UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                   FORM 10-KSB

              Annual Report Pursuant to Section 13 or 15 (d) of the
                        Securities Exchange Act of 1934

For the fiscal year ended December 31, 1998       Commission file number 0-23512

                                 BIOCORAL, INC.
           (Name of small business issuer as specified in its charter)

          Delaware                                             33-0601504
(State or other jurisdiction of                       (I.R.S. Employer I.D. No.)
incorporation or organization) 

38 rue Anatole France, 92594 Levallois Perret Cedex
FRANCE                                                            N/A
(Address of Principal Executive Offices)                       (Zip Code)

                                011-3314-757-9843
                         (Registrant's telephone number)

        Securities registered pursuant to Section 12(b) of the Act: None

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

                               Title of each class
                               -------------------

                          Common Stock. $.001 Par Value

      Indicate by check mark whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 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-B is not contained herein, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. Yes |_| No |X|

      Issuer's revenues from continuing operations for its most recent fiscal
year were $405,900.

      The aggregate market value of the voting stock held by non-affiliates of
the Issuer, as of December 31, 1998, was approximately $12,360,292.


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<PAGE>

      The Issuer had 7,924,149 shares of common stock outstanding as of December
31, 1998.

            Documents Incorporated by Reference - See Exhibit Index

PART I
Item 1. Description of Business

Background

      BioCoral, Inc., a Delaware corporation (the "Company") is an international
biomaterials company specializing in research and development in the areas of
health care technology and biomaterials. Via its subsidiaries, the Company
researches, develops, manufactures and markets bone graft and other growth
material for orthopedic, oral and maxillofacial applications to a number of
countries outside the United States. The Company has developed what management
believes is the world's first fully autologous biological surgical glue. In
1993, the Company's scientists began working on the development of a biological
surgical glue that utilizes the patient's own blood, thereby eliminating the
risk of viral transmission. This surgical glue is presently ready for market in
France and is currently awaiting approval from the Agence Francaise du Sang,
France's functional equivalent of the US Food and Drug Administration for
blood-based products. The Company is also in the final stages of developing a
product for the treatment of bone fractures due to osteoporosis and is working
on their prevention. The Company's chief product, BioCoral, derived from natural
coral using proprietary manufacturing processes, has certain characteristics
(chemical composition, porosity, etc.) similar to human bone that facilitates
its replacement of bone and concomitant bone strengthening. Prior to 1995, the
Company derived substantially all its revenue from other unrelated businesses.
Through the end of 1998, the Company had not yet realized significant revenues
from the sale of its products. Its products are not approved for sale in the
United States. The Company was incorporated on May 4, 1992 under the name
Hermeneutics Corporation.

      The Company entered the biomaterials field on August 2, 1995, when it
acquired, by acquiring the shares of an Irish corporation, an option on an
exclusive worldwide (except France) license to distribute a bone substitute
material manufactured from coral and marketed under the name BioCoral. The
license was granted by the owner of the patent rights to BioCoral, Inoteb, S.A.,
a French corporation ("Inoteb") in which a 51.5% (now 100%) interest was
subsequently acquired by the Company. The license granted by Inoteb was for a
period of 15 years plus two additional two year periods, and included the right
to distribute certain other products developed by Inoteb. Potential products
include, most significantly, an osteoporosis treatment and a biological glue
utilizing the patient's own blood which eliminates the risks of transmission of
viruses. Although none of Inoteb's products is presently available in the United
States and no FDA approvals thereof have been obtained, the Company anticipates
collaborating with one or more US-based companies with a view toward FDA
approval of same. The FDA approval


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<PAGE>

process is long and expensive and no assurance can be had of the ultimate
granting thereof.

      The Company took further steps to solidify its position within the
biomaterials field by agreeing to acquire Inoteb. In October 1995, the Company
entered into an agreement (the "Inoteb Agreement") with 10 individuals, all
French nationals, pursuant to which the Company agreed to acquire from such
individuals an aggregate of 30,150 shares and 7497 convertible bonds
(collectively, the "Inoteb Securities") of Inoteb which, among other things,
owns certain patent rights to BioCoral's products. The shares and bonds of
Inoteb acquired represented, at such time, 51.5% of the capital share of Inoteb
and 86.67% of the convertible bonds thereof. During the third quarter of 1996,
the Company asked for the conversion of all the Inoteb convertible bonds into
shares of Inoteb and the Company then owned 54% of the outstanding shares of
Inoteb. The consideration for the Inoteb Securities was initially to be an
aggregate of 1,035,292 shares of the Company's common stock. The number of
shares given to the Inoteb shareholders was increased to reflect the share
dividend the Company had declared in December 1995. The Agreement was closed in
escrow with a French notary in late October 1995 owing to the implications of
the Agreement for the Inoteb shareholders under French law. The Company
completed the acquisition of a 51.5% equity interest in Inoteb on July 23, 1996
when the shares were released from escrow.

      In June 1997, Inoteb's board elected to conduct an "augmentation of
capital" under French law, similar to a rights offering in the US, in the
aggregate amount of FF 5,411,795. The Company was obligated to participate in
the augmentation of capital but did not have the cash to do so. The Company also
wished to obtain the benefits of owning in excess of 66 2/3 % of Inoteb which
would put it in a position of control thereof under French law. Therefore, the
Company arranged to borrow certain funds from Jean Darondel, now (but not then)
a director of the Company and Vida Nassiri Khoobdehi ("Vida"), sister of Nasser
Nassiri, the Company's Chairman. The Company was advanced $260,000 (US) from
Vida Nassiri Khoobdehi on September 20, 1997 and FF 971,905 from Jean Darondel
on October 24, 1997. The two loans were formalized in an agreement, dated
November 1, 1997. Each of the loans was a demand loan with interest at 10% per
annum and were secured by a pledge by the Company of the Inoteb shares acquired
by Vida (7557 shares) and Jean Darondel (4741 shares) in the augmentation. The
loan from Vida is convertible at any time at Vida's option into 307,245 shares
of the Company's common stock. The loan from Jean Darondel is convertible at any
time at Jean Darondel's option into 192,755 shares of the Company's common
stock. The Agreement contains no provisions regarding Dr. Darondel's service as
a director.

      On December 24, 1998, the Company increased its ownership percentage in
Inoteb to 100% following a recapitalization of such Company. Accordingly, the
Company presently owns 100% of Inoteb.

      The executive offices of the Company are located at 38 rue Anatole France,
Levallois


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<PAGE>

Perret, France consisting of approximately 2000 square feet of office space.

      BioCoral

      BioCoral is a biomaterial produced from natural coral. Certain chemical,
physical and structural characteristics of coral are very similar to that of
human bone tissue. BioCoral is derived from three particular species of coral
naturally present in abundance. BioCoral is primarily (more than 97%) comprised
of calcium carbonate. Porous and resorbable, BioCoral is prepared in
microgranules as well as in engineered shapes according to specific indication.
Due to its similarity to bone tissue, BioCoral is compatible, resorbed by the
body as new bone growth invades the BioCoral and is replaced by neoformed
invasion. It is highly porous with numerous interconnected channels which allow
a total migration to the center of the implant free of contamination risk.
Because BioCoral is resorbed, it can be combined with antimicrobials, anticancer
agents or other pharmaceuticals for slow release into bone tissue, resulting in
an advantage over autologous bone grafts. The principal current alternative to
BioCoral is the utilization of autologous (from the patient's own body) bone
grafts. The use of autologous bone grafts requires the patient to undergo one or
more additional surgeries to harvest the bone graft material. This is not always
feasible due to the condition of the patient or other contraindications, and
must be shaped in a separate procedure to fit the graft area.

      According to Inoteb, BioCoral has been used in over 130,000 patients,
principally in Western Europe and Korea. BioCoral was patented in France in
1979, in the United States in 1982, and in Japan in 1989. Inoteb acquired the
patent rights to BioCoral from ANVAR/CNRS, the French National Center for
Scientific Research, a French governmental agency.

Clinical Applications

      BioCoral has been used in various clinical applications. Current uses
include the following: (a) orthopedic surgery uses include spinal surgery,
tibial (shinbone) osteotomies, hip fractures, trephine (skull) hole replacement,
fracture repair and filling of bone cavities particularly in bone fractures due
to osteoporosis; (b) maxillocraniofacial surgery and plastic surgery uses
include reconstructive and cosmetic surgery; (c) oral surgery uses include
filling of bone defects due to loss of teeth or periodontal disease.

Osteoporosis

      Osteoporosis is a progressive bone disorder in which bone density
decreases, combined with increased bone brittleness and porosity, which
primarily affects post-menopausal women. Inoteb is developing several variants
of its BioCoral technology aimed at osteoporosis treatment. BioCoral offers a
superior method of preventing and repair of bone fractures due to osteoporosis.
It has the ability to help the skeletal system, reinforcing it where it is weak
and fragile. BioCoral can serve both to heal bones that are already fractured
and to prevent bone fractures from


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<PAGE>

occurring.

      Phase II clinical trials in Europe have demonstrated the efficacy of
BioCoral for local osteoporosis treatment in rebuilding bone, particularly in
combination with osteodensimatic screening. Phase III clinical trials in Europe
have been programmed and will start in mid-1999 at 14 European international
clinics. The Company intends to raise additional capital to fund continued Phase
II and Phase III clinical trials, which will be a prerequisite to human use in
the United States and Canada.

Surgical Glue

      Inoteb has developed what it believes to be the world's first fully
autologous biological surgical glue. This surgical glue is prepared using the
patient's own blood, in a closed system, eliminating immunological problems and
the risk of blood-borne disease transmission such as, for example, HIV and
hepatitis. In contrast, all surgical glues currently on the market (whether
autologous or homologous) require foreign protein as thrombin or
antifibrinolitic. The surgical glue can be used not only with BioCoral but also
for the treatment of hemorrhage during surgery and for wound healing in soft
tissues. An application for approval of the glue was filed with the Agence
Francaise du Sang, the French functional equivalent of the US Food and Drug
Administration for blood and blood-based products, which approval is anticipated
in the second half of 1999.

      Inoteb has begun clinical trials in Europe of the surgical glue and
expects to have the product ready for marketing in Europe in late 1999. The
Company anticipates that the initial clinical applications of the autologous
glue will be in connection with facial and reconstructive plastic surgery.
Management believes that the world market segment for the surgical glue is in
excess of $600 million.

Raw Materials and Manufacturing

      The primary raw material used by the Company to manufacture BioCoral is
coral. The coral used in the Company's products is presently sourced from New
Caledonia, but is also found in abundance in wide areas of the Indian and
Pacific Oceans. The Company believes that its existing inventory of coral,
together with coral sources immediately available to it, are sufficient to meet
its present and future needs. To date, coral prices have been stable but no
assurance can be had that they will not rise. The Company is, however, unaware
of any factors which are likely to have a material adverse effect on the
Company's ability to obtain coral at a competitive price.

      Manufacturing of BioCoral is done at Inoteb's facility in Saint Gonnery,
France. This facility, which covers approximately 350 square meters (3150 square
feet), has been ISO 9002 rated since August 1995. On October 25, 1996, Inoteb
was granted, in addition to the ISO 9002 certification, European Norms 46002
certification for the quality assurance system set up in the manufacturing
process of BioCoral and, on December 30, 1996, Inoteb was granted the EC


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<PAGE>

certificate allowing sales of BioCoral throughout the European Community. The
Company is audited twice annually to maintain such certifications, once by AFAQ
for the ISO 9002 and by GMED for the EN 46002. The Company believes this
facility is adequate to service the Company's present and medium-term-future
needs.

Competition

      BioCoral. The Company's BioCoral product competes with (i) natural bone
obtained from autograft procedures and allograft sources and with (ii) two other
synthetic bone products, one marketed in the United States by Interpore, Inc. a
publicly-held company with significantly greater resources and distribution
capabilities than the Company, and another that was approved by the FDA in May
1993. Autograft and allograft bone have been used for graft material for a much
longer period of time than BioCoral and similar materials, and in order to
increase its future sales of BioCoral, the Company will have to demonstrate to
the medical community the surgical and patient advantages, safety, efficacy,
cost effectiveness and clinical results of BioCoral. Most of the Company's
competitors have substantially greater resources, larger market share and
greater research and development capabilities than the Company and may,
therefore, be expected to compete aggressively and successfully in the markets
for the Company's products.

      The Company believes that BioCoral provides an attractive alternative to
autograft and allograft bone graft materials. In an autograft procedure, bone
material is first harvested from another part of the patient's skeleton and
then, in a second procedure, grafted to the site of the bone deficit. The
harvesting procedure increases operating time and expense, and can lead to
complications such as infection, excessive blood loss, chronic pain and
deformity. When an autograft is not feasible or desirable, allograft bone,
typically obtained from a cadaver, can be used. In order to maintain mechanical
and biological properties, some allograft bone is not sufficiently sterilized to
avoid all risks of disease transmission. Therefore, unlike BioCoral, which is a
sterile and biocompatible material, allograft bone carries the risks of implant
rejection and the transmission of infectious agents such as hepatitis and HIV.
The use of BioCoral entails none of these risks and provides clinical results
comparable to those of autograft material.

      In May 1993, a second bone graft substitute was approved by the FDA. This
product consists of hydroxyapatite-calcium phosphate and bovine collagen, which
must be mixed with the patients' own bone marrow. The Company believes that this
three-part system is more difficult to use due to the mixing process and has
inferior mechanical qualities. It also requires refrigeration, has a shorter
shelf life and raises the risk of adverse reaction in patients allergic to
bovine collagen. In addition, many countries have prohibited the
commercialization of products utilizing bovine collagen as a base.

      The Company has been able to compete in Europe with other products which
also sell their products in the United States.. Despite their significantly
greater resources, management believes that it will, once its products have been
approved by the FDA, be able to be competitive


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<PAGE>

with such companies because of the quality of its products. The presence of
these competitors' products in the US market actually may benefit the Company by
enabling it to seek foreshortened FDA approval of its products. See "Business -
Government Regulation".

      BioCoral has been used in European dental applications for more than 10
years. This use, together with the scientific results of its in vivo use and
clinical trials have demonstrated the efficacy of using BioCoral for bone
regeneration in dental applications. The Company competes with many businesses
in the production and distribution of biomaterials for filling bone cavities
before rehabilitation of partially and totally edentulous patients. These
businesses compete primarily on the basis of product performance and price, as
well as customer loyalty and service. BioCoral also competes with autograft,
allograft and xenograft, as well as non-porous hydroxyapatite products for
repair or reconstruction of maxillofacial bone structures. In addition, this
product competes with silicone implants for maxillofacial applications.
Companies selling competitive products sometimes also sell dental implants, so
bundling these products is often a strategy. All of these businesses compete
primarily on the basis of product performance and price, as well as on customer
loyalty and service.

      Management believes that the Company's products are superior to its
competitors' products. The Company has begun to make arrangements for the
commencement of clinical trials for certain of its products with a long term/
medium term view toward FDA approval thereof. In the interim, the Company will
focus on increasing its European and other sales of its products, entering into
joint ventures with key strategic partners for distribution of its products,
research and development and the like. 

Governmental Regulation

      BioCoral has been approved for marketing in more than 15 countries in
Europe, Korea, South Africa, Canada and Australia. BioCoral has been approved
for reimbursement by the Tarif Interministeriel des Prestations Sanitaires, the
French national health services agency.

      The Company's products are subject to significant government regulation in
the United States and other countries. To test clinically, and to produce and
mass market products for human diagnostic and therapeutic use in the United
States, the Company must comply with mandatory procedures and safety standards
established by the Food and Drug Administration ("FDA") and comparable state and
foreign regulatory agencies. Typically, such standards require that products be
approved by the government agency as safe and effective for their intended use
before being marketed for human applications. The approval process is expensive
and time-consuming, and no assurance can be given that any agency will grant
approval of the Company's products or that the length of time the approval
process will take will not be extensive. No clinical testing on humans may be
undertaken in the United States without first obtaining an Investigational
Device Exemption ("IDE") from the FDA.


                                       7
<PAGE>

      There are two principal methods by which FDA approval may be obtained to
market regulated products in the United States. One method is to seek FDA
approval through a premarket notification filing under Section 510(k) of the
Food, Drug and Cosmetics Act. Applicants under the 510(k) procedure must prove
that the device for which approval is sought is substantially equivalent to
devices on the market before the Medical Device Amendments of 1976 or devices
approved after the 510(k) procedure. The review period for a 510(k) application
is 90 days from the date of filing the application; if not rejected, within such
90 days, applications are deemed approved.

      The alternative method is to obtain premarket approval ("PMA") from the
FDA. Under the PMA procedure, the applicant must obtain an IDE before beginning
the substantial clinical testing required to determine the safety, efficacy and
potential hazards of the products. The review period under the PMA procedure may
last for several years.

      The FDA also imposes requirements on manufacturers and sellers of products
under its jurisdiction, such as labeling, manufacturing practices, record
keeping and reporting. There can be no assurance that appropriate approvals from
the FDA will be obtained for sales of any of the Company's products in the
United States.

Employees

      The Company currently has no employees other than its officers and
directors who devote as much time as they believe necessary to carry out the
affairs of the Company. Inoteb currently has 12 employees, all of whom are full
time, and a scientific and research consulting team under consulting contracts,
working on research and development projects in different laboratories and
hospitals in France and other countries.

Item 2. Description of Property.

      Inoteb currently leases its principal executive offices from an unrelated
third party for an aggregate annual rent of approximately $56,000.

Item 3. Legal Proceedings.

      There are no material litigations pending against the Company at this
time.

Item 4. Submission of Matters to a Vote of Security Holders.

      None.


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<PAGE>

PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

      At December 31, 1998 there were 7,924,149 shares of the Company's Common
Stock issued and outstanding. A significant portion of the outstanding shares of
the Company are subject to resale restrictions and, unless registered under the
Securities Act of 1933 (the "Act"), or exempted under another provision of the
Act, are ineligible for sale in the public market. Sales of substantial amounts
of the Common Stock of the Company which are presently restricted in the public
market could adversely affect prevailing market prices.

      The following table sets forth information regarding the high and low bid
and asked price for the Company's common stock as reported on the Electronic
Bulletin Board. Such prices do not necessarily reflect actual transactions and
do not include retail mark-up, mark-down or commissions. The prices set forth
below are per share.

-------------------------------------------------------
Quarter                    High Ask           Low Bid
-------------------------------------------------------
March 31, 1998              3 3/4              1 1/2
-------------------------------------------------------
June 30, 1998               2 1/16             1 5/16
-------------------------------------------------------
September 30, 1998          1 13/16              1/2
-------------------------------------------------------
December 31,  1998          1 11/16            1 1/4
-------------------------------------------------------

Holders

      As of December 31, 1998 there were approximately 91 holders of record of
the shares of the Company's common stock.

Dividends

      The Company has paid no cash dividends on its equity securities to date
and does not anticipate the payment of cash dividends on its equity securities
in the near future. The Company paid a dividend of one share of its common stock
for each three shares owned on December 18, 1995 and paid, in December 1996,
another stock dividend of one share for each three shares owned as of November
6, 1996.

Item. 6. Management's Discussion and Analysis of Business and Results of
Operations


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<PAGE>

      This Management's Discussion and Analysis of Financial Condition and
Results of Operations, as well as several other parts of this Annual Report on
Form 10-KSB, contain forward- looking statements and information that involve
significant risks and uncertainties. The Company's actual results could differ
materially from those anticipated by such forward-looking statements and
information. Factors that may cause such differences may not be foreseeable by
the Company at this time. This Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
Company's consolidated financial statements and notes thereto included elsewhere
herein.

Results of Operations

      Total revenues from continuing operations for the year ended December 31,
1998 ("FY 1998") were $405,900 as opposed to $610,701 for the year ended
December 31, 1997 ("FY 1997"), due principally to a decrease in net sales
revenues due to the Company having entered into a distribution arrangement for
certain of its products. Management believes that such arrangement will increase
sales in approximately three years' time. The net loss for FY 1998 dropped
significantly from $3,378,564 in FY 1997 to $1,197,380 in FY 1998. This was due
primarily to the Company canceling certain options which led to decrease in
amortization of unearned compensation (from $682,500 in FY 1997 to $85,312 in FY
1998) and to a one-time write down of certain intangible assets in FY 1997 of
$1,478,778. Operating expenses were relatively stable on a comparative basis,
except that research and development costs increased significantly, from
$234,400 in FY 1997 to $463,138 in FY 1998. This increase was offset by a
decrease in other operating expenses.

Financial Condition, Liquidity and Capital Resources

      The Company's liquidity was significantly better in FY 1998 as opposed to
FY 1997 due to the sale of certain investor notes. The Company's cash position
increased from $506,930 at December 31, 1997 to $1,344,608 at December 31, 1998
primarily as the result of the infusion of an additional $1,500,000 into the
Company (through March 31, 1999) in connection with the sale of the investor
notes. Management believes that it has sufficient resources to fund the
Company's operations through December 31, 1999. The Company has, however,
significant cash needs on an ongoing basis during the short and medium term,
resulting primarily from the Company's ordinary operating expenses and for
research and development.

      On August 1, 1998, the Company commenced a private offering ("Offering")
to accredited investors of units of 8% callable convertible promissory notes
payable due December 31, 2001 ("Notes"). The Notes are convertible at any time
at the option of the note holder into shares of the Company's common stock at a
rate of $3.50 per share. Interest on the Notes is payable annually, at the
Company's option, either in cash or in shares of the Company's common stock. The
Company offered a minimum of 60 units (each of $25,000 principal amount of the
Notes), for an aggregate minimum of $1,500,000 and a maximum of 200 units for an
aggregate principal balance of $5,000,000. During the year ended December 31,
1998, the Company sold


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<PAGE>

the minimum amount of Notes, $1,500,000.

Current Plans of the Company

      As disclosed above, the Company recently filed an application with the
Agence Francaise du Sang to approve the commercialization of its autologous
surgical glue. Because of its nature (involving blood products), the product is
severely restricted in France. Due to the success of its European-based clinical
trials, the Company believes that it will obtain approval of the glue in the
latter half of 1999 and will then begin marketing same in France. In addition,
the Company plans to establish a subsidiary in Canada and has established
authorizations necessary for the sale of BioCoral in Canada, and is seeking
authorization for sale of its other products as well.

      The Company intends to focus on the marketing and development of its
BioCoral and related products. To obtain approval for the sale of such products
in the United States will require a significant expenditure of capital over a
long period of time. The Company anticipates realizing some revenues from the
sale of BioCoral and related products in 1999 although they are not expected to
be sufficient to maintain the Company's operations. As mentioned above, the
Company is also actively seeking a significant investor/joint venturer to assist
in the funding of its operations.

      The Company is less computer reliant than many small companies of similar
size. The Company has reviewed its computer systems to identify those which
could be affected by the "Y2K" problem. The Company believes that with minor
modifications to its existing hardware and software, the "Y2K" problem will not
pose significant operational difficulties for the Company. No such modification
or conversion has or will require material expenditures.

      The Company has not been significantly affected by inflation during the
past fiscal year.

Special Note Regarding Forward-Looking Statements

Statements contained in various portions of this Annual Report on Form 10-K
(including, without limitation, this Item 6 and Item 1) regarding, among other
things, the dates upon which the Company anticipates commencing clinical trials
for certain of its products or receiving certain revenues or proceeds constitute
forward-looking statements under the Federal securities laws. Such statements
are subject to certain risks and uncertainties that could cause the actual
timing of such revenues, clinical trials or other events to differ materially
from those projected. With respect to such dates, the Company's management has
made certain assumptions regarding, among other things, timeliness in payment by
the parties with which it deals, the successful and timely completion of
pre-clinical tests, obtaining certain approvals of the clinical trials from the
FDA, the availability of adequate clinical supplies, the absence of delays in
patient enrollment and the availability of adequate capital resources necessary
to complete the clinical trials. The Company's ability to commence clinical
trials on the dates anticipated is subject to certain risks and the Company's
ability to recognize revenue is subject to both ordinary and extraordinary


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<PAGE>

business risks. Undue reliance should not be placed on the dates on which the
Company anticipates recognizing revenues or commencing clinical trials. These
estimates are based upon the current expectations of Company's management, which
may change in the future due to a large number of potential events, including
unanticipated future developments.

Item 7. Financial Statements.

      Attached.

Item 8. Changes In and Disagreement with Accountants on Accounting and Financial
Disclosure :

      None.

      PART III

Item 9. Directors. Executive Officers, Promoters and Control Persons; Compliance
With Section 16 (a) of the Exchange Act

      The following is certain information with respect to directors, executive
officers and key employees of the Company as of March 31, 1999:

      Nasser Nassiri, Age 35, Chairman of the Board, President and a Director
      Ramine Almassi, Age 34, Secretary, Treasurer and a Director
      Jean Darondel, Age 56, Director

      Each of such persons was elected or appointed for a one-year term to serve
and hold office until their respective successors are elected or appointed.

      Nasser Nassiri is the Chief Executive Officer, Chairman of the Board and a
director of the Company. Mr. Nassiri is a Paris-based financier active in Europe
and the Middle East. Since 1990, he has been a private investor and financial
advisor to several European financial and portfolio institutions, as well as
family investment companies and pharmaceutical businesses in the Middle East. In
addition, he is and has been a director of several Canadian mineral and mining
production companies, and serves as Chairman of Automated Financial Systems,
Inc., a publicly-held US company. From 1990 until 1994, Mr. Nassiri was a
director of Contact World Paris, a privately-held international electronics
company and, from 1983 to 1987, Mr. Nassiri was a director of Prak Management, a
privately-held Middle East - based oil and gas holding company.

      Ramine Almassi has been a director of the Company since 1997 and also
serves as its Secretary and Treasurer. Mr. Almassi is a Paris-based certified
public accountant and was Chief Financial Accountant at Bertrand SA (Heineken
France) for three years. Currently, Mr. Almassi serves as Financial Director of
Shiva, Ltd., a Middle East art company, and Belles Feuilles Ltd., a


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<PAGE>

publishing and advertising group.

      Jean Darondel has been a director of the Company since January 1998. Dr.
Darondel was a co-founder of Inoteb and was its President Director General for
several years. Dr. Darondel is known for his research in the field of veterinary
medicine and business development in the medical/pharmaceutical fields. Dr.
Darondel is focusing his efforts on expanding the commercialization of BioCoral
products in Europe.

      BioCoral also has a Scientific Advisory Board to aid it in the strategic
development of its products. Its members include Dr. Jean Louis Patat, Dr. Jean
Darondel, Dr. Alberto Jussman, Dr. Jean - Pierre Ouhayoun and Dr. Rosy Eloy. Dr.
Patat, a former President Director General of Inoteb, is a member of the
European Society of Biomaterials and La Societe de Medicine de Paris. Dr. Patat
has been involved with the development of BioCoral since 1979 focusing on its
osteoporosis applications since 1991. Dr. Alberto Jussman is a specialist in
post-menopausal medicine and the prevention of osteoporosis and is a consultant
to the Laboratoires pour la Pharmacie et les Devices Medical and teaches at the
CHU Bichat - Claude Bernard in Paris. Dr. Ouhayoun is doctor of dental surgery
and Professor and Chairman of the Department of Periodontology at the University
of Paris 7 School of Dentistry. He is also chief of the dental clinic at
Garanciere Hotel Dieu Paris, and is in charge of the research unit at the
Orthopedic Research Laboratory in Paris specializing in bone regeneration. Dr.
Rosy Eloy, former Vice President of the Administrative Council of INSERM, is
Director of Biomatech, a French company that tests and evaluates biomaterials
and pharmaceutical products.

Compliance with Section 16(a) of the Exchange Act

      Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock to file with the Securities and Exchange
Commission initial reports of stock ownership and reports of changes in stock
ownership. Due to administrative oversight, both Mr. Darondel and Mr. Nassiri
were late in reporting, during two months, certain changes in beneficial
ownership which occurred in 1998.

Item 10. Executive Compensation

      Directors do not receive compensation for their duties as directors.

      On September 1, 1997, the Company entered into a Consulting Agreement with
Nasser Nassiri, its Chairman, pursuant to which Mr. Nassiri serves as Chairman
of the Company. The Agreement, which is for a three year term, provides for base
compensation of $150,000 per annum, reimbursement of certain expenses and for a
payment of two years' compensation thereunder in the event of a change in
control of the Company. Due to the Company's financial condition, through the
date of this Report, Mr. Nassiri has taken no cash compensation pursuant to his
Consulting Agreement.


                                       13
<PAGE>

      The Board has agreed to grant each director reimbursement up to $75,000
per annum for expenses actually incurred by them in connection with their
service as such. During 1998, the Company reimbursed all directors
(collectively) the approximate aggregate sum of $44,000. In addition, there is
no prohibition on advances being made by the Company to its officers and
directors although no such advances have been made to date. Management is not
currently aware of any circumstances under which it would institute a policy of
prohibiting advances from being made to its officers and directors. The
stockholders of the Company will not have the opportunity to vote on or approve
such compensation. There is no maximum dollar amount of compensation that may be
paid to management.

      On February 3, 1998, the Company granted to Jean Darondel an option to
purchase up to 200,000 shares of the Company's common stock at an exercise price
of $ 3.25 per share. The consideration for the grant of such options was
nominal. The option was exercisable at any time during the five year period
following its grant. The option exercise price was the market price of the
shares of the Company's common stock on the date of grant. This option was
canceled on October 1, 1998.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

      The following table sets forth, as of January 31, 1999, information
relating to the beneficial ownership of the Company's Common Stock by those
persons beneficially holding more than 5% of the Company's Common Stock, by the
Company's directors and executive officers, and by all of the Company's
directors and executive officers as a group. Unless otherwise indicated, the
address for each person listed below is in care of the Company.

--------------------------------------------------------------------------------
Name and Address                 Amount and Nature of         Percent of Class
                                 Beneficial Ownership
--------------------------------------------------------------------------------
Jean Darondel                         312,790*                      3.8
--------------------------------------------------------------------------------
Ramine Almassi                        0                             0
--------------------------------------------------------------------------------
Nasser Nassiri                        197,780                       2.5
--------------------------------------------------------------------------------
All Officers/Directors as a
Group (3 persons)                     510,570*                      6.3
--------------------------------------------------------------------------------

* Includes 192,755 shares into which Dr. Darondel's loan to the Company is
convertible. See Item 1. "Business - Background".

Item 12. Certain Relationships And Related Transactions.


                                       14
<PAGE>

      During 1997 and 1998, the Company granted stock purchase options to each
of Riccardo Mortara, the Company's former Chairman, Nasser Nassiri, its current
Chairman, and each of Ramine Almassi and Jean Darondel, current directors of the
Company. In addition, the Company entered into a Consulting Agreements with Mr.
Nassiri. See Item 10 - "Executive Compensation". All of the Company's
outstanding stock options were canceled in 1998 and, as of the date hereof, no 
stock options of the Company are outstanding.

      In 1997, the Company borrowed certain funds from the sister of its
Chairman and from an individual who is now, but was not then, a director of the
Company. This arrangement was amended in 1998. See Item 1. "Business -
Background".

      There are no arrangements, agreements or understandings between
non-management shareholders and the Company's management under which
non-management shareholders may directly or indirectly participate in or
influence the management of the Company's affairs. There are no arrangements,
agreements or understandings pursuant to which non-management shareholders have
agreed to exercise their voting rights to continue to elect the current
directors to the Company's Board of Directors.

      PART IV

      Item 13. Exhibits

      (a) See Index to Exhibits. The Exhibits therein listed and attached hereto
and the Exhibits therein incorporated by reference are filed as part of this
report.

      (b) Reports on Form 8-K. -- None.


                                       15
<PAGE>

      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.

                                      BIOCORAL, INC.


Date: 4/15/99                         By: s/ Nasser Nassiri
                                          --------------------------------------
                                      Nasser Nassiri , Chairman of the Board and
                                      Chief Executive Officer

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

Signature                          Title                                 Date
---------                          -----                                 ----
                                   
s/ Nasser Nassiri                  Chairman of the Board                 4/15/99
------------------------           and a director
Nasser Nassiri                     


s/ Ramine Almassi                  Treasurer, Secretary and              4/15/99
------------------------           a director
Ramine Almassi                     


s/ Jean Darondel                   Director                              4/15/99
------------------------
Jean Darondel               


                                       16
<PAGE>

                                 Exhibit Index

                         Certificate of Incorporation

3.1   Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to
      Company's Form 10-SB Registration Statement filed with the Commission on
      February 25, 1994, as amended ("Registration Statement")

3.2   By-laws (incorporated by reference to Exhibit 3.2 to the Registration
      Statement)

3.3   Amendment to Certificate of Incorporation (incorporated by reference to
      Amendment No. 1 to the Registration Statement filed with the Commission on
      April 18, 1994 ("Amendment No. 1")

3.4   Amendment to Certificate of Incorporation, (incorporated by reference to
      Exhibit 10.21 to the Company's Annual Report on Form 10-KSB filed December
      27, 1996 ("1996 10-KSB")

                              Material Contracts

10.1  1992 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the
      Registration Statement)

10.2  Stock Option Agreement with Jehu Hand (incorporated by reference to
      Exhibit 10.2 to the Registration Statement)

10.3  Stock Option Agreement with Eric Anderson (incorporated by reference to
      Exhibit 10.3 to the Registration Statement)

10.4  Stock Purchase Agreement, dated March 21, 1994, by and among Registrant,
      Cabestan, Inc., Jehu Hand and Eric Anderson (incorporated by reference to
      Exhibit 10.4 to Amendment No. 1)

10.5  Assignment and Assumption of Transfer Agreement, dated March 25, 1994
      (incorporated by reference to Exhibit 10.5 to Amendment No. 1)

10.6  Transfer Agreement, dated December 1993 (incorporated by reference to
      Exhibit 10.6 to Amendment No. 1)

10.7  Assignment and Assumption of Limited Partnership Interest, dated March 25,
      1994 (incorporated by reference to Exhibit 10.7 to Amendment No. 1)

10.8  Agreement of Sale and Purchase, dated March 25, 1994 (incorporated by
      reference to Exhibit 10.8 to Amendment No. 1)
<PAGE>

10.9  Extension Agreement, dated March 1994, by and among Bensenville
      AssociatesLimited, L.P. and Cabestan, Inc. (incorporated by reference to
      Exhibit 10.9 to Amendment No. 1)

10.10 Agreement, dated December 30, 1993 between Bensenville Industrial Park,
      L.P. and Bensenville Associates Limited, L.P. (incorporated by reference
      to Exhibit 10.10 to Amendment No. 1)

10.11 Credit Agreement between Societe Financiere Privee SA and the Company,
      dated March 22, 1994 (incorporated by reference to Exhibit 10.11 to
      Amendment No. 1) 10.12 Letter of Intent, dated May 31, 1994 between the
      Company and Borgonuovo SIM, S.p.A. (incorporated by reference to Exhibit
      10.12 to Amendment No. 2 to the Company's Registration Statement filed
      with the Commission on July 15,1994 ("Amendment No. 2")

10.13 Mortgage Loan Commitment between the Principal Financial Group and
      Cabestan, Inc., dated June 20, 1994, (incorporated by reference to Exhibit
      10.13 to Amendment No. 3)

10.14 Stock Purchase Agreement, dated September 12, 1994, by and between
      IMMO-Finance Corporation, Kialu S.r.L. and Alessandro Bassetti,
      (incorporated by reference to Exhibit 10.14 to Amendment No. 3 to the
      Company's Registration statement, as filed with the Commission on
      September 2, 1994 ("Amendment No. 3"))

10.15 Shareholders' Agreement, dated September 12, 1994, by and among Kialu
      S.r.L., IMMO-Finance Corporation and Alessandro Bassetti (incorporated by
      reference to Exhibit 10.15 to Amendment No. 3)

10.16 Property Management and Leasing Agreement, dated as of October 6, 1994
      between Trammell Crow M.W., Inc. and Cabestan, Inc. (incorporated by
      reference to Exhibit 10.16 to Company's 10-KSB Annual Report filed April
      18, 1995)

10.17 Acquisition Agreement between IMMO-Finance Corporation and Halford Finance
      S.A. and Cornington International, Inc., dated August 2, 1995
      (incorporated by reference to Exhibit 10.17 to Company's 1996-10-KSB)

10.18 Distribution Agreement between Inoteb and 3H Human Health Company, Ltd.,
      dated May 13, 1995 (English and French versions) (incorporated by
      reference to Exhibit 10.18 to Company's 1996-10-KSB)

10.19 Contract de Fournitures between Inoteb and 3H Human Health Hightech PLC,
      dated October 11, 1995 (incorporated by reference to Exhibit 10.19 to
      Company's 1996- 10-KSB)

10.20 Convention between IMMO-Finance Corporation and various French
      shareholders and note holders, dated October 6 and 18, 1995 (incorporated
      by reference to Exhibit 10.20 to Company's 1996-10-KSB)
<PAGE>

10.21 INTENTIONALLY OMITTED

10.22 Supply Agreement between Inoteb, S.A., 3H Human Health Hightech PLC and
      Intermedics Orthopedics/Denver, Inc., dated May 23,1996 (incorporated by
      reference to Exhibit 10.22 to Company's 1996-10-KSB)

10.23 Stock Option Agreement between Biocoral and Riccardo Mortara, dated June
      10, 1996 (incorporated by reference to Exhibit 10.23 to Company's
      1996-10-KSB)

10.24 Stock Option Agreement between Biocoral, Halford Finance, S.A. and
      Cornington International, Inc., dated September 13, 1996 (incorporated by
      reference to Exhibit 10.24 to Company's 1996-10-KSB)

10.25 Purchase Agreement between Cabestan, Inc. and Brooklyn Roads Limited,
      dated October 9, 1996 (incorporated by reference to Exhibit 10.25 to
      Company's 1996-10-KSB)

10.26 Letter Agreement between Biocoral and UI USA, Inc., dated November 26,
      1996 (incorporated by reference to Exhibit 10.26 to Company's 1996-10-KSB)

10.27 Stock Option Agreement between Biocoral and each of Nasser Nassiri and
      Riccardo Mortara, dated December 31, 1996 (incorporated by reference to
      Exhibit 10.27 to Company's 1996-10-KSB)

10.28 Stock Option Agreement, dated October 21, 1997, by and between Biocoral
      and Nasser Nassiri (incorporated by reference to Exhibit 10.28 to
      Company's 1997 10-KSB)*

10.29 Stock Option Agreement, dated October 21, 1997, by and between Biocoral
      and Ramine Almassi (incorporated by reference to Exhibit 10.29 to
      Company's 1997 10-KSB)*

10.30 Consulting Agreement, dated September 1, 1997, by and between Biocoral and
      Nasser Nassiri (incorporated by reference to Exhibit 10.30 to Company's
      1997 10-KSB)*

10.31 Stock Option Agreement, dated October 1, 1997, by and between Biocoral and
      Jean Darondel (incorporated by reference to Exhibit 10.31 to Company's
      1997 10-KSB)*

10.32 Agreement, dated November 1, 1997, by and between Biocoral, Vida Nassiri
      Khoobdehi and Jean Darondel (incorporated by reference to Exhibit 10.32 to
      Company's 1997 10-KSB)**

10.33 Stock Option Agreement, dated October 1, 1997, by and between Biocoral and
      Jean-Louis Patat (incorporated by reference to Exhibit 10.33 to Company's
      1997 10-KSB)*

10.34 Stock Option Agreement, dated October 1, 1997, by and beween Biocoral and
      Alberto Jussman (incorporated by reference to Exhibit 10.34 to Company's
      1997 10-KSB)*
<PAGE>

10.35 Stock Option Agreement, dated October 21, 1997 by and between Biocoral and
      Rosy Eloy (incorporated by reference to Exhibit 10.35 to Company's
      1997 10-KSB)*

10.36 Stock Option Agreement, dated February 3, 1998, by and between Biocoral
      and Jean Darondel (incorporated by reference to Exhibit 10.36 to Company's
      1997 10-KSB)*

*Filed herewith

11    List of Biocoral subsidiaries

27    Financial Data Schedule


<PAGE>

                          BIOCORAL, INC. AND SUBSIDIARIES

                                     I N D E X

                                                                          PAGE
                                                                          ----

REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS                                 F-2/3

CONSOLIDATED BALANCE SHEETS
   DECEMBER 31, 1998 AND 1997                                             F-4

CONSOLIDATED STATEMENTS OF OPERATIONS
   YEARS ENDED DECEMBER 31, 1998 AND 1997                                 F-5

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
   YEARS ENDED DECEMBER 31, 1998 AND 1997                                 F-6

CONSOLIDATED STATEMENTS OF CASH FLOWS
   YEARS ENDED DECEMBER 31, 1998 AND 1997                                 F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                F-8/20

                                       * * *


                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
  Stockholders
BioCoral, Inc.

We have audited the accompanying consolidated balance sheets of BIOCORAL, INC.
AND SUBSIDIARIES as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity (deficiency) and cash flows for
the years then ended. 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 did not audit the financial
statements of Inoteb SA, a 100%- and 67%-owned subsidiary as of December 31,
1998 and 1997, respectively, which statements reflect total assets of
approximately $1,313,000 and $930,000 as of December 31, 1998 and 1997,
respectively, and losses from continuing operations of approximately $670,000
and $432,000 for the years ended December 31, 1998 and 1997, respectively. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Inoteb SA, is
based solely on the report of the other auditors.

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, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of BioCoral, Inc. and Subsidiaries as
of December 31, 1998 and 1997, and their results of operations and cash flows
for the years then ended, in conformity with generally accepted accounting
principles.

                                                      J.H. COHN LLP

Roseland, New Jersey
March 20, 1999


                                      F-2
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
  Stockholders
Inoteb SA

We have audited the consolidated balance sheets of INOTEB SA (a French
corporation) AND SUBSIDIARY as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' deficiency and cash flows
for the years then ended. These financial statements, which are not presented
separately herein, 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
in the United States. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Inoteb SA and
Subsidiary as of December 31, 1998 and 1997, and their results of operations and
cash flows for the years then ended, in conformity with generally accepted
accounting principles in the United States.

                                                      CONSULTAUDIT S.A.

Paris, France
February 13, 1999


                                      F-3
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997

                     ASSETS                            1998            1997
                                                   ------------    ------------
Current assets:
   Cash                                            $  1,344,608    $    506,930
   Accounts receivable, net of
     allowance for doubtful accounts
     of $262,100 and $245,900                            96,500         104,600
   Inventories                                          197,500         177,500
   Net assets of discontinued operations                230,639         430,000
   Other current assets                                 101,900          95,000
                                                   ------------    ------------
        Total current assets                          1,971,147       1,314,030
Property and equipment, net of
   accumulated depreciation of
   $230,030 and $149,500                                 47,837         109,053
Goodwill                                                143,571
Other assets                                            167,290         188,682
                                                   ------------    ------------

        Totals                                     $  2,329,845    $  1,611,765
                                                   ============    ============

     LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
   Current portion of long-term debt               $    226,260    $    352,825
   Notes payable:
     Related parties                                    428,811         428,811
     Other                                               25,000          25,000
   Accounts payable and accrued liabilities             642,417         591,302
                                                   ------------    ------------
        Total current liabilities                     1,322,488       1,397,938
Long-term debt, net of current portion                2,092,140         447,875
                                                   ------------    ------------
        Total liabilities                             3,414,628       1,845,813
                                                   ------------    ------------

Commitments and contingencies

Stockholders' deficiency:
   Preferred stock, par value $.001 per
     share; 1,000,000 shares authorized;
     none issued                                             --              --
   Common stock, par value $.001 per
     share; 20,000,000 shares authorized;
     7,924,149 and 7,697,215 shares
     issued and outstanding                               7,924           7,697
   Additional paid-in capital                        12,400,666      12,509,248
   Accumulated deficit                              (13,493,373)    (12,295,993)
   Unearned compensation                                               (455,000)
                                                   ------------    ------------
        Total stockholders' deficiency               (1,084,783)       (234,048)
                                                   ------------    ------------

        Totals                                     $  2,329,845    $  1,611,765
                                                   ============    ============

See Notes to Consolidated Financial Statements.


                                      F-4
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

                                                      1998             1997
                                                   -----------      -----------

Revenues:
   Net sales                                       $   405,900      $   526,900
   Other income                                                          83,801
                                                   -----------      -----------
        Totals                                         405,900          610,701
                                                   -----------      -----------

Operating expenses:
   Cost of sales                                       142,700          172,400
   Research and development,
      net of subsidies                                 463,138          234,400
   Interest                                             89,379           49,888
   Depreciation of property and
      equipment                                         80,530           51,400
   Amortization of unearned
      compensation                                      85,312          682,500
   Consulting and professional fees                    384,161          489,238
   Other operating expenses                            358,060          642,603
                                                   -----------      -----------
        Totals                                       1,603,280        2,322,429
                                                   -----------      -----------

Loss before other expense                           (1,197,380)      (1,711,728)

Other expense - write-off of
   intangible assets                                                 (1,478,778)
                                                   -----------      -----------

Loss from continuing operations                     (1,197,380)      (3,190,506)

Discontinued real estate
   operations - loss on disposal                                       (188,058)
                                                   -----------      -----------

Net loss                                           $(1,197,380)     $(3,378,564)
                                                   ===========      =========== 

Basic loss per common share:
   Loss from continuing operations                 $      (.15)     $      (.42)
   Loss from discontinued operations                                       (.02)
                                                   -----------      -----------

        Net loss per common share                  $      (.15)     $      (.44)
                                                   ===========      ===========

Basic weighted average common
   shares outstanding                                7,785,272        7,630,282
                                                   ===========      ===========

See Notes to Consolidated Financial Statements.


                                      F-5
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                     Preferred Stock     Common Stock
                                     ---------------   -----------------                                                   Total
                                     Number            Number               Additional                                 Stockholders
                                       of                of                   Paid-In      Accumulated     Unearned       Equity'
                                     Shares   Amount   Shares     Amount      Capital        Deficit     Compensation  (Deficiency)
                                     ------   ------   ------     ------    ----------     -----------   ------------  ------------
<S>                                   <C>      <C>    <C>         <C>       <C>          <C>            <C>             <C>         
Balance, January 1, 1997               300            7,242,722   $ 7,243   $12,080,191   $ (8,917,429)  $(1,137,500)   $ 2,032,505

Cancellation of preferred stock 
   in connection with sale of 
   common stock                       (300)             400,000       400       299,600                                     300,000
                                                                                         
Issuances of common stock 
   for consulting services                               54,493        54       129,457                                     129,511
                                                                                         
Amortization of unearned 
   compensation                                                                                              682,500        682,500
                                                                                         
Net loss                                                                                    (3,378,564)                  (3,378,564)
                                      -----           ---------   -------   -----------  -------------  ------------    -----------
                                                                                         
Balance, December 31, 1997              --            7,697,215     7,697    12,509,248    (12,295,993)     (455,000)      (234,048)
                                                                                         
Issuance of common stock to pay                                                          
   accrued liabilities                                  226,934       227       261,106                                     261,333
                                                                                         
Amortization of unearned 
   compensation                                                                                               85,312         85,312
                                                                                         
Cancellation of stock options                                                  (369,688)                     369,688
                                                                                         
Net loss                                                                                   (1,197,380)                   (1,197,380)
                                      -----           ---------   -------   -----------  -------------  ------------    -----------
                                                                                         
Balance, December 31, 1998              --     $ --   7,924,149   $ 7,924   $12,400,666  $(13,493,373)  $         --    $(1,084,783)
                                      =====    =====  =========   =======   ===========  =============  ============    ===========
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-6
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

                                                        1998            1997
                                                    ------------    -----------
Operating activities:
   Net loss                                         $(1,197,380)    $(3,378,564)
   Adjustments to reconcile net loss
     to net cash used in operating
     activities:
     Depreciation of property
        and equipment                                    80,530          51,400
     Loss on disposal of property
        and equipment                                    28,300          83,541
     Loss from impairment of
        intangible assets                                             1,478,778
     Effect of governmental subsidies
        on research and
        development expenses                                           (120,000)
     Amortization of unearned
        compensation                                     85,312         682,500
     Loss from discontinued
        operations                                                      188,058
     Changes in operating assets
        and liabilities:
        Accounts receivable                               8,100          49,100
        Inventories                                     (20,000)         73,600
        Other current assets                             (6,900)        107,500
        Other assets                                     21,392           3,730
        Accounts payable and
           accrued liabilities                          312,448        (173,157)
                                                    -----------     -----------
            Net cash used in operating
               activities                              (688,198)       (953,514)
                                                    -----------     -----------

Investing activities:
   Capital expenditures                                 (47,614)        (17,058)
   Purchase of additional interest
     in subsidiary                                     (143,571)
   Net proceeds from disposal of
     discontinued real estate
     operations                                         199,361       1,085,000
                                                    -----------     -----------
            Net cash provided by investing
               activities                                 8,176       1,067,942
                                                    -----------     -----------

Financing activities:
   Proceeds from notes payable
     to related parties                                                 428,811
   Principal payments on other
     short-term obligations                                            (224,551)
   Proceeds from long-term
     obligations                                      1,613,500          69,000
   Principal payments on long-term
     obligations                                        (95,800)       (189,900)
   Proceeds from sales of
     common stock                                                       300,000
                                                    -----------     -----------
            Net cash provided by financing
               activities                             1,517,700         383,360
                                                    -----------     -----------

Net increase in cash                                    837,678         497,788
Cash, beginning of year                                 506,930           9,142
                                                    -----------     -----------

Cash, end of year                                   $ 1,344,608     $   506,930
                                                    ===========     ===========

Supplemental disclosure of cash
   flow data:
   Interest paid                                    $    36,431     $    88,996
                                                    ===========     ===========

See Notes to Consolidated Financial Statements.


                                      F-7
<PAGE>

                        BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Business and summary of accounting policies:

         Business:

            BioCoral, Inc. ("BioCoral") was incorporated under the laws of the
            State of Delaware on May 4, 1992 and organized originally as a
            "blind pool" or "blank check" company for the purpose of either
            merging with or acquiring an operating company. BioCoral was a
            "development stage company" for accounting purposes until March 25,
            1994 when it acquired all of the issued and outstanding stock of
            Cabestan, Inc. ("Cabestan"), which concurrently acquired commercial
            real estate properties from a commonly-controlled related party. As
            further explained below and in Note 2, Cabestan entered into an
            agreement to sell its real estate properties in October 1996 and
            consummated the sale in February 1997. Accordingly, the results of
            the real estate operations have been shown separately as
            discontinued operations in the accompanying consolidated statements
            of operations. The net assets of the discontinued real estate
            operations have also been reclassified and shown separately in the
            accompanying consolidated balance sheets.

            During 1995, BioCoral acquired 3H Human Health Hightech Public
            Limited Company ("3H"), an Irish corporation, for the purpose of
            commencing and developing commercial biomaterials operations. 3H's
            only significant activity prior to being acquired by BioCoral was
            the acquisition of an option for the purchase of a license from
            Inoteb SA ("Inoteb"), a French corporation, that would give 3H the
            exclusive right to distribute, anywhere outside of France, the
            medical products developed and manufactured by Inoteb. During 1995,
            BioCoral also exercised its option for the purchase of the license
            from Inoteb (see Note 2), and it acquired an option to purchase a
            controlling interest in Inoteb. As further explained in Note 2,
            BioCoral exercised its option and purchased a 56% interest in the
            common stock of Inoteb during July 1996 and increased its interest
            through additional purchases of common stock to 67% in 1997 and 100%
            in 1998.

            BioCoral, Inoteb, 3H, Cabestan and BioCoral's other subsidiaries are
            referred to collectively herein as the "Company."

            As of December 31, 1998, substantially all of the Company's
            continuing operations were biomaterials operations conducted through
            Inoteb. Such operations consist primarily of developing,
            manufacturing and marketing bone substitute materials made from
            coral and other orthopedic, oral and maxillofacial products,
            including products marketed under the trade name of BioCoral. The
            Company has not received the regulatory approvals needed to market
            its products in the United States. Obtaining such approvals could
            take a long time and involve substantial expenditures. The Company
            has generated limited amounts of revenues from its biomaterials
            operations and, as a result, on December 31, 1997 it wrote off all
            of the costs of goodwill and licensing fees that it had incurred and
            capitalized in the development of its biomaterials operations.

            During 1994, BioCoral filed a registration statement under the
            Securities Exchange Act of 1934 (the "Exchange Act") and, as a
            result, it became required to file periodic reports with the United
            States Securities and Exchange Commission.


                                      F-8
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Business and summary of accounting policies (continued): 

         Principles of consolidation:

            The consolidated financial statements include the accounts of
            BioCoral and its wholly-owned subsidiaries. All significant
            intercompany accounts and transactions have been eliminated in
            consolidation.

         Use of estimates:

            The preparation of financial statements in conformity with generally
            accepted accounting principles requires management to make estimates
            and assumptions that affect certain reported amounts and
            disclosures. Accordingly, actual results could differ from those
            estimates.

         Cash:

            The Company maintains cash deposits in domestic and foreign banks.
            At times, the account balances exceed insurance limits. The Company
            reduces its exposure to credit risk by maintaining such deposits in
            major financial institutions that have high credit ratings.

         Inventories:

            Inventories are stated at the lower of cost, determined on the
            first-in, first-out ("FIFO") method, or market.

         Impairment of long-lived assets:

            The Company has adopted the provisions of Statement of Financial
            Accounting Standards No. 121, Accounting for the Impairment of
            Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS
            121"). Under SFAS 121, impairment losses on long-lived assets, such
            as property and equipment, licenses and goodwill, are recognized
            when events or changes in circumstances indicate that the
            undiscounted cash flows estimated to be generated by such assets are
            less than their carrying value and, accordingly, all or a portion of
            such carrying value may not be recoverable. Impairment losses are
            then measured by comparing the fair value of assets to their
            carrying amounts.

         Property and equipment:

            Property and equipment used in the Company's medical products
            manufacturing operations are recorded at cost. Depreciation is
            computed using the straight-line method over the estimated useful
            lives of the assets (15 years for properties and three to ten years
            for equipment).

         License fees:

            Prior to being written-off upon recognition of their impairment,
            license fees were recorded at cost and were being amortized using
            the straight-line method over 15 years.


                                      F-9
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Business and summary of accounting policies (continued):

         Goodwill:

            Goodwill representing the excess of the costs of acquiring the
            initial 56% interest in Inoteb over the Company's proportionate
            interest in the fair value of the underlying net assets at the date
            of acquisition was being amortized using the straight-line method
            over an estimated useful life of five years until it was determined
            to be impaired and written off in 1997. Goodwill representing the
            excess of the costs of acquiring the final 33% interest in Inoteb in
            1998 over the Company's proportionate interest in the fair value of
            the underlying net assets at the date of acquisition will be
            amortized using the straight-line method over an estimated useful
            life of thirteen months.

         Advertising:

            The Company expenses the cost of advertising and promotions as
            incurred. Advertising costs charged to operations were not material
            in 1998 and 1997.

         Research and development:

            Costs and expenses related to research and product development are
            expensed as incurred.

         Income taxes:

            The Company accounts for income taxes pursuant to the asset and
            liability method which requires deferred tax assets and liabilities
            to be computed annually for temporary differences between the
            financial statement and tax bases of assets and liabilities that
            will result in taxable or deductible amounts in the future based on
            enacted tax laws and rates applicable to the periods in which the
            temporary 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. The
            income tax provision or credit is the tax payable or refundable for
            the period plus or minus the change during the period in deferred
            tax assets and liabilities.

         Earnings (loss) per common share:

            The Company presents "basic" and, if applicable, "diluted" earnings
            (loss) per common share pursuant to the provisions of Statement of
            Financial Accounting Standards No. 128, Earnings per Share ("SFAS
            128") and certain other financial accounting pronouncements. Basic
            earnings (loss) per common share is calculated by dividing net
            income or loss by the weighted average number of common shares
            outstanding during the period. The calculation of diluted earnings
            (loss) per common share is similar to that of basic earnings (loss)
            per common share, except that the denominator is increased to
            include the number of additional common shares that would have been
            outstanding if all potentially dilutive common shares, such as those
            issuable upon the exercise of stock options, were issued during the
            period.


                                      F-10
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note1 - Business and summary of accounting policies (concluded): 

        Earnings (loss) per common share (concluded):

            Since the Company had losses in 1998 and 1997, the assumed effects
            of the exercise of stock options during the periods they were
            outstanding were anti-dilutive and, accordingly, diluted per share
            amounts have not been presented in the accompanying consolidated
            statements of operations.

         Foreign currency translation and transactions:

            Assets and liabilities of Inoteb are translated at current exchange
            rates and related revenues and expenses are translated at average
            exchange rates in effect during each year. Resulting translation
            adjustments, which are recorded as a separate component of
            stockholders' deficiency if material, and foreign currency
            transaction gains and losses, which are included in net income or
            loss in each year, were not material as of December 31, 1998 and
            1997 and for the years then ended.

         Recent pronouncements:

            The Financial Accounting Standards Board and the Accounting
            Standards Executive Committee of the American Institute of Certified
            Public Accountants had issued certain accounting pronouncements as
            of December 31, 1998 that will become effective in subsequent
            periods; however, management of the Company does not believe that
            any of those pronouncements would have significantly affected the
            Company's financial accounting measurements or disclosures had they
            been in effect as of December 31, 1998.


Note 2 - Acquisitions and dispositions: 

         Acquisition of 3H and the licensing agreement:

            During 1995, the Company issued 1,422,223 shares of common stock to
            acquire all of the outstanding common shares of 3H. Since neither
            the shares issued by the Company nor the rights acquired by 3H had
            an objectively determinable value at the date of the exchange, the
            Company valued the shares issued and the rights initially acquired
            on the basis of the par value of the shares issued of $1,422.

            During 1995, the Company exercised its option and purchased a
            15-year license from Inoteb for the exclusive right to distribute
            the medical products developed and manufactured by Inoteb anywhere
            outside of France. The Company initially capitalized the cost of the
            license which was $1,485,751. Based on the Company's recurring
            losses and the uncertainties related to its ability to generate
            profits in the future from the Inoteb technology, the licensing fees
            were deemed to be impaired and the remaining carrying value of
            $1,324,794 was written off in the fourth quarter of 1997.


                                      F-11
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Acquisitions and dispositions (continued):

         Acquisition of Inoteb:

            During July 1996, the Company issued 1,840,516 shares of common
            stock to acquire effectively 56% of Inoteb's common stock. The
            acquisition was accounted for as a purchase.

            The Company valued the shares issued to acquire Inoteb at $230,000
            or $.125 per share. Total acquisition costs were allocated to the
            assets acquired and liabilities assumed based on their estimated
            fair values on the date of acquisition, with the excess of the cost
            over such fair values allocated to goodwill, as shown below:

              Cash                                              $   259,000
              Accounts receivable                                   314,300
              Inventories                                           317,700
              Other current assets                                  448,142
              Property and equipment                                225,100
              Goodwill                                              169,984
              Other assets                                           23,500
              Accounts payable and accrued expenses                (293,701)
              Long-term debt                                     (1,116,800)
              Minority interest                                    (117,225)
                                                                -----------

                Cost of acquisition                             $   230,000
                                                                ===========

            Based on the Company's recurring losses and the uncertainties
            related to its ability to generate profits in the future from the
            Inoteb technology, the goodwill associated with the initial
            acquisition of Inoteb was deemed to be impaired and the remaining
            carrying value of $153,984 was written off in the fourth quarter of
            1997.

            During 1997, the Company increased its ownership percentage in
            Inoteb to 67% by purchasing additional shares of common stock
            directly from Inoteb through an intercompany transfer of
            approximately $678,000. As a result, an additional $226,000 of
            capital was allocated to the minority interest. The minority
            interest in Inoteb's net loss in 1997 exceeded the additional
            minority interest recorded in 1997 by approximately $173,000 and,
            accordingly, that amount was included in the Company's net loss for
            1997.

            During December 1998, concurrent with a corporate reorganization of
            Inoteb, the Company increased its ownership interest in Inoteb's
            outstanding capital stock from 67% to 100% for consideration of
            $143,571, which was included in accounts payable as of, and will be
            paid in cash subsequent to, December 31, 1998. The cost of the
            additional interest in Inoteb, which was purchased, effectively,
            from employees and other related and unrelated parties, exceeded the
            Company's proportionate interest in the underlying net assets by
            $143,571 and was allocated to goodwill. Based on the uncertainties
            related to its ability to generate profits in the future from the
            Inoteb technology, the goodwill associated with the purchase of the
            additional interest will be written off over thirteen months (the
            shortest period allowable under generally accepted accounting
            principles.)


                                      F-12
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Acquisitions and dispositions (continued): 

         Sale of real estate operations:

            On March 25, 1994, Cabestan commenced real estate operations when it
            purchased land, two buildings and a 9.3% interest in a limited
            partnership that owns undeveloped land from Bensenville Industrial
            Park, L.P. ("BIPLP") for total consideration of approximately
            $9,860,000. Riccardo Mortara is an executive officer and the sole
            director of BIPA, Inc., the general partner of BIPLP. He was also
            the chairman of the Board of Directors and chief executive officer
            of the Company at the time the real estate was acquired (he resigned
            from those positions effective August 18, 1997). Accordingly, the
            Company and BIPLP were commonly-controlled entities when the Company
            acquired the real estate from BIPLP.

            The acquisition was accounted for as a purchase. Since the Company
            and BIPLP were commonly-controlled entities, the Company initially
            recorded the properties at BIPLP's approximate historical cost of
            $8,300,000 and accounted for the remainder of the purchase price as
            a distribution to a related party through a direct charge to
            stockholders' equity.

            In October 1996, the Company decided to discontinue its real estate
            operations and entered into an agreement to sell the commercial real
            estate owned by Cabestan for total consideration of approximately
            $6,800,000 before costs directly related to the sale. The sale was
            consummated on February 18, 1997. During the period from February
            18, 1997 to December 31, 1997, the purchaser paid approximately
            $4,748,000 by assuming a mortgage note on the properties and paying
            $1,945,000 in cash at various dates. Of the total cash payments,
            approximately $1,515,000 was remitted to the Company and $430,000
            was initially deposited in escrow to secure certain minimum rent
            guarantees made to the purchaser. During 1998, a total of $199,361
            was released from escrow. The escrow account balances of $230,639
            and $430,000 were the only remaining assets, and there were no
            remaining liabilities, attributable to discontinued real estate
            operations as of December 31, 1998 and 1997, respectively.

            Pursuant to SFAS 121 and the terms of the sales agreement, the
            carrying value of the properties was written-down by approximately
            $1,625,000 in September 1995 to net realizable value based on the
            sales price, and other assets were written down by $200,000 in 1996.
            As a result, the aggregate consideration received approximated the
            remaining carrying value of the properties when the sale was
            consummated and no additional gain or loss from the sale was
            recognized in 1997.

            The loss from discontinued real estate operations includes charges
            for interest of $38,764 in 1997. Depreciation was discontinued when
            the property and equipment was written down to net realizable value
            in 1995 and, accordingly, there was no charge for depreciation
            expense in 1997.


                                      F-13
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - Income taxes:

            The Company had net operating loss carryforwards of approximately
            $7,300,000 and $6,200,000 available to reduce future Federal taxable
            income as of December 31, 1998 and 1997, respectively. If not used,
            net operating loss carryforwards as of December 31, 1998 will expire
            at various dates through 2013. Due to changes in the ownership of
            the Company, the utilization of these loss carryforwards may be
            subject to substantial annual limitations. There were no other
            material temporary differences as of those dates.

            Deferred tax assets of approximately $2,482,000 and $2,109,000
            attributable to the potential benefits from such net operating loss
            carryforwards as of December 31, 1998 and 1997, respectively, were
            offset by equivalent valuation allowances due to the uncertainties
            related to the extent and timing of the Company's future taxable
            income and, accordingly, the Company did not recognize a credit for
            income taxes in 1998 and 1997.


Note 4 - Property and equipment:

            Property and equipment used in the Company's medical products
            operations consisted of the following:

                                                            1998         1997
                                                         ---------    ---------

            Land                                         $  10,000    $  10,000
            Buildings and improvements                     182,110      163,610
            Equipment and furnishings                       85,757       84,943
                                                         ---------    ---------
                                                           277,867      258,553
            Less accumulated depreciation                  230,030      149,500
                                                         ---------    ---------
                                                                      
              Totals                                     $  47,837     $109,053
                                                         =========     ========

Note 5 - Short-term notes payable: 

         Related parties:

            At December 31, 1998 and 1997, the Company had outstanding notes
            payable to related parties with a principal balance of $428,811 that
            are due on demand and bear interest at 10%. The notes are secured by
            5,221 shares of Inoteb's common stock. The noteholders have the
            option to convert the notes at any time into a total of 500,000
            shares of common stock of the Company (which is equivalent to a
            conversion rate of $.8576 per share). Interest on such borrowings
            totaled approximately $43,000 and $11,000 in 1998 and 1997,
            respectively.


                                      F-14
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 - Short-term notes payable (concluded):

         Other:

            The Company sold six month, 12% notes (the "Regulation D notes") in
            the principal amount of $1,975,000 in 1994 and 1995 through an
            offering that was exempt pursuant to Regulation D of the Securities
            Act. As of April 4, 1995, the Company was in default with respect to
            the payment of Regulation D notes with a principal balance of
            $1,775,000 and accrued but unpaid interest of $53,250 and,
            accordingly, such notes became due and payable. In 1995, the Company
            made payments that reduced the principal balance to $517,500 and
            negotiated an extension of the due date. During the period from
            February 18, 1997 to December 31, 1997, the Company used a portion
            of the proceeds from the sale of its commercial real estate (see
            Note 2) to make principal payments on the notes totaling $492,500
            (including $208,062 which was directly offset against outstanding
            notes and, accordingly, not reflected in the accompanying 1997
            consolidated statement of cash flows). As a result, the outstanding
            principal balance of the Regulation D notes was $25,000 at December
            31, 1998 and 1997. Management anticipates that the Company will
            repay the remaining balance as soon as it can locate the remaining
            noteholder.


Note 6 - Long-term debt:

         Long-term debt at December 31, 1998 and 1997 consisted of the
         following:

                                                            1998         1997
                                                         ----------    --------

            Term loans payable monthly in varying 
              installments, including interest at 
              rates ranging from 6.95% to 9.5%, 
              through December 2001 (A)                  $  388,700    $397,600
            Noninterest bearing advances initially 
              scheduled to be paid in monthly 
              installments through 2002 (B)                 429,700     403,100
            8% callable convertible promissory 
              notes payable (C)                           1,500,000
                                                         ----------    --------
                                                          2,318,400     800,700
            Less current portion                            226,260     352,825
                                                         ----------    --------

            Long-term debt                               $2,092,140    $447,875
                                                         ==========    ========

            (A)   The loans were secured by equipment with a net carrying value
                  of approximately $74,000 at December 31, 1998.


                                      F-15
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 - Long-term debt (continued):

            (B)   The advances were made to Inoteb by an agency of the French
                  government that finances or subsidizes certain research and
                  development projects. If the research does not result in a
                  commercially feasible product and certain other conditions are
                  met, Inoteb will not have to pay some or all of the advances.
                  During 1997, the Company reduced advances payable and research
                  and development expenses by $120,000 as a result of subsidies
                  obtained from the governmental agency.

            (C)   On August 1, 1998, the Company commenced a private offering
                  (the "Offering") to "accredited investors" of units of the 8%
                  callable convertible promissory notes payable that are due on
                  December 31, 2001 (the "8% Notes"). The Offering will expire
                  on March 31, 1999 (unless extended by the Company for up to 30
                  days) and is intended to be exempt from registration pursuant
                  to the provisions of Regulation D of the Act. The 8% Notes are
                  convertible at any time at the holder's option at the rate of
                  $3.50 per share. Interest on the 8% Notes is payable annually,
                  at the Company's option, either in cash or shares of the
                  Company's common stock. Each unit subject to the Offering
                  consists of 8% Notes in the principal amount of $25,000. The
                  Company initially offered a minimum of 60 units, with an
                  aggregate principal balance of $1,500,000, and a maximum of
                  200 units, with an aggregate principal balance of $5,000,000.

                  During the period from August 1, 1998 to December 31, 1998,
                  the Company sold 60 units, the minimum number of units it was
                  required to sell in order to at least partially complete the
                  Offering, of which 50 units, with a principal amount of
                  $1,250,000, were sold for cash and 10 units, with a principal
                  amount of $250,000, were exchanged for previously outstanding
                  short-term notes payable (the exchange was a noncash
                  transaction that is not reflected in the accompanying 1998
                  consolidated statement of cash flows).

            Principal payment requirements on long-term obligations in each of
            the years subsequent to December 31, 1998 are as follows:

                      Year Ending 
                      December 31,                      Amount
                      ------------                    ----------
                      
                        1999                          $  226,260
                        2000                             384,760
                        2001                           1,600,680
                        2002                             106,700


                                      F-16
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 - Long-term debt (concluded):

            Management of the Company believes that the term loans, the
            noninterest bearing advances and the 8% Notes had carrying values
            that approximated their fair values as of December 31, 1998 because
            the interest rates and other relevant terms of such financial
            instruments were the equivalent of those that the Company could have
            obtained for new loans as of that date.


Note7 - Common stock issued or issuable to advisors and consultants: 

            On October 1, 1997, the Company formed a Scientific Advisory Board
            ("SAB") with four members who advise the Company on scientific and
            medical developments relating to its products. Although the Company
            was not contractually obligated to compensate the members of the
            SAB, management decided to issue shares of the Company's common
            stock with a fair value of $78,000 at the effective date of issuance
            to them to compensate them for their services during the twelve
            month period that ended September 30, 1998 and, accordingly, the
            Company charged $58,500 and $19,500 to consulting and professional
            fees for such compensation in 1998 and 1997, respectively. The
            $78,000 of compensation was paid through the issuance of a total of
            62,926 shares of common stock during 1998 with an average fair
            market value at the effective dates of issuance of $1.24 per share.

            During 1998, the Company issued a total of 164,008 shares of common
            stock with a fair market value of $183,333, or an average of $1.12
            per share, to pay accrued liabilities for consulting services
            provided to the Company during 1998 and 1997, including 155,675
            shares issued to the Company's Chief Executive Officer with a fair
            market value of $175,000). As of December 31, 1998, the Company had
            a remaining accrued liability of $25,000 for compensation in
            connection with such services. Based on the fair market value of the
            Company's common stock of $1.31 per share as of December 31, 1998,
            the Company would have had to have issued 19,048 shares to pay the
            total accrued liability.

            During 1997, the Company issued a total of 54,493 shares of common
            stock with a fair market value of $129,511 (an average of $2.38 per
            share) for consulting services which was charged to operating
            expenses (including $100,000 for the fair market value of 42,105
            shares issued to the Company's Chief Executive Officer).

            The issuances of shares to advisors and consultants described above
            were noncash transactions that are not reflected in the accompanying
            1998 and 1997 consolidated statements of cash flows.


                                      F-17
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 - Stock option plan:

            On May 4, 1992, the Company adopted a stock option plan (the "Plan")
            pursuant to which options to purchase an aggregate of up to
            2,000,000 shares of common stock may be issued. Transactions under
            the Plan through December 31, 1998 are summarized below:

            --    On June 10, 1996, the Company granted options for the purchase
                  of 333,334 shares of common stock exercisable at $5.81 per
                  share, the fair market value of the shares on the date of
                  grant.

            --    On December 31, 1996, the Company granted options for the
                  purchase of 650,000 shares of common stock exercisable at
                  $3.75 per share (including options for the purchase of 325,000
                  shares granted to Mr. Mortara)

            --    On October 21, 1997, the Company granted its chief executive
                  officer and its new chief financial officer options to
                  purchase a total of 700,000 shares of common stock exercisable
                  at $2.375 per share, the fair market value of the shares on
                  the date of grant.

            --    In 1997, the Company granted the members of the SAB options to
                  purchase a total of 75,000 shares of common stock exercisable
                  at $2.875 per share, the fair market value of the shares on
                  the date of grant.

            --    On February 3, 1998, the Company granted options for the
                  purchase of 200,000 shares of common stock exercisable at
                  $3.25 per share, the fair market value of the shares on the
                  date of grant

            --    On October 1, 1998, the Company cancelled the options for the
                  purchase of 1,958,334 shares of common stock then outstanding,
                  which represented the total of all of the options that had
                  been previously issued as described above.

            The weighted average fair value of the options granted in 1998 and
            1997 was $3.25 and $2.42 per share, respectively. All of the options
            were originally exercisable for a five year period from the date of
            issuance.

            The fair value of the common stock underlying the 650,000 options
            issued on December 31, 1996 exceeded the exercise price. Therefore,
            the Company charged $1,137,500 to unearned compensation and
            additional paid-in capital upon the issuance of these options on
            December 31, 1996 based on the number of shares subject to option
            and the difference between the estimated fair value of an underlying
            share and the per share exercise price. Unearned compensation, which
            was reflected separately as a deferred charge in the consolidated
            statement of stockholders' equity (deficiency), was being amortized
            on a straight-line basis over a period of five years. General and
            administrative expenses include amortization of $85,312 and $682,500
            in 1998 and 1997, respectively. Amortization in 1997 included
            approximately $483,000 which was accelerated as a result of the
            resignation of Mr. Mortara. The unamortized unearned compensation of
            $369,688 as of October 1, 1998, the date of the cancellation of the
            options, was charged against additional paid-in capital.


                                      F-18
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 - Stock option plan (concluded):

            The Company has elected to make pro forma disclosures, as required
            by Statement of Financial Accounting Standards No. 123, Accounting
            for Stock-Based Compensation ("SFAS 123"), of net income or loss as
            if a fair value based method of accounting for stock options had
            been applied if such pro forma amounts differ materially from the
            historical amounts. Therefore, the Company will account for stock
            options in accordance with the provisions of Accounting Principles
            Board Opinion No. 25, Accounting for Stock Issued to Employees, and
            recognize compensation costs as a result of the issuance of stock
            options based on the excess, if any, of the fair value of the
            underlying stock at the date of grant (or at an appropriate
            subsequent measurement date) over the amount the employee must pay
            to acquire the stock.

            In the opinion of management, if compensation cost for the stock
            options granted to employees had been determined based on the fair
            value of the options at the grant date under the provisions of SFAS
            123 using the Black-Scholes option-pricing model, the Company's pro
            forma net loss and pro forma basic net loss per share arising from
            such computations would not have differed materially from the
            corresponding historical amounts presented in the accompanying 1998
            and 1997 consolidated statements of operations.

Note 9 - Preferred stock:

            At January 1, 1997, there were 300 shares of nonconvertible, Series
            A preferred stock outstanding, all of which were owned by a company
            controlled by Mr. Mortara. During January 1997, the remaining 300
            shares of preferred stock outstanding were canceled and 400,000
            shares of common stock were sold to the holder for $300,000.

Note 10- Segment and geographic information:

            During 1998, the Company adopted the provisions of Statement of
            Financial Accounting Standards No. 131, Disclosures about Segments
            of an Enterprise and Related Information ("SFAS 131"). Pursuant to
            the provisions of SFAS 131, the Company is reporting segment
            information in the same format reviewed by the Company's management
            (the "management approach"). The Company operates principally in one
            industry segment which includes the development, manufacture and
            sale of biomedical materials used in medical products. The Company
            conducts operations outside of the United States, principally in
            France and Ireland.


                                      F-19
<PAGE>

                          BIOCORAL, INC. AND SUBSIDIARIES

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10- Segment and geographic information (concluded):
         Information about the Company's operations and assets in different
         geographic locations for 1998 and 1997 is shown below:

                          United
                          States         France        Ireland      Consolidated
                          ------         ------        -------      ------------
1998

Net sales                             $   405,900                   $   405,900
                                      -----------                   -----------

Operating expenses:
   Interest            $    73,879         15,500                        89,379
   Depreciation of
     property and
     equipment                 430         80,100                        80,530
   Amortization of
     unearned
     compensation           85,312                                       85,312
   Other operating
     expenses              329,111        980,300    $    38,648      1,348,059
                       -----------    -----------    -----------    -----------
         Totals            488,732      1,075,900         38,648      1,603,280
                       -----------    -----------    -----------    -----------

Loss from continuing
   operations          $  (488,732)   $  (670,000)   $   (38,648)   $(1,197,380)
                       ===========    ===========    ===========    ===========

Total assets           $ 1,016,510    $ 1,313,335    $        --    $ 2,329,845
                       ===========    ===========    ===========    ===========

1997

Revenues:
   Net sales                          $   526,900                   $   526,900
   Other               $    72,101         11,700                        83,801
                       -----------    -----------                   -----------
         Totals             72,101        538,600                       610,701
                       -----------    -----------                   -----------

Operating expenses:
   Interest                 13,551         36,337                        49,888
   Depreciation of
     property and
     equipment               1,066         50,334                        51,400
   Amortization of
     unearned
     compensation          682,500                                      682,500
   Other operating
     expenses              621,005        884,329    $    33,307      1,538,641
                       -----------    -----------    -----------    -----------
         Totals          1,318,122        971,000         33,307      2,322,429
                       -----------    -----------    -----------    -----------

Loss before other
   expenses             (1,246,021)      (432,400)       (33,307)    (1,711,728)

Other expenses -
   write-off
   of intangible
   assets                 (153,984)                   (1,324,794)    (1,478,778)
                       -----------    -----------    -----------    -----------

Loss from continuing
   operations          $(1,400,005)   $  (432,400)   $(1,358,101)   $(3,190,506)
                       ===========    ===========    ===========    ===========

Total assets           $   676,801    $   929,653    $     5,311    $ 1,611,765
                       ===========    ===========    ===========    ===========


                                      F-20