fiscal 1999 compared with $2,085 in Fiscal
1998, and are related to capital leases of office equipment.

Net Loss. Net losses increased $707,213 or 17% to $4,860,079 in Fiscal 1999
compared with $4,152,866 in Fiscal 1998. The increase in net losses in Fiscal
1999 was due primarily to increased research and development expenses and
reduced revenues.

Net Operating Loss. The Company has generated net operating loss
carry-forwards for federal and state income tax purposes for Fiscal 1999. The
Company has recorded a valuation allowance.

Fiscal 1998 Compared with Fiscal Year Ended September 30, 1997 ("Fiscal 1997")

Revenues. Revenues decreased $349,316 or 52% to $322,565 in Fiscal 1998 compared
to $671,881 in Fiscal 1997. Decreased revenues resulted from the absence of
one-time payments from Lilly under the terminated Lilly Agreements of $300,000.
Also absent were payments of $354,266 received from the National Institutes of
Health ("NIH") under a Phase II Small Business Innovation Research ("SBIR")
Grant for Ophidian's enterohemorrhagic Escherichia coli, ("EHEC") program, which
was completed in 1997. These decreases were offset in part by a Department of
Defense SBIR Grant, which generated revenues in Fiscal 1998 of $99,930.

Research and Development Expenses. Research and development expenses increased
$514,712 or 21% to $2,946,814 in Fiscal 1998 compared with $2,432,102 in Fiscal
1997. The increase in expenses resulted from process development and manufacture
of bulk drug to support clinical development of the company's CDAD therapeutic
antitoxin and development of TGFB technology.

General and Administrative Expenses. General and administrative expenses
increased $813,430 or 81% to $1,819,227 in Fiscal 1998 compared with $1,005,797
in Fiscal 1997. The increase in expenses resulted primarily from increased
salary expenses to support business development, and the write-off of
expenditures for site selection, design, engineering, planning, and negotiations
for the company's now deferred first manufacturing facility announced in the
fourth quarter for construction in Toledo, OH.

Investment Income and Expenses. Net interest income increased $11,212 or 4% to
$292,695 in Fiscal 1998 compared to $281,483 in Fiscal 1997. Lower interest
rates received were more than offset by the benefits of the larger balances on
deposit as a result of the May 7, 1998, IPO.


                                       22
<PAGE>   23
Net Loss. Net losses increased $1,665,531 or 67% to $4,152,866 in Fiscal 1998
from $2,487,335 in Fiscal 1997. The increased loss during Fiscal 1998 resulted
from increased research and development, business development, write-off of
manufacturing site expenditures, and general-operating activities.

Net Operating Loss. The Company has generated net operating loss carry-forwards
for federal and state income tax purposes for Fiscal 1998. The Company has
recorded a valuation allowance.

Fiscal 1997 Compared with Fiscal Year Ended September 30, 1996 ("Fiscal 1996")

Revenues. Revenues increased $350,437 or 109% to $671,881 in Fiscal 1997
compared to $321,444 in the year ended Fiscal 1996. Increased revenues resulted
from payments received from Lilly of $300,000 and payments of $354,266 received
from the NIH under a Phase II SBIR Grant for Ophidian's EHEC program. Revenues
in Fiscal 1996 included $100,000 in payments from Lilly and $200,493 from the
NIH.

Research and Development Expenses. Research and development expenses increased
$1,093,054 or 82% to $2,432,102 in Fiscal 1997 compared with $1,339,048 in
Fiscal 1996. The increase in expenses resulted from process development and
manufacture of bulk drug to support pre-clinical and clinical development of
OPHD 001 and additional personnel, consultants and related expenses in
connection with the Company's TGF-beta program.

General and Administrative Expenses. General and administrative expenses
decreased $113,612 or 10% to $1,005,797 in Fiscal 1997 compared with $1,119,409
in Fiscal 1996. The decrease resulted primarily from a decrease in consulting
expenses and legal expenses.

Investment Income and Expenses. Investment income increased $230,722 or 455% to
$281,483 in Fiscal 1997 compared with $50,761 for Fiscal 1996. The increase in
interest income was due to the deposit of funds received by the Company from its
private placement stock offering which raised net proceeds of $2,629,957 and
sales of stock to Lilly in June and November 1996, totaling $3,999,997. Interest
expenses for Fiscal 1997 were $2,800 compared with $3,320 in Fiscal 1996.

Net Loss. Net losses increased $397,763 or 19% to $2,487,335 for Fiscal 1997
compared with $2,089,572 for Fiscal 1996. The increased loss during Fiscal 1997
resulted from increased research and development, business development, and
general operating activities.

                         LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations since inception primarily through the
sale of equity, debt and revenues consisting of payments received under
collaborative agreements and federal research grants. As of September 30, 1999,
the Company had received $21,711,736 in net cash proceeds from the sale of
equity. The Company's principal sales of equity have occurred through its IPO in
May 1998, private placement stock offering activities and sales of equity to
Lilly. The share figures below reflect the 1993 and 1999 stock splits on a
consistent basis.

In January 1990, the Company sold 100,000 shares of Common Stock to Fitchburg
Research Park Associates ("FRPA") at $.50 per share, resulting in net proceeds
to the Company of $50,000.

In December 1992, the Company sold 116,640 shares of Common Stock and warrants
in a private placement offering at $16.00 per unit. The unit consisted of one
share of Common Stock and a warrant to purchase one-half additional share at an
exercise price of $18.00 per share, resulting in net proceeds to the Company of
$1,828,364. In March 1993, warrants to exercise 55,890 shares of Common Stock
sold pursuant to this offering were exercised, resulting in net proceeds to the
Company of $1,006,020.

                                       23
<PAGE>   24

The Company sold 72,435 shares of Common Stock in a private placement offering
at $36.00 per share, which was completed in June 1993 resulting in net proceeds
to the Company of $2,579,661.

In September 1993, FRPA exercised its warrant (issued October 1990) to purchase
15,625 shares of Common Stock at $16.00 per share, resulting in net proceeds to
the Company of $250,000.

The Company sold 60,726 shares of Common Stock in a private placement offering
at $44.00 per share, which was completed in October 1996 resulting in net
proceeds to the Company of $2,629,957.

In June 1996, the Company and Lilly entered into the Lilly Agreements, according
to which the Company sold to Lilly 19,231 shares of Common Stock at $52.00 per
share and in October 1996 sold 88,182 shares of Common Stock at $44.00 per
share, resulting in aggregate net proceeds of $3,999,997.

In May 1998, the Company completed its IPO. The resulting sale of 1,933,088
Units, consisting of one Common Share and one Common Stock Purchase Warrant,
generated net proceeds to the Company of $9,357,225.

On June 7, 1999, the Company entered into an agreement with Rex J. Bates, a
Director, and Davis U. Merwin, a shareholder, according to which the Company
received $2,000,000 on October 14,1999, in return for 10% senior notes with
warrants. Five-year warrants for 125,000 common shares exercisable at $16.00
were issued separately. Interest on the notes for the first three years is
payable in common shares of the Company at the then current market value.

Net cash used in operating activities was $4,645,401 for Fiscal 1999, as
compared with net cash used in operating activities of $3,753,035 for Fiscal
1998. The increase in cash used in operating activities is primarily
attributable to increased research and development funding activities, lower
revenues and unfavorable net changes in operating assets and liabilities half of
which relates to the decline in the previously mentioned grant activity. Net
cash used in investing activities was $620,611 in Fiscal 1999, as compared to
$20,913 for the equivalent period a year earlier. The increase is principally
attributable to a lack of proceeds received from available-for-sale investment
activities in Fiscal 1999 and for higher expenditures for equipment offset in
part by lower patent expenditures. Net cash used by financing activities was
$5,660 in Fiscal 1999 versus $8,915,074 provided for Fiscal 1998. The change is
primarily attributable to the receipt of $9,357,225 in May 1998; net proceeds
from the sale of equity in the Company's IPO offset in part by a reversal in
plans for an equipment operating lease.

The Company believes that its existing capital resources will be sufficient to
satisfy its funding requirements for at least the six months following the date
of this document. These resources consist of cash investments of $3,416,490 as
of September 30, 1999, and the receipt of $2,000,000 from the sale of senior
notes in October 1999. The Company, as a normal part of its strategy and
business practice, is actively soliciting additional collaborative agreements
and considering other alternatives to enhance its capital resources as described
under the subheading titled "Overview" of this section. Management believes that
given the foregoing alternative sources of funds and the current level of
effort, sufficient funds can be secured for operations beyond 2000. However
there can be no assurance that these efforts will be successful. In addition,
the funding requirements referred to above include continued expenditures for
research and development programs, including continuing the clinical testing
for OPHD 001, initiating clinical testing of OPHD 002 in late 2000 as well as
expenditures related to expanded laboratory and manufacturing facilities.

The Company anticipates that expenses incurred for clinical testing of OPHD 001
and the initiating of clinical trials of OPHD 002 will contribute to future
increases in net operating losses.

                                       24

<PAGE>   25

These future increases in operating losses will result from the hiring or
contracting of additional personnel and the contracting of a clinical research
organization to conduct the trials. In addition, expenses will increase as the
new pilot manufacturing facilities come on line. At the midpoint of Phase III
clinical trials for OPHD 001 expected in 2001, additional capital expenditures
approximating $8 million will be required to establish a production facility for
the commercial launch of OPHD 001. In addition to this, even larger expenditures
for the trials themselves will be required. If OPHD 001 fails to secure FDA
approval, the Company's success or lack thereof in securing other business will
have a material affect on future profitability and cash flows.

                              NET OPERATING LOSSES

The Company has not generated taxable income to date. At September 30, 1999, the
net operating losses available to offset future taxable income for federal and
Wisconsin income tax purposes were approximately $16,265,000 and $16,420,000
respectively. These carryforwards expire beginning in 2007 if not utilized. At
September 30, 1999, the Company has research and other federal tax credit
carryforwards of approximately $869,000 and Wisconsin carryforwards of
approximately $336,000. The Company has recorded a full valuation allowance
against any deferred tax assets established for the carryforwards.

Utilization of the net operating losses and credits may be subject to annual
limitations due to the ownership change limitations provided by the Internal
Revenue Code and similar state provisions. The annual limitations may result in
the expiration of net operating losses and credits before utilization.

                                YEAR 2000 IMPACT

The Company anticipates a complete conversion of its computer hardware, software
operating systems and application systems concurrent with the planned
commencement of larger scale manufacturing operations to meet the more
sophisticated requirements of a biopharmaceutical manufacturer. This conversion
is not a requirement, however, to become year 2000 compliant. Nor is any
material impact on operations envisioned in the absence of the conversion. The
Company has inventoried and evaluated the software application systems presently
employed. The Company has been informed that its business systems, as they
presently exist, are Year 2000 compliant. There may be a stand-alone scientific
system, which is not compliant. The Company does not believe remediation and
testing will entail any significant costs. Nor is any material impact on
operations envisioned in the absence of the conversion. The Company does not
have the resources nor has it attempted to survey its suppliers as to the
adequacy of their year 2000 preparations. The Company, in its present state as a
"development stage company," believes there are sufficient alternative sources
of suppliers and vendors to meet its limited demand for material and services.
Thus, the risk of a total lack of supply or a lack of supply for an extended
period of time is viewed as de minimis.

ITEM 7 A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

It is the Company's opinion that there is no material interest rate risk as all
investments are short term with specific guidelines as to approved securities,
maturity restrictions and credit standards.

ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Financial Statements and Supplementary Data are included in this document at
pages F-1 to F-18.

ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
               FINANCIAL DISCLOSURE.

None

                                       25

<PAGE>   26

                                    PART III

ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS

The executive officers and directors of the Company, and their ages as of
November 30, 1999 are as follows:

<TABLE>
<CAPTION>
NAME                               AGE      POSITION
<S>                                 <C>     <C>
Dr. Douglas C. Stafford (1)         44      President, Chief Executive Officer,
                                            Director
Mr. William A. Linton (1)(2)(3)     52      Former Chairman of the Board, Director
Dr. Peter Model (2)(4)              66      Chairman of the Board, Director
Dr. Joseph R. Firca                 55      Vice President, Research and
                                            Development
Mr. Donald L. Nevins                61      Vice President, Finance, Treasurer,
                                            CFO
Ms. Susan P. Maynard (1)            49      Secretary
Dr. Margaret B. van Boldrik (1)     43      Director, Vice President
Mr. Rex J. Bates (2)(4)             76      Director
Dr. W. Leigh Thompson (4)           61      Director
</TABLE>

(1) Member of Executive Search and Review Committee
(2) Member of Stock Option Committee
(3) Resigned March 23, 1999
(4) Member of Audit Committee

Dr. Douglas C. Stafford has served as President and Chief Executive Officer of
the Company since January 1995. Dr. Stafford served as the Company's President
and Chief Operating Officer from August 1990 to January 1995. In May 1997, Dr.
Stafford joined the Company's Board of Directors. Prior to joining the Company,
Dr. Stafford was employed by Baxter Healthcare Corporation, a publicly held
healthcare products company, from 1985 to 1990. He held various senior
management positions, including Director of Immunodiagnostics Development and
Manufacturing at the Pandex Division of Baxter Healthcare Corporation, a company
developing products for the diagnosis of infectious diseases. His experience
also includes senior management positions in biologic product development,
quality assurance, project management, process development, and manufacturing
operations at Pandex and in other assignments within the Baxter organization
where he was involved in corporate and divisional technology and manufacturing,
strategic planning and business development. Prior to Baxter, Dr. Stafford was
employed at Sensor Diagnostics, Inc., a privately held medical diagnostics
company, from 1984 to 1985 and held a faculty position at the University of
Detroit from 1983 to 1984. Dr. Stafford holds BS and MS degrees in Biology from
the University of Detroit, a Ph.D. in Immunology from Tufts University, and an
MS in Management from Lesley College.

Dr. Peter Model has served as a Director of the Company since December 1996 and
as Chairman of the Board of Directors since March 1999. Dr. Model is a senior
faculty member conducting research in the areas of biochemistry and genetics at
the Rockefeller University, where he has been employed since 1967. He served on
the editorial boards of the Journal of Virology and Virology and is a member of
various scientific advisory committees. Dr. Model received his BS from Stanford
University and his Ph.D. in Biochemistry from Columbia University.

Dr. Joseph Firca has served as the Company's Vice President, Research and
Development since July 1992. Prior to joining the Company, Dr. Firca was Vice
President, Advanced Technologies, at the Pandex Division of Baxter Healthcare
Corporation, a publicly held healthcare products

                                       26

<PAGE>   27

company, responsible for infectious disease, blood screening systems technology,
immunoassay product development, and advanced technology development from May
1985 to January 1992. Previously he held several scientific management positions
at Abbott Laboratories from 1976 to 1985. Dr. Firca received BS in Biology from
Xavier University, an MS from Duquesne University, and a Ph.D. in Microbiology
from the University of Cincinnati. In addition, Dr. Firca conducted
post-doctoral research at the Argonne National Laboratory and was a Visiting
Associate at the California Institute of Technology.

Mr. Donald L. Nevins joined the Company as Vice President, Finance, and Chief
Financial Officer in November 1997. From 1993 to 1997, Mr. Nevins operated his
own consulting firm which provided financial and strategic services to
development-stage companies. He has been President, CEO, and a director of CPR
Electronics Inc., a company he formed for investment and consulting purposes in
1993 that became inactive in September 1997. He was President, CEO, and a
director of LouveRail Enterprises, Inc. in 1996 and Vice President-Finance and
CFO of Personnel Data Systems from 1995 to 1996. From 1988 to 1992, he was CFO
of C & D Technologies, Inc., a publicly held battery and electronics company.
From 1986 to 1988, he was Senior Vice President of Finance and a director of
Protein Sciences Corp., a private biopharmaceutical company. From 1976 to 1986,
he held a series of positions with Uniroyal Inc. including CFO of two major
groups (Chemical and Engineered Products). From 1974 to 1976, Mr. Nevins was
Assistant Controller of Combustion Engineering, Inc. and CFO of its Brazilian
subsidiary. From 1967 to 1972, he held a series of financial staff positions
with Commercial Union Companies, Inc.; from 1972 to 1974 with Northwest
Industries, Inc.; and from 1964 to 1967 with Carborundum Company. From 1960 to
1964, Mr. Nevins was a Certified Public Accountant at PriceWaterhouse Coopers &
Co. Mr. Nevins received his BBA from the University of Pittsburgh and a MBA from
the State University of New York.

Ms. Susan P. Maynard joined the Company in 1993 and has served as Secretary
since March 1999. She serves the functions of human resources administration,
business management, shareholder relations and facilities management. Ms.
Maynard was previously employed at the University of Wisconsin-Madison as the
Administrative Program Manager for the Laboratory of Molecular Biology. There,
she managed broad-based programs to support research operations, including
federal grant administration, budget development and administration, human
resources management, and information systems management. She was also
responsible for managing Ph.D. and undergraduate degree programs in Cell and
Molecular Biology, which included coordinating activities for 120 students and
160 faculty members located in 40 different departments and 6 different colleges
on campus. In recognition for her excellence of service, the University
conferred indefinite appointment status (administrative tenure) for her
position. Numerous courses and seminars complement Ms. Maynard's experience in
Human Resources Law, Business Administration, Effective Leadership, Total
Quality Management and Business Writing.

Dr. Margaret B. van Boldrik is a Co-Founder of the Company and has served as a
Director since its inception in November 1989. Dr. van Boldrik has also served
as Vice President of the Company since January 1990 and as Secretary of the
Company from November 1989 to March 1999. Prior to joining the Company, Dr. van
Boldrik was Director of the University of Wisconsin Biotechnology Center's
Technology Transfer Office where she managed broad-based programs for the
commercial development of University-affiliated technologies from 1987 to 1990.
Dr. van Boldrik holds a BS in Biochemistry from the University of California at
Davis and a Ph.D. in Biochemistry from Tufts University.

Mr. Rex J. Bates has served as a Director of the Company since March 1992. He
has also served as a Director of Ventana Medical Systems, Inc., a publicly held
manufacturer and marketer of instrument/reagent systems that automate tissue
preparation and slide staining in histology laboratories worldwide, since April
1996. He is also Chairman of Ventana's Audit Committee. From August 1991 to May
1995, Mr. Bates served on the Board of Directors of Twentieth Century

                                       27

<PAGE>   28

Industries, a publicly held insurance holding company, and was a member of its
compensation committee. Mr. Bates worked at State Farm Mutual Automobile
Insurance Company from May 1972 to March 1991 serving as Vice-Chairman of the
Board of Directors and as Chief Investment Officer. In March of 1991, Mr. Bates
retired from State Farm. Mr. Bates was a member of the investment advisory firm
of Stein, Roe & Farnham in Chicago from August 1949 to May 1972. Mr. Bates
received a BS and an MBA from the University of Chicago.

Dr. W. Leigh Thompson has served as a Director of the Company since December
1995. Dr. Thompson founded Profound Quality Resources, Inc., a private
healthcare consulting firm, in 1995 to provide consulting services to health
institutions and manufacturers worldwide. Dr. Thompson served as an Assistant
Professor of Medicine and of Pharmacology and Experimental Therapeutics at Johns
Hopkins University from 1970 to 1974 where he founded and led the Medical
Critical Care Unit. He was a Professor of Medicine at Case Western Reserve from
1974 to 1982, where he founded programs in clinical pharmacology and critical
care medicine. He worked at Eli Lilly and Company, holding several executive
positions including Executive Vice President of Lilly Research Laboratories and
Chief Scientific Officer from 1982 through 1994. He holds a Ph.D. and ScD (hc)
from the Medical University of South Carolina and a M.D. from Johns Hopkins
University. He is a past President of the Society of Critical Care Medicine
and Co-Editor of the first two textbooks in this field. He also serves on the
Board of Directors of DepoMed, Guilford Pharmaceuticals, Inspire, LaJolla
Pharmaceuticals, Maret, Medarex, Ontogeny, Orphan Medical, and Tanabe Research
Laboratories.

              BOARD OF DIRECTORS COMMITTEES AND OTHER INFORMATION

The Company's directors are elected annually and hold office until the next
annual meeting of stockholders of the Company and until their respective
successors have been qualified and elected. Officers are elected by, and serve
at the discretion of, the Board of Directors.

In July 1997, the Board of Directors appointed an Audit Committee that reviews
the scope and results of the Company's financial statements conducted by the
Company's independent accountants. The Committee also reviews the scope of other
services provided by the Company's independent accountants, proposed changes in
the Company's financial and accounting standards and principles, and the
Company's policies and procedures with respect to its internal accounting, and
auditing and financial controls. The Committee makes recommendations to the
Board of Directors on the engagement of the independent accountants, as well as
other matters which may come before it or as directed by the Board of Directors.

A subcommittee of the Board of Directors administers the Company's stock option
plans. The Board of Directors has also established an Executive Search and
Review Committee charged with identifying executive staff requirements,
recruiting, and evaluating performance and compensation of the Company's
executive officers. Although no other committees currently exist, management
expects the Board will in the future set up such finance, compensation, and
other standing and ad hoc committees, made up of Board members, officers,
consultants and others, as it deems necessary and appropriate for the efficient
operation of the Company.

                              DIRECTOR COMPENSATION

Non-employee Directors of the Company are paid $1,000 per regularly scheduled
meetings and $500 per significant telephonic meetings of the Board of Directors
which is payable in cash or in shares of the Company. Dr. Thompson does not
receive compensation as Director of the Company but receives compensation as a
consultant. See "Consultant Compensation;" page 31.

                      EMPLOYMENT AND CONSULTING AGREEMENTS

The Company has entered into agreements with all its employees, including Drs.
Stafford, Firca, Ms. Maynard, and Mr. Nevins, who are currently corporate
officers (including Dr. F. Michael Hoffmann, a Vice President, who resigned
April 1, 1999), concerning ownership of intellectual

                                       28

<PAGE>   29

property. These agreements prohibit competition with the Company during and for
a term of one year after termination of, employment with the Company. They
obligate each employee to keep confidential the trade secrets and other
proprietary information of the Company, and employees are required to disclose
and assign to the Company all of their discoveries and inventions and any and
all patent rights therein.

Effective June 1, 1997, the Company entered into an employment agreement with
Dr. Douglas Stafford, President and Chief Executive Officer of the Company, for
a three-year term. Pursuant to such agreement, Dr. Stafford receives an annual
base salary of $180,000 subject to annual review and increase by mutual
agreement.

Effective June 1, 1997, the Company entered into an employment agreement with
Dr. Joseph Firca, Vice President, Research and Development of the Company, for a
three-year term. Pursuant to such agreement, Dr. Firca receives an annual base
salary of $154,000 subject to annual review and increase by mutual agreement.

Effective August 1, 1997, the Company entered into an employment agreement with
Dr. F. Michael Hoffmann, Vice President, Genetic Technology Programs of the
Company, for a three-year term with an annual base salary of $125,000. On
December 1, 1998, Dr. Hoffmann reduced his responsibilities under this agreement
and was compensated as a consultant. Effective April 1, 1999, Dr. Hoffmann
resigned and the consulting relationship was terminated. Pursuant to the
resignation no further compensation under the employment contract is due.

Effective November 6, 1997, the Company entered into an employment agreement
with Donald L. Nevins, Vice President, Treasurer, Finance, and Chief Financial
Officer. Mr. Nevins assumed his duties with the Company December 1, 1997. Mr.
Nevins receives an annual base salary of $110,000, subject to annual review and
increases by mutual agreement.

Scientists and consultants retained by the Company will generally be
contractually obligated to disclose and assign to the Company certain ideas and
inventions developed in the performance of duties for the Company and will be
prohibited from disclosing any confidential Company information to anyone
outside the Company at any time. The terms of their agreements may depend upon
the outcome of negotiations and the level of protection provided by other
circumstances.

ITEM 11.       EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by, or paid
for services rendered to the Company in all capacities during Fiscal 1999, 1998
and 1997 by the Company's President and Chief Executive Officer and all other
corporate officers earning in excess of $100,000 annually.

                                       29
<PAGE>   30


<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE

                                                                    Long Term
                                   Annual Compensation            Compensation
                              --------------------------------------------------
                                                                  Common Stock
Name and Principal Position      Year        Salary     Bonus      Underlying
---------------------------      ----        ------     -----      ----------
                                                                    Options(4)
                                                                    ----------
<S>                              <C>        <C>        <C>          <C>
Dr. Douglas Stafford             1999       $179,517    $ ---         ----
  President & CEO                1998       $179,517   $25,000        ----
                                 1997       $154,162   $10,000       3,750
Dr. Joseph R. Firca(1)           1999       $156,272   $20,000        ----
  VP, Research & Development     1998       $139,624    $ ---         ----
                                 1997       $132,909   $15,000       2,500
Dr. F. Michael Hoffmann(2)       1999        $43,441    $ ---         ----
  VP, Genetic Tech. Programs     1998       $118,381   $25,000        ----
                                 1997        $86,250    $ ---       12,500
Donald L. Nevins(3)              1999       $109,705    $ ---         ----
  VP, Finance, Treasurer & CFO   1998       $115,781    $ ---         ----
                                 1997        $ ---      $ ---         ----

(1)Does not include certain relocation expenses to be paid by the Company in the
   future to Dr. Firca.
(2)Dr. Hoffmann resigned as Vice President of the Company as of April 1, 1999.
   His right to exercise options awarded in 1997 expired without exercise on
   June 30, 1999.
(3)Mr. Nevins became a Vice President of the Company as of November 6, 1997, and
   his salary compensation included a nonaccountable relocation allowance of
   $20,000.
(4)The number of options have been adjusted to reflect the 1:8 reverse split
   effective September 20, 1999.
</TABLE>

The following table sets forth certain information regarding the value of
exercised and unexercised stock options held by each of the named Executive
Officers as of September 30, 1999. None of the named Executive Officers
exercised options to purchase Common Stock during the fiscal year ended
September 30, 1999.

<TABLE>
<CAPTION>
                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUES

                         Number of Securities
                        Underlying Unexercised             Value of Unexercised
                             Options at                    In-the-Money Options
                          September 30, 1999(1)           At September 30, 1999(2)
                          ---------------------          -------------------------
     Name            Exercisable    Unexercisable      Exercisable     Unexercisable
     ----            -----------    -------------      -----------     -------------
<S>                    <C>              <C>              <C>                 <C>

Dr. D. C.Stafford      24,900           2,250            $60,025             $0
Dr. J. R. Firca        13,500           1,500              $0                $0
Mr. D. L. Nevins(3)      N/A             N/A              N/A                N/A

</TABLE>

----------------------------

(1)The number of options have been adjusted to reflect the 1:8 reverse split
   effective September 20, 1999.
(2)The value of the options is based upon the difference between the exercise
   price and the value of $4.00 per share based on the closing price of the
   stock on September 30, 1999.
(3)An award of 6,250 options is pending determination of option pricing by the
   Board of Directors.

                                       30








<PAGE>   31
                            CONSULTANT COMPENSATION

In June 1996, the Company granted a consultant, G. Steven Burrill, the option to
purchase 12,500 shares of the Company at a price of $36.00 per share exercisable
until May 2004.

Prior to December 31, 1998, the Company paid Dr. van Boldrik a quarterly
consulting fee of $5,000, which included her services as a Director. Subsequent
to that time, Dr. van Boldrik has received standard compensation for Director's
services and health insurance benefits totaling $5,395 in fiscal 1999.

Dr. Thompson receives $2,400 per day plus expenses for his services as a
consultant payable in cash or shares, in any event not to exceed 10,000 shares
in aggregate. For Fiscal 1999, Dr. Thompson received $22,639.

Each of the consultants provides services regarding business development,
technology assessment or research strategies.

                               STOCK OPTION PLANS

The Company currently has a 1990 Income Stock Option Plan, a 1992 Employee Stock
Option Plan, and a 1998 Incentive Stock Option Plan (the "Stock Option Plans")
in force for its employees, advisors and directors. The 1998 Incentive Stock
Option Plan was adopted by stockholders on March 23, 1999, to supplement the
1990 Incentive Stock Option Plan. The Stock Option Plans provide for the grant
of options to purchase shares, in the case of the 1992 Employee Stock Option
Plan, at a value determined by the Stock Option Committee, and in the case of
the 1990 and 1998 Incentive Stock Option Plan, at not less than fair market
value as of the date options are granted. The Stock Option Plans are
administered by a committee ("Stock Option Committee") made up of at least two
members of the Company's Board of Directors who are not officers, employees, or
consultants of the Company. Mr. Bates and Dr. Model currently serve on the Stock
Option Committee. On December 1, 1992, by a vote of stockholders, the number of
shares available for employee stock options was increased by 25,000 shares, for
a total of 82,145. On March 23, 1999, the stockholders voted to adopt the 1998
Incentive Stock Option Plan and to increase the number of shares available for
stock options by 39,730 shares, for a total of 121,875.

As of November 30, 1999, the Company has entered into stock option agreements
granting Dr. Stafford options to purchase up to 17,150 shares at an exercise
price of $.50 per share. These options vested in stages ending August 1, 1994,
and may only be exercised prior to July 31, 2000. There is also an option to
purchase 10,000 shares at an exercise price of $3.50 per share, which options
vested upon award, and may only be exercised prior to November 4, 2009. The
Company has entered into agreements granting Dr. Firca the option to purchase
13,500 shares at an exercise price of $3.50 per share, which options vested upon
award, and may only be exercised prior to November 4, 2009. The Company has
entered into an agreement granting Mr. Nevins the option to purchase 6,250
shares at an exercise price of $3.50, which option vested upon award and may
only be exercised prior to November 4, 2009. The Company has entered into an
agreement granting Mr. Bates the option to purchase 3,125 shares at an exercise
price of $16.00 per share, which options were immediately vested, and may only
be exercised prior to July 31, 2006. He was also granted the option to purchase
625 shares at an exercise price of $36.00 per share which option was vested on
January 12, 1997 after one year of service with the Company, and may only be
exercised prior to January 12, 2006. A third Stock Option Agreement was entered
into between the Company and Mr. Bates according to which he was granted the
option to purchase 625 shares at an exercise price of $44.00. The option vested
upon one year of service following January 10, 1997, and may only be exercised
prior to January 10, 2007. A fourth Stock Option Agreement was entered into
between the Company and Mr. Bates granting him the option to purchase 1,250
shares at an exercise price of $3.50, which option vested upon award and may
only be exercised prior to November 4, 2009. The Company has entered into an

                                       31

<PAGE>   32

agreement granting Dr. Model the option to purchase 668 shares at an exercise
price of $44.00 per share. The option vested upon one year of service following
January 10, 1997 and may be exercised only prior to January 10, 2007. A second
agreement with Dr. Model granted him the option to purchase 1,250 shares at an
exercise price of $3.50 per share, which option vested upon award and may only
be exercised prior to November 4, 2009. The Company has entered into an
agreement granting Dr. Thompson the option to purchase 665 shares at an exercise
price of $36.00 per share. The option vested upon one year of service following
January 12, 1996 and may only be exercised prior to January 12, 2006. A second
agreement with Dr. Thompson granted him the option to purchase 625 shares at an
exercise price of $5.50 per share, which vested upon one year of service from
January 10, 1997 and may be exercised by January 10, 2007. The Company entered
into a third Stock Option Agreement with Dr. Thompson granting him the option to
purchase 1,250 shares at an exercise price of $3.50, which option vested upon
award and may only be exercised prior to November 4, 2009. The Company has
entered into similar agreements with 21 Company employees who are not executive
officers pursuant to the 1990/1992/1998 Stock Option Plans granting options to
purchase an aggregate of 19,808 shares of common stock at a weighted average
exercise price of $2.82 per share. The options granted pursuant to the
1990/1992/1998 Stock Option Plans are nontransferable, but may be exercised by
the personal representative of a holder thereof in the event of death.

                             401(K) RETIREMENT PLAN

Effective October 1, 1993, the Company established a profit sharing plan and
trust to provide retirement benefits for eligible employees. The Ophidian
Pharmaceuticals, Inc. 401(k) Plan (the "401(k) Plan") is intended to be
tax-qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended. Participants may direct a portion of their compensation, the lesser of
15% or $10,000 (the maximum limit set by law for 1999), to be contributed to
their accounts under the 401(k) Plan. The Company has arranged for the firm of
Robert W. Baird and Company to provide investment services to employees for
their funds contributed to the 401(k) Plan. The Company may but is not required
to, match a participant's pre-tax contributions to the 401(k) Plan. In addition,
the Company may make discretionary contributions to the 401(k) Plan on an annual
basis. To date, the Company has not made any contributions under the 401(k) Plan
in addition to participants' own contributions. Participants are always vested
fully in their pre-tax contributions to the 401(k) Plan.

Generally, amounts contributed to the 401(k) Plan (and any earnings or interest)
may not be distributed until the participant's death, disability, retirement or
termination of employment. There may be certain tax penalties levied for
lump-sum withdrawals made prior to age 59 1/2, unless the sum is rolled over
into another qualified plan or individual retirement account. In addition, funds
may be made available in the form of a loan or hardship distribution to a
participant in the event of an immediate and heavy financial necessity.

                            STOCK PERFORMANCE GRAPH

The following graph compares the percentage change in cumulative total
shareholder return on the Company's Common Stock with the cumulative return on
the NASDAQ (Composite) Stock Market Index (designated as "Broad Market" below)
and the NASDAQ Biotechnology Stock Index (designated as "Peer" below). The
percentage change is shown during the period beginning June 12, 1998 (the date
on which the Company's Common Stock began trading separately from the warrants
on the NASDAQ SmallCap System) through September 30, 1999. The comparison
assumes $100 was invested on June 12, 1998, in the Company's Common Stock and in
the foregoing indicies and assumes the reinvestment of dividends.


                                       32

<PAGE>   33
<TABLE>
<CAPTION>
                                 12-Jun-98      30-Sep-98      30-Sep-99

<S>                              <C>            <C>            <C>
OPHIRIAN                           100             44.6         15.7
NASDAQ STOCK MARKET INDEX          100             97.1        157.4
NASDAQ BIO-TECH STOCK INDEX        100            101.4        187.9

</TABLE>

ITEM 12. SECURITIES AND PRINCIPAL HOLDERS THEREOF

The following table sets forth the beneficial ownership of the Company's Common
Stock as of November 30, 1999 by (a) each person known by the Company to be the
beneficial owner of more than 5% of the Company's Common Stock, (b) the
directors of the Company, (c) the executive officers of the Company, and (d) all
directors and executive officers as a group.

<TABLE>
<CAPTION>
                                                                        Number of                     Number of
                                                                       $55.615/shr                   $16.00/shr
                                          Number of                     Warrants                      Warrants
                                            Shares                     (.13162 shr)                  (.125 shr)
Name and Address of                      Beneficially   Percentage     Beneficially   Percentage     Beneficially   Percentage
Beneficial Owner                            Owned(1)     Owned (1)        Owned          Owned          Owned(1)       Owned
----------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>            <C>            <C>            <C>

Dr. Margaret B. van Boldrik(2).........     169,350         14.6
Eli Lilly and Company
Lilly Corporate Center,
Indianapolis, IN  46285................      87,412          7.6
Dr. Sean B. Carroll(3).................      67,541          5.8             333           *
Dr. Peter Model(4).....................      68,190          5.9          45,000          2.3
Mr. William A. Linton(5)...............      64,125          5.5
Mr. Rex J. Bates(6)....................      55,118          4.8           9,150           *           500,000         50.0
Mr. Davis U. Merwin....................      54,706          4.7           9,150           *           500,000         50.0
Dr. Douglas C. Stafford(7).............      24,912          2.2             100           *
Mr. Donald L. Nevins(8)................      23,749          2.1          88,500          4.6
Dr. Joseph R. Firca(9).................      13,500          1.2
Dr. W. Leigh Thompson(10)..............       2,630           *
Ms. Susan P. Maynard(11)...............       2,286           *
All Directors and Officers as a Group
(8 persons)(12)(13)....................     633,519         54.8         142,750          7.4        1,000,000        100.0

</TABLE>

      *Less than 1%.

(1)   Includes ownership of shares of Common Stock plus options exercisable
      within 60 days of September 30, 1999. Shares of Common Stock subject to
      outstanding options are deemed outstanding for purposes of computing the
      percentage of ownership of the person holding such options but are not
      deemed outstanding for computing the percentage ownership for any other
      persons.

(2)   Dr. van Boldrik's beneficial ownership includes 158,100 shares owned by
      Dr. van Boldrik, 5,625 shares held by the Willem Erin Samburu Carroll van
      Boldrik Trust A and 5,625 shares held by the Jan Patrick Jabiru van
      Boldrik Carroll Trust A. Dr. van Boldrik is the sole trustee for both
      trusts.

(3)   Dr. Carroll's beneficial ownership includes 56,291 shares owned by Dr.
      Carroll, 5,625 shares held by the Jan Patrick Jabiru van Boldrik Carroll
      Trust B, and 5,625 shares held by the Willem Erin Samburu Carroll van
      Boldrik Trust B. Dr. Carroll is the sole trustee for both trusts.


                                       33
<PAGE>   34

(4)   Includes 56,875 shares held by the Model Charitable Lead Trust and Peter
      Model Trust II, for which Dr. Model is one of two co-trustees, and options
      to purchase 668 shares currently vested in the 1992 Stock Option Plan at
      an exercise price of $44.00 per share which expire January 2007, and
      options to purchase 1,250 shares currently vested in the 1992 Stock Option
      Plan at an exercise price of $3.50 per share which expire November 2009.

(5)   Includes 32,813 shares owned by Promega Corporation of which Mr. Linton is
      Chairman, President and Chief Executive Officer and may be deemed to have
      voting and investment power over the shares.

(6)   Includes options to purchase 3,125 shares currently vested in the 1992
      Stock Option Plan at an exercise price of $16.00 which expire in July
      2006, options to purchase 625 shares currently vested in the 1992 Stock
      Option Plan at an exercise price of $36.00 which expire in January 2006,
      options to purchase 625 shares currently vested in the 1992 Stock Option
      Plan at an exercise price of $44.00 per share which expire January 2007,
      and options to purchase 1,250 shares currently vested in the 1992 Stock
      Option Plan at an exercise price of $3.50 per share which expire November
      2009.

(7)   Includes 12 shares and options to purchase 17,150 shares currently vested
      in the 1990 Stock Option Plan at an exercise price of $0.50 which expire
      in July 2000, and options to purchase 7,750 shares currently vested in the
      1998 Incentive Stock Option Plan at an exercise price of $3.50 which
      expire in November 2009.

(8)   Includes shares owned by Bessie Nevins Trust (3,750), Mr. Nevins' son,
      Donald L. Nevins III (25), grandson, Jared Lester Nevins (25) and
      stepgrandaughter Tara Francis Osiecki (37), stepsons, Matthias J. Malin
      (25) and David G. Raquet (25), and stepdaughters, Alexandra Nevins (25),
      Debra N. Safford (25), E. Paige Malin (25) and Anne K. Malin (25) and
      wife, Sylvia M. Nevins (2,925), and her granddaughters Annelise N. Raquet
      (25) and Kira Lynn Raquet (25). Also includes warrants owned by Bessie
      Nevins Trust (10,000), Mr. Nevins' son, Donald L. Nevins III (500), and
      grandson, Jared Lester Nevins (500), stepsons, Matthias J. Malin (500) and
      David G. Raquet (500), and stepdaughters, Alexandra Nevins (500), Debra N.
      Safford (500), E. Paige Malin (500) and Anne K. Malin (500) and wife,
      Sylvia M. Nevins (17,500). Also includes options to purchase 6,250 shares
      currently vested in the 1998 Incentive Stock Option Plan at an exercise
      price of $3.50 which expire November 2009.

(9)   Includes options to purchase 13,500 shares currently vested in the 1998
      Incentive Stock Option Plan at an exercise price of $3.50 which expire in
      November 2009.

(10)  Includes options to purchase 665 shares currently vested in the 1992 Stock
      Option Plan at an exercise price of $36.00 per share which expire in
      January 2006, options to purchase 625 shares currently vested in the 1992
      Stock Option Plan at an exercise price of $44.00 per share which expire
      January 2007, and options to purchase 1,250 shares currently vested in he
      1992 Stock Option Plan at an exercise price of $3.50 per share which
      expire November 2009.

(11)  Includes options to purchase 2,224 shares currently vested in the 1998
      Incentive Stock Option Plan at an exercise price of $3.50 per share which
      expire in November 2009.

(12)  Address is 5445 East Cheryl Parkway, Madison, Wisconsin 53711.

(13)  Includes 56,957 shares of Common Stock issuable upon exercise of
      outstanding options which will vest within 60 days of September 30, 1999,
      of which 17,150 have an exercise price of $0.50, 33,474 have an exercise
      price of $3.50, 3,125 have an exercise price of $16.00, 1,290 have an
      exercise price of $36.00 and 1,918 have an exercise price of $44.00.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                              CERTAIN TRANSACTIONS

In exchange for 200,000 shares, Dr. Sean B. Carroll, a founder of the Company,
contributed to the Company in 1990 all of his rights to his invention entitled
"Antivenoms and Methods for


                                       34
<PAGE>   35

Making Antivenoms" which is the basis for the Company's avian technology, as
well as a subsequent assignment in the same year of his rights to any patent
applications filed in connection with the Company's passive antibody technology.
The Company determined that the transfer of Dr. Carroll's technology rights was
adequate consideration for the issuance of these shares of Company Stock. Dr.
Carroll currently owns 67,541 shares.

In exchange for 200,000 shares, Dr. Margaret B. van Boldrik, Vice President, a
Director and founder of the Company, contributed in 1990 all of her rights in
the invention entitled "Antivenoms and Methods for Making Antivenoms," as well
as a subsequent assignment in the same year of her rights to any patent
application filed in connection with the Company's passive antibody technology.
The Company determined that the transfer of Dr. van Boldrik's technology rights
was adequate consideration for the issuance of these shares of Company Stock.
Dr. van Boldrik currently owns 169,350 shares.

Fitchburg Research Park Associates Limited Partnership ("FRPA"), a Wisconsin
limited partnership of which William A. Linton, former Director and Chairman of
the Board, is the sole general partner and holds a 50% ownership interest,
received 100,000 shares when the Company first issued shares January 17, 1990.
In exchange for those shares, FRPA contributed $50,000 for an effective price of
$0.50 per share. FRPA has distributed its shares from the partnership.

Under the terms of a Stock Warrant granted to FRPA (the "FRPA Warrant") by the
Company on January 17, 1990, designed to protect FRPA against dilution of its
holdings in the Company due to the issuance of shares to employees of the
Company pursuant to the Company's Stock Option Plans, FRPA is entitled to
purchase one share for every four shares issued to employees pursuant to the
Plans. FRPA may purchase a maximum of 14,286 shares under the FRPA Warrant; the
exercise price thereunder is $.02 per share.

On October 1, 1990, the Company obtained a line of credit from FRPA in the
original principal amount of $250,000 (the "FRPA Line of Credit"). The FRPA Line
of Credit was repaid in full on October 21, 1991, and the line of credit is no
longer in effect. As additional consideration for the line of credit, the
Company granted to FRPA an option to purchase 15,625 shares at a price of $16.00
per share. The option was exercised fully on October 1, 1993 through the payment
of $250,000 for 15,625 shares.

In September 1991, Promega agreed to purchase shares of the Company conditioned
upon its receipt of an exclusive and confidential first right, for a period of
10 years, to review any technology developed by the Company that is incidental
to the human and animal therapeutic and diagnostic markets. "Incidental" refers
to those markets that are not human or animal therapeutics or diagnostics.
Promega serves various incidental markets, such as, research products or food
testing. The arrangement was established so that the Company's core business
interests would not be encumbered by the agreement with Promega and a market
could be established in incidental markets. Promega has 60 days after disclosure
of a technology to review the technology and notify the Company in writing of
its interest in developing the technology. The parties will then negotiate in
good faith for up to 60 days thereafter regarding terms on which Promega might
obtain the right to use the technology. If Promega and the Company fail to
enter into an agreement within 60 days after notice of Promega's interest in the
technology, the Company may attempt to license or assign the rights to the
product to a third party, subject to Promega's right to first refuse the price
and terms offered by a third party, exercisable within 15 days after notice
thereof to Promega. The agreement with Promega will terminate at any time that
Promega's ownership of the Company falls below one percent of the outstanding
shares. Promega currently owns 32,813 shares of Ophidian, or 2.8%.

On January 1, 1994, the Company entered into a Lease with Promega for a 10,000
square foot office/research laboratory and production facility at 5445 East
Cheryl Parkway, Madison, Wisconsin. At the time Ophidian entered into the
transaction, Mr. Linton was shareholder and


                                       35

<PAGE>   36

Chairman of the Board of Ophidian and a shareholder, President and Chairman of
the Board of Promega. The lease provided for a five-year lease term with an
option to renew the lease for an additional five-year term. In June 1998,
Ophidian exercised this option.

The facility lease described above gives Promega the right to terminate in case
of a broad range of events of default by the Company, in which event the Company
would lose the value of improvements and may be liable for the remaining rent
even if its rights to use the premises are terminated. As Chairman of the Board
and a director of the Company, Mr. Linton would have been subject to a
significant conflict of interest in connection with taking any adverse action on
the lease on behalf of Promega. See "Item 2, Properties."

Dr. Peter Carroll, who is Dr. Sean Carroll's brother, is an attorney with Medlen
& Carroll, LLP, San Francisco, California, and serves as patent counsel to the
Company. Dr. Peter Carroll and his wife, Maureen Collins-Carroll, were given
5,000 shares as a gift from Dr. Sean Carroll in April 1990. As Dr. Sean
Carroll's brother, Dr. Peter Carroll would have a conflict of interest in any
dispute between Dr. Sean Carroll and the Company, especially with respect to
ownership of intellectual property.

On June 7, 1999, the Company entered into separate Promissory Note and Loan
Agreements with Rex J. Bates, a director and stockholder, and Davis U. Merwin, a
stockholder, whereby the Company borrowed $2.0 million on October 14, 1999,
pursuant to ten-year, 10%, senior notes with warrants.  The assets of the
Company secure the notes.  Interest on the notes for the first three years is
payable in Common Stock of the Company at the then market value and thereafter
in cash. The warrants for the purchase of 125,000 shares of Common Stock are
excercisable for five years at $16.00 per share.

The Company believes that each of the transactions set forth above as well as
those currently in effect were entered into on (i) terms as fair as those that
could be obtained from independent third parties, and (ii) were ratified by a
majority (but no less than two) of the Company's independent directors who did
not have an interest in the transaction and who had access to the Company's
counsel at Company expense. All future transactions with the Company in which a
director, officer or 5% shareholder of the Company has a direct or indirect
interest must (i) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties, and (ii) be approved by a majority of
directors who have no direct or indirect interest in the transaction and who
have access at Company expense to the Company's counsel or independent counsel.


            LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under the Company's Bylaws and the Delaware General Corporation Law, directors
and officers of the Company are entitled to mandatory indemnification from the
Company against certain liabilities and expenses to the extent such officers or
directors are successful in the defense of a proceeding. In all other
circumstances, the Delaware General Corporation Law permits indemnification for
expenses incurred in the defense or settlement of a derivative or third-party
action if there is a determination by a majority vote of the directors who are
not parties to such action, even though less than a quorum, or, if there are no
such directors or if such directors so direct, by independent legal counsel in a
written opinion, or by the stockholders, that the person seeking
indemnification acted in good faith and in a manner reasonably believed to be in
or not opposed to the best interests of the Company, and with respect to any
criminal action, had no reasonable cause to believe his or her conduct was
unlawful. Without court approval, however, no indemnification may be made in
respect of any derivative action in which such person is adjudged liable for
negligence or misconduct in the performance of his or her duty to the Company.
The Company's Certificate of Incorporation permits indemnification to the
fullest extent permitted by the Delaware General Corporation Law, except that in
an action initiated by an officer or director, the Company is only required to
provide indemnification if the action was first authorized by the Board of
Directors. The Certificate of Incorporation further provides that expenses
incurred by an individual in his or her capacity as a director of the Company or
in certain other capacities in defending a civil or criminal action shall be
paid by the Company in advance of the final disposition of the matter upon
receipt of an undertaking from the director to repay the sum advanced if it
shall ultimately be determined that he or she is not entitled to be indemnified
by the Company pursuant to the terms of the Delaware General Corporation Law.

The Delaware General Corporation Law further states that the indemnification
provided by statute is not exclusive of any other rights or remedies that
directors, officers, employees, or agents may


                                       36

<PAGE>   37

have under any bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise. Accordingly, under the Delaware General Corporation Law
and the Company's Bylaws, the Company is authorized to enter into separate
indemnification agreements with its directors, officers, employees, or agents.
The Company's Bylaws further provide that the Company may purchase and maintain
insurance on behalf of an individual who is a director or officer of the Company
against liability asserted against or incurred by such individual in his or her
capacity as a director or officer regardless of whether the Company would have
the capacity to indemnify or allow expenses to the individual against the same
liability under the provisions of the Delaware General Corporation Law.

The Delaware General Corporation Law permits a corporation to include a
provision in its Certificate of Incorporation which eliminates the personal
liability of a director for monetary damages arising from breaches of his or her
fiduciary duties to the Company or its stockholders, subject to the following
exceptions: (i) a breach of the director's duty of loyalty to the Company or its
stockholders; (ii) acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of the law; (iii) willful or negligent conduct
in paying dividends or repurchasing stock out of other than lawfully available
funds (a violation of Section 174 of the Delaware General Corporation Law); and
(iv) any transaction from which the director derives an improper personal
benefit. The Company's Certificate of Incorporation includes such a limitation
of liability provision, including the foregoing exceptions. In addition, under
the Delaware General Corporation Law, a limitation of liability provision may
not relieve directors from the obligation to comply with any law, including
federal and state securities laws, or from the availability of non-monetary
remedies such as injunctive relief or rescission. Finally, the liability
limitation provision in the Company's Certificate of Incorporation does not
extend to acts or omissions of a director which occurred before the date on
which the Certificate of Incorporation became effective.

In general, under the Delaware General Corporation Law and the Company's
Certificate of Incorporation, a director may not be held liable to the Company
or its stockholders for monetary damages arising out of the director's
negligence, gross negligence, or lack of due care in carrying out his or her
fiduciary duties as a director. These provisions pertain only to breaches of
duty by directors as directors and not in any other corporate capacity, such as
officers. As a result of such provisions, stockholders may be unable to recover
monetary damages against directors for actions taken by such directors which
constitute negligence or gross negligence or which are in violation of such
directors' fiduciary duties, although it may be possible to obtain injunctive or
other equitable relief with respect to such actions. If equitable remedies are
found not to be available to stockholders in any particular case, stockholders
may not have any effective remedy against the challenged conduct.


                                    PART IV

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

(a)  Documents filed as a part of this report.

     1.   List of Financial Statements.

          The following financial statements of Ophidian Pharmaceuticals, Inc.
          and Report of Ernst & Young LLP, Independent Auditors, are included in
          this report:

          Report of Ernst & Young LLP, Independent Auditors.


                                       37

<PAGE>   38
          Balance Sheets - September 30, 1999, and September 30, 1998.

          Statements of Operations - Fiscal Year ended September 1999,
              1998 and 1997, and the period from inception (November 11,
              1989) to September 30, 1999.

          Statements of Cash Flows - Fiscal Year ended September 1999,
              1998 and 1997, and the period from inception (November 11,
              1989) to September 30, 1999.

          Statements of Shareholders' Equity - Fiscal Year ended September
              1990, (inception, November 11, 1989) to September 30, 1999.

          Notes to Financial Statements.

     2.   List of all Financial Statement Schedules.

          All schedules are omitted because they are not applicable or the
          required information is shown in the financial Statements or notes
          thereto.

     3.   List of Exhibits Required by Item 601 of Regulation S-K.

          See item 14(c) below

(b)  Reports on Form 8-K.

     Ophidian filed a press release dated February 10, 1999, noting Changes in
     Control of Registrant.

     Ophidian filed four press releases dated June 7, 10 & 11, 1999,
     respectively, noting:

          $2 Million New Financing for Ophidian Pilot Plant (see ITEM 7,
          LIQUIDITY AND CAPITAL RESOURCES, PAGE 23),

          Ophidian Expanding Clinical Development and Drug Applications of Its
          Core Antibody Technology (see ITEM 1, OPHIDIAN'S TECHNOLOGY AND LEAD
          PRODUCT APPLICATIONS, OPHD 002: INFLAMMATORY BOWEL DISEASE ("IBD"),
          PAGE 7),

          Ophidian to Locate Manufacturing Facility in Madison, WI, (see ITEM 2,
          PAGE 16) and

          Ophidian Expands Program for Inflammatory Bowel Disease (see ITEM 1,
          BUSINESS, ADVISORY BOARD, DR. BARRETT, PAGE 14).

     Ophidian filed a press release dated June 29, 1999, noting the filing of a
     Proxy Statement for Special Meeting of Stockholders (see ITEM 4, PAGE 16).

(c)  Exhibits Required by Item 601 of Regulation S-K.


     Number    Description
--------------------------------------------------------------------------------
      3.1      Certificate of Incorporation of the Registrant,
               filed as Exhibit C to the Company's Proxy Statement, filed on
               February 23, 1999 (the "Proxy Statement"), and hereby
               incorporated by reference.

      3.2      Bylaws of the Registrant, filed as Exhibit D to the Proxy
               Statement, and hereby incorporated by reference.

      3.3      Certificate of Amendment of Certificate of Incorporation of the
               Registrant, filed as Exhibit A to the Company's Proxy Statement,
               filed on June 29, 1999, and hereby incorporated by reference.



                                       38

<PAGE>   39

      4.1      Specimen Common Stock Certificate, filed as Exhibit 4.1 to the
               Registration Statement, and hereby incorporated by reference.

      4.2      Specimen Warrant Certificate, filed as Exhibit 4.2 to the
               Registration Statement, and hereby incorporated by reference.

      4.3      Form of Representatives' Warrant Agreement, including Specimen
               Representatives' Warrant, filed as Exhibit 4.3, to the
               Registration Statement, and hereby incorporated by reference.

      4.4      Form of Warrant Agreement, filed as Exhibit 4.4, to the
               Registration Statement and hereby incorporated by reference.

      4.5      Specimen Unit Certificate, filed as Exhibit 4.5 to the
               Registration Statement, and hereby incorporated by reference.

      4.6      Specimen Warrant Certificate filed as part of Exhibit 10.12 to
               the Company's Form 10-Q for the period ended June 30, 1999, and
               hereby incorporated by reference.

     10.1      Lease dated February 12, 1994, between the Company and Promega
               Corporation, filed as Exhibit 10.1 to the Registration Statement,
               and hereby incorporated by reference.

     10.2      1998 Incentive Stock Option Plan, filed as Exhibit A to the
               Proxy Statement, and hereby incorporated by reference.

     10.3      1990 Incentive Stock Option Plan, filed as Exhibit 10.3 to the
               Proxy Statement, and hereby incorporated by reference.

     10.4      1992 Employee Stock Option Plan, filed as Exhibit 10.4 to the
               Registration Statement, and hereby incorporated by reference.

     10.5      Agreement dated June 3, 1996, between the Company and Eli Lilly
               and Company, filed as Exhibit 10.5 to the Registration Statement
               and hereby incorporated by reference.

     10.6      Employment Agreement dated June 1, 1997, between the Company and
               Douglas C. Stafford, filed as Exhibit 10.6 to the Registration
               Statement, and hereby incorporated by reference.

     10.7      Employment Agreement dated June 1, 1997, between the Company and
               Joseph Firca, filed as Exhibit 10.7 to the Registration
               Statement, and hereby incorporated by reference.

     10.8      Employment Agreement dated November 6, 1997, between the Company
               and Donald L. Nevins, filed as Exhibit 10.9 to the Registration
               Statement, and hereby incorporated by reference.

     10.9      Employment Agreements dated December 1, 1998, between the Company
               and F. Michael Hoffmann, filed as Exhibit 10.10 to the Company's
               Form 10-K for the period ended September 30, 1998, and hereby
               incorporated by reference.

     10.10     Lease for 2617 Progress Road, Madison, WI, dated June 9, 1999,
               between the Company and Progress Holdings, LLC, filed as Exhibit
               10.11 to the Company's Form 10-Q for the period ended June 30,
               1999, and hereby incorporated by reference.

     10.11     Form of Promissory Note and Loan Agreement, dated June 7, 1999,
               among the Company, Rex J. Bates, and Davis U. Merwin, filed as
               Exhibit 10.12 to the Company's Form 10-Q for the period ended
               June 30, 1999, and hereby incorporated by reference.

     27.0      Financial Data Schedule.

-----------------------


                                       39

<PAGE>   40


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized on the 28th day of December 1999.

                         Ophidian Pharmaceuticals, Inc.


December 22, 1999                   By: /s/ Douglas C. Stafford
                                        ----------------------------------------
                                        Douglas C.  Stafford
                                        President and Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed by the following persons in the capacities and on the
dates indicated.


December 22, 1999                   By: /s/ Peter Model
                                        ----------------------------------------
                                        Peter Model
                                        Director, Chairman of the Board


December 22, 1999                   By: /s/ Douglas C. Stafford
                                        ----------------------------------------
                                        Douglas C. Stafford
                                        Director


December 22, 1999                   By: /s/ Rex J. Bates
                                        ----------------------------------------
                                        Rex J. Bates
                                        Director


December 22, 1999                   By: /s/ Donald L. Nevins
                                        ----------------------------------------
                                        Donald L. Nevins
                                        Chief Financial Officer
                                            (Principal Financial Officer and
                                             Principal Accounting Officer)


                                       40
<PAGE>   41





                              Financial Statements

                         Ophidian Pharmaceuticals, Inc.
                       (A Development Stage Corporation)

                                  Years ended
                          September 30, 1999 and 1998

                                      F-1














<PAGE>   42


                         Ophidian Pharmaceuticals, Inc.
                       (A Development Stage Corporation)

                              Financial Statements

                     Years ended September 30, 1999 and 1998




                                    Contents

Report of Independent Auditors..............................................F-1

Financial Statements

Balance Sheets..............................................................F-4
Statements of Operations....................................................F-6
Statements of Shareholders' Equity..........................................F-7
Statements of Cash Flows....................................................F-10
Notes to Financial Statements...............................................F-12


                                      F-2

<PAGE>   43



                         Report of Independent Auditors

Board of Directors
Ophidian Pharmaceuticals, Inc.

We have audited the accompanying balance sheets of Ophidian Pharmaceuticals,
Inc. (the Company), a development stage corporation, as of September 30, 1999
and 1998, and the related statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended September 30, 1999,
and the cumulative period from inception to September 30, 1999. 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 audit 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 financial position of the Company at September 30,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended September 30, 1999, and the cumulative
period from inception to September 30, 1999, in conformity with generally
accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 2, the
Company has incurred recurring operating losses and will need to secure
additional funds during fiscal 2000 to support its operations; there can be no
assurance that these efforts will be successful. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.

Milwaukee, Wisconsin


/s/ Ernst & Young LLP


October 15, 1999


                                      F-3

<PAGE>   44

                         Ophidian Pharmaceuticals, Inc.
                       (A Development Stage Corporation)
                                 Balance Sheets


<TABLE>
<CAPTION>

                                                                   September 30
                                                               1999          1998
                                                               ------------------
<S>                                                        <C>            <C>
Assets
Current assets:
  Cash and cash equivalents                                $ 3,416,490    $ 8,688,162
  Accounts receivable                                            4,112         81,566
  Prepaid expenses and other                                    68,803        130,046
Total current assets                                         3,489,405      8,899,774
                                                           -----------    -----------
Other assets                                                   224,543         12,263
Deferred financing fee (Note 3)                                400,000              -

Equipment and leasehold improvements (Note 4):
  Furniture and fixtures                                       115,225        104,993
  Manufacturing equipment                                    1,086,070        829,204
  Laboratory equipment                                         663,047        581,295
  Office equipment                                              50,071         46,236
  Leasehold improvements                                        65,095         24,092
  Construction in progress                                      70,607              -
                                                           -----------    -----------
                                                             2,050,115      1,585,820
  Accumulated depreciation                                     860,732        538,378
                                                           --------------------------
Net equipment and leasehold improvements                     1,189,383      1,047,442


Patent costs, net of accumulated amortization of $67,977 for
  1999 and $35,817 for 1998                                  1,518,795      1,394,639
                                                           --------------------------
Total assets                                               $ 6,822,126    $11,354,118
                                                           ==========================


</TABLE>


See accompanying notes.



                                      F-4
<PAGE>   45

                         Ophidian Pharmaceuticals, Inc.
                        (A Development Stage Corporation
                                 Balance Sheets


<TABLE>

                                                              SEPTEMBER 30
                                                           1999         1998
                                                         ---------------------
<S>                                                      <C>           <C>
Liabilities and shareholders' equity
Current liabilities:
 Accounts payable                                        $ 175,871     $ 241,142
 Accrued expenses and other liabilities                     93,063       130,468
 Current portion of capital lease obligations
 (Note 4)                                                    2,561         5,839
                                                         -----------------------
Total current liabilities                                  271,495       377,449

Capital lease obligations, less current portion
(Note 4)                                                     9,687        12,069



Deferred revenue - noncurrent (Note 8)                     354,310       346,887



Shareholders' equity (Notes 5, 6 and 7):
 Common stock, $0.0025 par value, 2,800,000 shares
  authorized, 1,155,047 and 1,152,878 shares issued
  and outstanding at September 30, 1999 and 1998,
  respectively                                               2,888         2,883
 Additional paid-in capital                             22,496,324    22,067,329
 Deficit accumulated during development stage          (16,312,578)  (11,452,499)
                                                       -------------------------
 Total shareholders' equity                              6,186,634    10,617,713
                                                       -------------------------
 Total liabilities and shareholders' equity           $  6,822,126   $11,354,118

</TABLE>


SEE ACCOMPANYING NOTES.


                                      F-5
<PAGE>   46

                         Ophidian Pharmaceuticals, Inc.
                       (A Development Stage Corporation)

                            Statements of Operations

<TABLE>
<CAPTION>
                             Cumulative
                                from
                            Inception to
                           September 30,          Year ended September 30
                                        ----------------------------------------
                              1999             1999        1998           1997
                           -----------------------------------------------------
<S>                       <C>             <C>          <C>          <C>
Revenues                   $ 4,622,672    $   26,965   $  322,565   $  671,881
Operating expenses:
 Research and development   13,941,647     3,354,818    2,946,814    2,432,102
 General and
 administrative              8,367,695     1,833,209    1,819,227    1,005,797
                           -----------------------------------------------------
  Total operating expenses  22,309,342     5,188,027    4,766,041    3,437,899
                           -----------------------------------------------------
  Operating loss           (17,686,670)   (5,161,062)  (4,443,476)  (2,766,018)

  Other income (expense):
   Investment income, net    1,415,260       302,845      292,695      281,483
   Interest expense            (41,933)       (1,862)      (2,085)      (2,800)
   Other                           765             -            -            -
                          ------------------------------------------------------
                             1,374,092       300,983      290,610      278,683
                          ------------------------------------------------------
   Net loss               $(16,312,578)  $(4,860,079) $(4,152,866) $(2,487,335)
                          ======================================================

  Basic net loss per share               $     (4.21) $     (4.14) $     (2.76)

</TABLE>


SEE ACCOMPANYING NOTES.



                                      F-6
<PAGE>   47



                         Ophidian Pharmaceuticals, Inc.
                       (A Development Stage Corporation)


                       Statements of Shareholders' Equity




<TABLE>
<CAPTION>

                                                                                                      Deficit
                                                                Accumulated                          Accumulated
                                                                   Other            Additional       During the
                                       Common Stock             Comprehensive        Paid-In         Development
                                      -------------------
                                      Shares    Par Value          Income            Capital            Stage             Total
                                  --------------------------------------------------------------------------------------------------
Common stock issued for:
<S>                                   <C>         <C>           <C>                 <C>              <C>              <C>
 Cash at 0.5 per share on
   January 17, 1990                  100,000        250         $           -       $   49,750       $         -      $   50,000
  Assignment of intellectual
     property                        400,000      1,000                     -       $  199,000                 -         200,000
 Net loss for 1990                         -          -                     -                -          (247,248)       (247,248)
                                  --------------------------------------------------------------------------------------------------
Balance at September 30, 1990        500,000      1,250                     -          248,750          (247,248)          2,752
 Net loss for 1991                         -          -                     -                -          (298,863)        (298,863)

Balance at September 30, 1991        500,000      1,250                     -          248,750          (546,111)        (296,111)
 Common stock issued for cash
  at $16 per share on January
  10, 1992                           116,640        292                     -        1,828,072                 -        1,828,364
 Net loss for 1992                         -          -                     -                -          (472,896)        (473,896)
                                  --------------------------------------------------------------------------------------------------
Balance at September 30, 1992        616,640      1,542                     -        2,076,822        (1,020,007)       1,058,357
  Exercise of stock warrants at
    $18 per share on March 4,
    1993 through March 22,
    1993 and $16 per share on
    September 30, 1993                71,515        179                              1,255,841                          1,256,020
  Common stock issued for
    cash at $36, per share on         72,435        181                     -        2,579,480                 -        2,579,661
    June 22, 1993
  Net Income for 1993                      -          -                     -                -           606,463          606,463
                                  --------------------------------------------------------------------------------------------------
Balance at September 30, 1993        760,590      1,902                     -        5,912,143          (413,544)       5,500,501
  Common stock issued for
    consulting services at $36 per
    share on November 30, 1993,
    February 11, 1994 and July
    22, 1994                             350          1                     -           12,603                 -           12,604
  Net unrealized loss on available-
    for-sale securities                    -          -              (127,577)               -                 -         (127,577)
  Net loss for 1994                        -          -                     -                -          (705,295)        (705,295)
                                                                                                                        ------------
     Comprehensive loss                                                                                                  (832,872)
                                  --------------------------------------------------------------------------------------------------
Balance at September 30, 1994        760,940      1,903              (127,577)       5,924,746        (1,118,839)       4,680,233
</TABLE>




SEE ACCOMPANYING NOTES.



                                      F-7






<PAGE>   48

                         Ophidian Pharmaceuticals, Inc.
                       (A Development Stage Corporation)

                 Statements of Shareholders' Equity (continued)
<TABLE>
<CAPTION>



                                                                                                     Deficit
                                                             Accumulated                           Accumulated
                                       Common Stock             Other          Additional           During the
                                  --------------------      Comprehensive       Paid-In            Development
                                   Shares     Par Value        Income           Capital               Stage           Total
                                  ----------------------------------------------------------------------------------------------
<S>                               <C>         <C>           <C>                <C>                 <C>                <C>
Common stock issued for
 consulting services at $36 per
 share on October 20, 1994,
 January 4, 1995, April 4,
 1995 and July 6, 1995                334      $      1        $     -          $  11,994            $       -      $     11,995
Net unrealized gain on available-
 for-sale securities                    -             -         68,203                  -                    -            68,203
Net loss for 1995                       -             -              -                  -           (1,603,887)       (1,603,887)
                                                                                                                    ------------
 Comprehensive loss                                                                                                   (1,535,684)
                                  ----------------------------------------------------------------------------------------------
Balance at September 30, 1995     761,274         1,904        (59,374)         5,936,740           (2,722,726)        3,156,544

Common stock issued for
 consulting services at $36 per
 share on October 19, 1995
 and May 10, 1996 and $44.00 per
 share on August 6, 1996              334             1              -             11,998                    -            11,999
Common stock issued for cash
 at $52 on August 6, 1996 and
 $44 per share issued on
 October 25, 1996                  77,331           193              -          3,517,173                    -         3,517,366

Exercise of stock options at $16
 per share on August 6, 1996          657             2              -             10,510                    -            10,512
Provision for compensation -
 consultant stock options               -             -              -             85,000                    -            85,000
Net unrealized gain on available-
 for-sale securities                    -             -         51,411                  -                    -            51,411
Net loss for 1996                       -             -              -                  -           (2,089,572)       (2,089,572)
                                                                                                                    ------------
Comprehensive loss                                                                                                    (2,038,161)
                                 -----------------------------------------------------------------------------------------------
Balance at September 30, 1996     839,596         2,100         (7,963)         9,561,421           (4,812,298)        4,743,260

Common stock issued for
 consulting services at $44 per
 share on October 3, 1996,
 January 27, 1997, April 11, 1997,
 May 15, 1997, July 15, 1997 and
 August 15, 1997                      512             1              -             22,502                    -            22,503
</TABLE>

     See accompanying notes.

                                      F-8
<PAGE>   49
                        Ophidian Pharmaceuticals, Inc.
                       (A Development Stage Corporation)

                 Statements of Shareholders' Equity (continued)

<TABLE>
<CAPTION>


                                                                                                   Deficit
                                                                Accumulated                      Accumulated
                                           Common Stock            Other        Additional        During the
                                     ------------------------  Comprehensive      Paid-In        Development
                                        Shares   Par Value        Income         Capital           Stage             Total
                                     ----------------------------------------------------------------------------------------
<S>                                 <C>          <C>           <C>              <C>           <C>                <C>
Common stock issued for cash
 at $44 per share issued on
 October 25, 1996                       70,807        177              -        3,112,411              -           3,112,588
Net unrealized gain on available-
 for-sale securities                         -          -          6,940                -              -               6,940
Net loss for 1997                            -          -              -                -     (2,487,335)         (2,487,335)
                                                                                                                 -----------
 Comprehensive loss                                                                                               (2,480,395)
                                     ----------------------------------------------------------------------------------------
Balance at September 30, 1997          910,915      2,278         (1,023)      12,696,334     (7,299,633)          5,397,956

Common stock issued for
 consulting services at $44 per
 share on October 31, 1997,
 December 5, 1997 and
 January 6, 1998                           327     $    1         $    -      $    14,374   $          -        $     14,375
Common stock issued for
 cash at $44 per share
 issued on May 7, 1998 and
 June 23, 1998                         241,636        604              -        9,356,621              -           9,357,225

Net unrealized gain on available-
 for-sale securities                         -          -          1,023                -              -               1,023
Net loss for 1998                            -          -              -                -     (4,152,866)         (4,152,866)
                                                                                                                 -----------
 Comprehensive loss                                                                                               (4,151,843)
                                    -----------------------------------------------------------------------------------------
Balance at September 30, 1998        1,152,878      2,883              -       22,067,329    (11,452,499)         10,617,713

Common stock issued for
 consulting services at a
 range of $5.75 per share
 to $44 per share                        2,169          5              -           28,995              -              29,000
Issuance of warrants in
 connection with a loan
 agreement on June 7, 1999                   -          -              -          400,000              -             400,000

Net loss for 1999                            -          -              -                -     (4,860,079)         (4,860,079)
                                    -----------------------------------------------------------------------------------------
Balance at September 30, 1999        1,155,047     $2,888         $    -      $22,496,324   $(16,312,578)       $  6,186,634
                                    =========================================================================================
</TABLE>
         See accompanying notes.

                                      F-9
<PAGE>   50
                         OPHIDIAN PHARMACEUTICALS, INC.
                       (A Development Stage Corporation)

                            Statements of Cash Flows


<TABLE>
<CAPTION>

                                                       CUMULATIVE
                                                          FROM
                                                      INCEPTION TO                        YEAR ENDED SEPTEMBER 30
                                                      SEPTEMBER 30,             --------------------------------------------------
                                                         1999                   1999                1998           1997
                                                      -------------             --------------------------------------------------

<S>                                                   <C>                       <C>                 <C>            <C>

OPERATING ACTIVITIES
Net loss                                              $(16,312,578)             $(4,860,079)        $(4,152,866)   $(2,487,335)
Adjustments to reconcile net loss to net
  cash used in operating activities:
     Depreciation and amortization                         979,964                  354,514             147,264        132,744
     Loss on sale of investments                            87,394                       --                 588          5,622
     Common stock issued for consulting services           102,476                   29,000              14,375         22,503
     Provision for compensation - consulting stock
       options                                              85,000                       --                  --             --
     Assignment of intellectual property used in
       research and development                            200,000                       --                  --             --
     Changes in operating assets and liabilities:
       Accounts receivable                                  (4,112)                  77,454             133,422       (186,434)
       Prepaid expenses and other                         (281,083)                (151,037)            (71,071)       (46,641)
       Accounts payable                                    175,871                  (65,271)             (4,954)       153,852
       Accrued expenses and other liabilities               93,063                  (37,405)             24,966         45,354
       Deferred revenue                                    354,310                    7,423             155,241       (108,354)
                                                     -------------------------------------------------------------------------
Net cash used in operating activities                  (14,519,695)              (4,645,401)         (3,753,035)    (2,468,689)

INVESTING ACTIVITIES
Purchase of available-for-sale securities               (4,517,181)                      --                  --             --
Proceeds from sale of available-for-sale securities      4,416,283                       --              360,023       580,000
Purchases of equipment and leasehold improvements       (1,288,657)                (464,295)            (165,894)     (165,374)
Expenditures for patents and other assets               (1,597,894)                (156,316)            (215,042)     (492,120)
                                                     -------------------------------------------------------------------------
Net cash used in investing activities                   (2,987,449)                (620,611)             (20,913)      (77,494)

FINANCING ACTIVITIES
Proceeds from issuance of common stock                  21,711,736                       --            9,357,225     3,112,588
Principal payments of capital lease obligation             (84,444)                  (5,660)             (16,498)      (17,703)
Advances from shareholder                                  330,000                       --                   --            --
Payments to shareholder                                   (330,000)                      --                   --            --
Other                                                     (703,658)                      --             (425,653)     (278,005)
                                                     -------------------------------------------------------------------------
Net cash provided by (used in) financing                20,923,634                   (5,660)           8,915,074     2,816,880
  activities
                                                     -------------------------------------------------------------------------
Net increase (decrease) in cash and cash
  equivalents                                            3,416,490               (5,271,672)           5,141,126       270,697
Cash and cash equivalents at beginning of
  period                                                        --                8,688,162            3,547,036     3,276,339
                                                     -------------------------------------------------------------------------
Cash and cash equivalents at end of period            $  3,416,490              $ 3,416,490         $  8,688,162   $ 3,547,036
                                                     =========================================================================
</TABLE>


See accompanying notes.



                                      F-10

<PAGE>   51


                         OPHIDIAN PHARMACEUTICALS, INC.
                       (A DEVELOPMENT STAGE CORPORATION)


                            STATEMENTS OF CASH FLOWS
<TABLE>

<S>                                                    <C>            <C>            <C>            <C>
Supplemental disclosure of cash flows
  information -
  Cash paid for interest                                              $   1,862      $   2,085      $   2,800

Supplemental disclosure of non-cash
  transactions:
  Common stock issued for consulting services                         $  29,000      $  14,375      $  22,503
  Deferred costs of $400,000 were recorded in
    connection with the issuance of warrants                          $ 400,000             --             --
</TABLE>













See accompanying notes.


                                      F-11
<PAGE>   52
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Ophidian Pharmaceuticals, Inc. (the Company) was incorporated on November 10,
1989, and began operations on January 17, 1990. The Company is a development
stage corporation dedicated to the research, development and commercialization
of therapeutic and diagnostic products for human and animal use. The Company's
business has been directed to numerous areas of disease but has focused
principally on products for infectious disease prevention and treatment. The
Company has not received any revenues from the sale of FDA licensed products to
date and it does not expect to receive any such revenues during the next two
years.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

NET LOSS PER SHARE

Basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities.

The following table sets forth the computation of basic weighted-average shares
used in the per share calculations. Dilutive loss per share is not shown as the
impact is antidilutive.

<TABLE>
<CAPTION>
                                              FISCAL YEAR ENDED SEPTEMBER 30,
                                             1999           1998           1997
                                             ----           ----           ----
<S>                                        <C>           <C>              <C>
Weighted average shares outstanding        1,154,277     1,004,234        901,909
Options and warrants that could
  potentially dilute basic loss per share
  in the future that are not included in
  the computation of diluted loss per
  share as their impact is antidilutive
  (treasury stock method)                     35,704        35,704         35,704
</TABLE>

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with maturities of three
months or less at the date of acquisition to be cash equivalents. Cash
equivalents, consisting of commercial paper, treasury and commercial notes,
repurchase agreements and money market funds, totaled $3,354,972 and $8,166,768
at September 30, 1999 and 1998, respectively.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements are stated at cost. Depreciation of
purchased assets and amortization of assets under capital leases are provided
over the estimated useful lives of the assets, generally five years, and lease
terms, respectively, by the straight-line method.



                                      F-12
<PAGE>   53
                         Ophidian Pharmaceuticals, Inc.
                       (A Development Stage Corporation)

                            Statements of Cash Flows

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PATENT COSTS

Patent costs, principally legal fees, are capitalized and, upon issuance of the
patent, are amortized on a straight-line basis over the estimated useful life of
the patents.

REVENUE RECOGNITION

Revenues on cost-reimbursement contracts are recorded under awarded research
grants and recognized as revenue as the associated costs are incurred by the
Company. Milestone payments for collaborative product development are recorded
as earned based on the performance requirements of the contract. Payments
received which are related to future performance are deferred and taken into
revenue as earned. Contract payments designated to purchase specific assets to
be used in the performance of a contract are recognized over the shorter of the
useful life of the asset acquired or the term of the contract.

RESEARCH AND DEVELOPMENT

All costs for research and development activities are expensed in the year
incurred.

INCOME TAXES

Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable for the period and the change during the period in deferred tax
assets and liabilities (see Note 9). No current or deferred income taxes have
been provided because of the net operating losses incurred by the Company.

NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 2000. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on the results of
operations or on the financial position of the Company.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes the standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains and losses) as part of a full set of financial statements. SFAS
No. 130 requires that all elements of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The statement applies only to the presentation of
comprehensive income and did not have any impact on the Company's results of
operations, financial position or cash flows.

RECLASSIFICATIONS

Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 presentation.


                                      F-13
<PAGE>   54

                         Ophidian Pharmaceuticals, Inc.
                       (A Development Stage Corporation)

                            Statements of Cash Flows


2.  LIQUIDITY AND MANAGEMENT'S PLANS

The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. The Company incurred losses in 1999
and anticipates that it will continue to incur losses through fiscal 2000. In
addition, the Company anticipates that it will need additional cash to fund
working capital requirements in the second half of fiscal 2000. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern.

Management is actively pursuing several financing alternatives and believes
additional sources of financing or other strategic transactions will generate
sufficient cash flow to fund its operations in fiscal 2000. However, there are
no assurances that such matters will be successfully consummated.

3.  DEBT FINANCING

On June 7, 1999, the Company announced it had executed an agreement securing
$2.0 million in new senior note financing from certain shareholders. The funds
were provided on October 14, 1999, under ten-year, 10%, senior notes with
warrants. The assets of the Company secure the notes. Interest on the notes for
the first three years is payable in common shares of the Company at the then
current market value and thereafter in cash. Warrants to purchase 125,000 shares
of common stock, exercisable for five years at $16.00 per share, were issued
separately. In valuing the warrants using the Black-Scholes Model, $400,000 was
recorded as deferred finance cost to be amortized over the life of the loan and
a like amount to additional paid-in capital. The notes can be applied to the
exercise of the warrants. The notes also carry certain subordination features.

4.  COMMITMENTS AND LEASE OBLIGATIONS

The Company has entered into certain capital leases for equipment and furniture
and fixtures, which leases have insignificant net book value at September 30,
1999 and 1998.

The Company leases its primary facility, under an operating lease expiring
December 31, 2003 from a corporation whose principal shareholder is a
shareholder of the Company. Rent expense of $267,092, $240,456 and $233,688 was
recorded for the years ended September 30, 1999, 1998 and 1997, respectively.

On June 10, 1999, the Company announced it entered into a five year operating
lease for a facility to house its pilot manufacturing plant. The minimum lease
obligation will increase as other occupants vacate the premises and the Company
picks up the vacated space. The Company expects to move approximately $1 million
of currently owned equipment into this facility after completing approximately
$400,000 in leasehold improvements. Approximately $1.4 million of additional
production equipment will be purchased for this new facility. The facility would
produce drugs for basic research and clinical development needs. Total rent
expense under this operating lease was approximately $24,903 for the year ended
September 30, 1999.

                                      F-14
<PAGE>   55

                         Ophidian Pharmaceuticals, Inc.
                       (A Development Stage Corporation)

                            Statements of Cash Flows

4.  COMMITMENTS AND OBLIGATIONS (CONTINUED)

Future minimum payments under lease obligations consist of the following
at September 30, 1999:

<TABLE>
<CAPTION>
                                    CAPITAL                OPERATING
                                    LEASES                   LEASES
                                  ------------------------------------------
                                                     RELATED
                                                     PARTY           OTHER
                                                     -----           -----
<S>                               <C>             <C>             <C>
2000                              $    3,084      $  241,344      $  100,347
2001                                   3,084         241,344         106,212
2002                                   3,084         241,344         118,071
2003                                   3,084         241,344         121,599
2004                                     772          60,336          93,204
                                  ------------------------------------------
Total minimum lease payments          13,108      $1,025,712      $  539,433
                                                  ==========================
Amount represent interest                860
                                  ----------
Present value of net minimum lease
  payments (including current
  portion of $2,561)              $   12,248
                                  ==========
</TABLE>

5.  COMMON STOCK

In September 1999, the Company's Board of Directors authorized a one- for- eight
reverse stock split. All common shares and amounts per share have been adjusted
to reflect the stock split.

6.  STOCK OPTION PLANS AND WARRANTS

In fiscal 1998, the Company adopted an incentive stock option plan, which
amended the provisions of the employee stock option plan and the 1990 incentive
stock option plan (collectively, the Plans) to increase to 121,875 the maximum
number of shares of common stock which may be granted under the Plans. The
option price per share will be no less than fair market value at the date the
options are granted. The options expire within ten years from such date. Options
for 657 shares have been exercised at September 30, 1999.

<TABLE>
<CAPTION>
                                         NUMBER OF    WEIGHTED AVERAGE
                                           SHARES      EXERCISE PRICE
                                           ------      --------------
<S>                                        <C>          <C>
Outstanding at September 30, 1996          57,841       $   13.05
   Granted                                 24,041           44.00
   Exercised                                    -               -
   Canceled                                (1,056)          36.00
                                           ------       ---------
   Outstanding at September 30, 1997       80,826           21.95
   Granted                                      -               -
</TABLE>


                                      F-15
<PAGE>   56


                         Ophidian Pharmaceuticals, Inc.
                       (A Development Stage Corporation)

                            Statements of Cash Flows


6. STOCK OPTION PLANS AND WARRANTS (CONTINUED)

<TABLE>
<CAPTION>
                                       NUMBER OF   WEIGHTED AVERAGE
                                        SHARES      EXERCISE PRICE
                                        ------      --------------
<S>                                   <C>          <C>
   Exercised                                 -            -
   Canceled                               (799)          36.00
                                       -------          ------
Outstanding at September 30, 1998       80,027           21.81
   Granted                                   -            -
   Exercised                                 -            -
   Canceled                            (12,796)          44.00
                                       -------          ------
Outstanding at September 30, 1999       67,231          $17.59
                                       =======          ======
</TABLE>

The following table summarizes weighted-average information by range of exercise
prices for stock options outstanding and exercisable.

<TABLE>
<CAPTION>
               OUTSTANDING OPTIONS                         EXERCISABLE OPTIONS
----------------------------------------------------     -----------------------
                                WEIGHTED    WEIGHTED                    WEIGHTED
                 SHARES AT      AVERAGE     AVERAGE      SHARES AT      AVERAGE
  RANGE OF      SEPTEMBER 30,   EXERCISE    EXERCISE     SEPTEMBER      EXERCISE
EXERCISE PRICE      1999         PRICE        LIFE       30, 1999         PRICE
--------------------------------------------------------------------------------
<S>                 <C>         <C>        <C>            <C>            <C>
     0.50           20,010        $ 0.50   .8 years       20,010          0.50
16.0-18.0           31,331        $16.12   3.0 years      31,331         16.12
28.0-44.0           15,890        $41.86   6.5 years       9,170         40.28
                    ------                                ------
                    67,231        $17.55                  60,511         14.61
                    ======                                ======
</TABLE>

In fiscal 1990, the Company granted a warrant to a shareholder to purchase up to
14,286 shares of common stock at a price of $.0025 per share. The warrant
becomes exercisable in a defined manner upon the issuance of shares of common
stock under the Plans. The warrant terminates thirty days after exercise of the
total number of options covered by the Plans discussed above. At September 30,
1999, 21 shares are exercisable under the warrant.

In fiscal 1996, the Company granted a consultant an option to purchase 12,500
shares of the Company's common stock at a price of $36 per share exercisable
until May 2004. The Company recorded $85,000 as compensation expense based upon
the estimated fair value of the option using the minimum value option pricing
method with an assumption of a risk-free interest rate of 6%, an expected life
of three and one-half years, and no expected dividend yield.

In connection with the Company's initial public offering in fiscal 1998, the
Company issued warrants for the purchase of 241,637 shares of common stock. The
number of warrants increased to 254,431 in fiscal 1999 because anti-dilution
provisions were triggered when the June 7, 1999 warrants (described in Note 3)
were issued. Each warrant entitles the registered holder thereof to purchase, at
any time commencing May 7, 1999, until May 7, 2003, one share of common stock at
a price of $55.62 per share. Commencing

                                      F-16
<PAGE>   57

                         Ophidian Pharmaceuticals, Inc.
                       (A Development Stage Corporation)

                            Statements of Cash Flows

6.  STOCK OPTION PLANS AND WARRANTS (CONTINUED)

May 7, 2000, the warrants are subject to redemption by the Company, in whole,
but not in part, at $.80 per warrant provided that the average closing bid price
of the common stock as reported on Nasdaq SmallCap equals or exceeds $117.12 per
share for any 20 trading days within a period of 30 consecutive trading days
ending on the fifth trading day prior to the date of the notice of redemption.

As permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," (FAS No. 123), the Company has elected to
continue to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25), in accounting for its stock option
plan. Under APB No. 25, the Company does not recognize compensation expense on
the issuance of its stock options because the option terms are fixed and the
exercise price equals the market price of the underlying stock on the grant
date.

The weighted average fair value of options granted in fiscal 1997 was $37.44 per
the above. No options were granted in fiscal 1998 or fiscal 1999. Had
compensation expense for the Company's stock option plan been determined based
upon the fair value at the grant date for these options consistent with the
methodology described under FAS No. 123, the Company's net loss would have
increased by approximately $22,200, $34,900 and $76,400 in fiscal 1999, 1998 and
1997, respectively. The pro forma impact on a per share basis would be $(0.02),
$(0.03) and $(0.08) in 1999, 1998 and 1997, respectively. The pro forma
compensation expense was estimated using the minimum value option pricing model
using a risk-free interest rate of 6% and assumed no dividends.

Pro forma net losses reflect only options granted since October 1, 1995.
Therefore, the full impact of calculating compensation cost for stock options
under FASB Statement No. 123 is not reflected in the pro forma net loss amounts
presented because compensation cost is reflected over the option-vesting period
and compensation expense for options granted prior to October 1, 1995 is not
considered.

The Company has reserved 573,501 shares of common stock at September 30, 1999,
to provide for the exercise of stock options and warrants.

7.  CONSULTING AGREEMENT WITH SHAREHOLDERS

The Company has consulting agreements with shareholders that expire at various
dates. Consulting expenses related to such agreements were $36,000, $48,000 and
$84,000 for the years ended September 30, 1999, 1998 and 1997, respectively.

8.  ELI LILLY & COMPANY COLLABORATIVE AGREEMENT

On June 3, 1996, Eli Lilly & Company (Lilly) and the Company entered into a
20-year collaborative agreement (Agreement) and stock purchase agreement with
respect to the further research, development, manufacture and sale of products
for the treatment of Clostridium difficile-associated diseases.

In connection with this Agreement, Lilly (1) made equity investments totaling
$4.0 million; $1.0 million in fiscal 1996 for 19,231 shares and $2,999,997 in
fiscal 1997 for 68,182 shares of the Company's stock; (2) made cash payments of
$400,000 in fiscal 1996 upon the Company meeting certain contractual
requirements; and (3) reimbursed the Company for certain patent costs totaling
$354,310 through fiscal 1999.

                                      F-17
<PAGE>   58

                         Ophidian Pharmaceuticals, Inc.
                       (A Development Stage Corporation)

                            Statements of Cash Flows

8.  ELI LILLY & COMPANY COLLABORATIVE AGREEMENT (CONTINUED)

In September 1998, as permitted under the Agreement, Lilly terminated the
Agreement. In accordance with the terms of the Agreement, the termination
excuses Lilly and the Company from any further obligations under the Agreement
and terminates all licenses granted to Lilly under patents and technology of the
Company.

9.  401(k) PLAN

The Ophidian Pharmaceuticals, Inc. 401(k) Plan (the Plan) covers all employees.
Employees become eligible to participate in the Plan after six months of service
or 1000 hours of continuous service and may contribute up to 15% of their
compensation. The Company may make matching contributions at a discretionary
percentage. No matching contributions were made for the years ended September
30, 1999, 1998 or 1997.

10. INCOME TAXES

At September 30, 1999, the Company has net operating loss carryforwards for
federal and Wisconsin tax purposes remaining of approximately $16,265,000 and
$16,420,000 respectively. These carryforwards expire beginning in fiscal 2007.
The Company has research and other tax credit carryforwards of approximately
$869,000 and $336,000 for federal and Wisconsin tax purposes, respectively.
Valuation allowances have been recorded to offset net deferred tax assets due to
uncertainty regarding their realization.

The types of temporary differences between tax bases of assets and liabilities
and their financial reporting amounts that give rise to the deferred tax asset
(liability) and their approximate tax effects are as follows at September 30:

<TABLE>
<CAPTION>
                                           1999                                    1998
                               --------------------------------      --------------------------------
                                  TEMPORARY            TAX            TEMPORARY               TAX
                                 DIFFERENCE           EFFECT          DIFFERENCE             EFFECT
                               --------------------------------      --------------------------------
<S>                            <C>                <C>                <C>                <C>
Depreciation, patents, prepaid
  insurance and other          $ (1,098,000)      $   (428,000)      $   (995,000)      $   (388,000)
Net operating loss
  carryforwards                  16,265,000          6,376,000         11,563,000          4,533,000
Research and AMT credit
  carryforwards                                        869,000                               637,000
                                                  ------------                          ------------

Deferred tax assets, net                             6,817,000                             4,782,000
Valuation allowance                                 (6,817,000)                           (4,782,000)
                                                  ------------                          ------------
                                                  $          -                          $          -
                                                  ============                          ============
</TABLE>


Utilization of the net operating losses and credit may be subject to an annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code and similar state provisions. The annual limitation may result in
the expiration of net operating losses and credits before utilization.

                                      F-18