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, 1997       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)                                         

      3, villa de l'Industrie, Saint-Ouen
      FRANCE                                                    N/A
  (Address of Principal Executive Offices)                   (Zip Code)

                                011-3314-010-2252
                         (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 |X| No |_|

      Issuer's revenues from continuing operations for its most recent fiscal
year were $610,701.

      The aggregate market value of the voting stock held by non-affiliates of
the Issuer, as of December 31, 1997, was approximately $27,753,000.


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<PAGE>

      The Issuer had 7,697,215 shares of common stock outstanding as of December
31, 1997.

             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 that, through its subsidiaries, develops, manufactures and
markets bone graft and growth material for orthopedic, oral and maxillofacial
applications to a number of countries outside the United States. The Company's
chief product, BioCoral, is derived from natural coral using proprietary
manufacturing processes. BioCoral 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.
The Company has written off its investment in one such area, and has sold
certain real property owned by it which had been a prior focus of its business.
Through the end of 1997, the Company had not yet realized significant revenues
from the sale of its BioCoral products. Its products are not approved for sale
in the United States and there can be no assurance such approval will be
obtained. The failure to do so could have a material adverse effect upon the
Company's ultimate profitability.

      The Company, formerly known as IMMO-Finance Corporation, was incorporated
on May 4, 1992 under the name Hermeneutics Corporation. The Company was
originally formed for the purpose of either merging with or acquiring an
operating company with operating history and assets. The Securities and Exchange
Commission has defined and designated these types of companies as "blind pools"
and "blank check" companies. From May 1992 through March 1994 the Company was a
blank check company with the primary purpose of seeking merger or acquisition
candidates. The Company ceased to be a blank check company on March 25, 1994
when it acquired all of the issued and outstanding shares of the capital stock
of Cabestan, Inc., a Pennsylvania corporation ("Cabestan"). Cabestan had owned
two commercial properties located in the Bensenville Industrial Park in the
Chicago area. Cabestan's commercial properties consisted of one building which
serves as a bulk warehouse/distribution center and a second building which
serves as office space and as a service center. The properties were sold to a
non-affiliated third party in 1997. See Item 2. - "Description of Properties".

      The Company entered the biomaterials field on August 2, 1995, when it
acquired virtually all the outstanding shares of 3H Human Health Hightech Public
Company Limited, an Irish corporation ("3H"). The principal asset of 3H then
consisted of 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
66.95%)


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<PAGE>

interest was subsequently acquired by the Company. The license granted by Inoteb
is for a period of 15 years plus two additional two year periods, and includes
the right to distribute certain other products developed by Inoteb. Potential
products include an osteoporosis treatment and a biological glue utilizing the
patient's own blood which eliminates the risks of transmission of viruses. None
of Inoteb's products are presently available in the United States and no FDA
approvals thereof have been obtained. The FDA approval process is long and
expensive and no assurance can be had of the ultimate granting thereof, or of
the Company's ultimate profitability.

      The Company acquired the shares of 3H from Cornington International Inc.
and Halford Finance S.A., each a British Virgin Islands corporation and each a
client of Societe Financiere du Seujet, a financial services company owned by
Riccardo Mortara, the Company's former Chairman and a former director. 500,000
ordinary shares (out of 500,800 shares outstanding) and all 100,000 outstanding
preference shares, of 3H were acquired in exchange for (a) 800,000 shares of the
Company's common stock; and (b) the right to purchase 150,000 shares of the
Company's common stock for each $1,000,000 in net profit after taxes of 3H in
excess of $2,000,000, the aforementioned options to be prorated for each
fractional portion of each multiple of $1,000,000 net profit. In connection with
such Agreement the Company was granted an option to acquire Inoteb, which option
has been exercised in part. The Company also agreed, in connection with any
purchase of Inoteb, to invest all net profits after taxes from BioCoral for five
years (up to a maximum of $10,000,000) into Inoteb, and agreed to use its best
efforts to raise $15,000,000 for investment into Inoteb at the rate of
$5,000,000 per year by each of July 31, 1996, 1997 and 1998. The Company did not
raise such amount for Inoteb by July 31, 1997, and there can be no assurance
that it will be able to do so in the future.

      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 represent 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 56% of the outstanding shares of Inoteb. The remaining
minority interest in Inoteb is owned by European financial institutions such as
Sofinnova S.A. and FCPR Soffinova Capital, both owned by Credit National of
Paris; SDR Bretagne, the official governmental development company for the
French region of Brittany; Jafco Saint-Honore I and II, owned by Compagnie
Financiere Ed. de Rothschild of Paris; Parquest Venture Partnership and Atlas
Venture Europe Fund B.V.

      The consideration for the Inoteb Securities was initially to be an
aggregate of 1,035,292 shares of the Company's common stock. In addition, the
Inoteb Agreement provided for the


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<PAGE>

Company to confirm that (a) the first $10,000,000 of 3H's net profits would be
utilized to subscribe for additional Inoteb capital for Inoteb to use for
research and development; and (b) it would use its best efforts to raise an
aggregate of $15,000,000 on or before July 31, 1998 to be utilized for
capitalizing Inoteb. 3H has not yet realized any significant revenues and the
Company has not raised any additional funds for Inoteb's capitalization.

      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.
The number of shares given to the Inoteb shareholders was increased to reflect
the share dividend the Company had declared in December 1995.

      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 two loans were formalized in an agreement,
dated November 1, 1997, pursuant to which the Company borrowed $260,000 (US)
from Vida Nassiri Khoobdehi and FF 971,905 from Jean Darondel. 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 virtue of 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.
Through the date of this Report, no interest has been paid to either Dr.
Darondel or Vida.

      Previously, on September 12, 1994, the Company had acquired a 51% interest
in the capital stock of Borgonuovo SIM S. A. (the "SIM"), an Italian corporation
with principal offices in Milan engaged in the brokerage and investment advisory
business. During the year ended December 31, 1995, this investment was written
off by the Company in its entirety. The Company also has another subsidiary,
IMMO Finance Distribution Limited, an Irish corporation ("IMMO Distribution"),
formed in April 1994. To date its only activity has been a passive investment in
PEMP, Inc., a Canadian mutual fund. During 1996, this investment was written off
by the Company in its entirety. See "Business - Discontinued Operations." Both
these investments had been approved by prior management of the Company.

      The executive offices of the Company are located at 3, villa de
l'Industrie, Saint-Ouen, France consisting of approximately 3000 square feet of
office space.


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<PAGE>

      BioCoral

      BioCoral is a natural 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 resorbed by the body as new
bone growth invades the BioCoral. 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 France and Italy. 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; (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.

      BioCoral's crystalline structure is composed almost entirely of calcium
carbonate, with trace amounts of fluoride, strontium and magnesium. BioCoral is
highly porous, with one gram having a surface area greater than 1 square meter.
It is believed that this porosity is conducive to new bone growth and resorption
by the body. 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.

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. Current preventive treatment for
osteoporosis includes estrogen drugs. 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. The
Company intends to raise capital to fund Phase III clinical trials, which will
be a prerequisite to human use in the United States. There can be no assurance
that any such funds will be raised, and the failure to raise such


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<PAGE>

funds could have a material adverse effect upon the Company.

Surgical Glue

      Inoteb has developed an autologous fibrin adhesive glue with autologous
growth factors. 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. 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. Inoteb is beginning clinical trials in
Europe of the surgical glue and expects to have the product ready for marketing
in Europe and elsewhere (but not the US) in late 1998. The Company anticipates
that the initial clinical applications of the autologous glue will be in
connection with facial and reconstructive plastic surgery. Pursuant to its
original license agreement with Inoteb, 3H had the exclusive right to distribute
the surgical glue outside France; by an extension of such agreement, dated
September 10, 1997, 3H acquired the commercial rights for France and Algeria as
well as an extension of the original license for two years. The world market
segment for the surgical glue is estimated by Inoteb to be in excess of $600
million. No assurance can be made that the Company will ever be able to
commercially exploit the surgical glue or, if commercially exploited, that it
will be successful.

      On May 21, 1996, Inoteb entered into a requirements supply contract with
Intermedics Orthopedics of Denver, a subsidiary of Sulzer S.A. of Switzerland, a
major international medical products manufacturer. Pursuant to the agreement, 3H
agreed to supply all of such company's requirements of BioCoral products in
connection with Intermedics' proprietary bone growth factor. Intermedics' growth
factor, coupled with the Company's products, will be used in connection with
orthopedic surgical applications. Intermedics and BioCoral will move forward
promptly to begin clinical trials to obtain FDA approval of the products. No
assurance can be given as to the dollar value of this agreement, nor can there
be any assurance that it will be successful or lead to significant revenues.

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 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 and recently passed an ISO
audit conducted by AFAQ, the French


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<PAGE>

national quality assurance agency. 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 certificate allowing sales
of BioCoral throughout the European Community. The Company believes this
facility is adequate to service the Company's present and immediately
anticipated 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.

      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. This system is marketed by Zimmer, Inc., a subsidiary of
Bristol-Myers-Squibb, a competitor with significantly greater resources and
distribution capabilities than the Company.

      The Company is not aware of the degree to which either Zimmer or
Interpore's products have penetrated the European or Asian markets, but their
significant market presence in the United States and their greater resources
pose a significant obstacle to the Company's ability to successfully market its
products in the United States should it ultimately obtain FDA approval of


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its products.

      Dental Implant Market. 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.

      Maxillofacial Market. BioCoral 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. 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 dental implant products.


      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 view toward
FDA approval thereof . In the interim, the Company will focus on increasing its
European and other sales of its products, streamlining Inoteb's operations,
entering into joint ventures with key strategic partners for distribution of its
products, research and development and the like. No assurance can be had that
any such arrangements will be reached or that they will be profitable.

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.


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<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 labelling, 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. Such failure could have a materially adverse impact upon the
Company.

Discontinued Operations

      Cabestan / Bensenville Real Estate Operations. On March 25, 1994 the
Company acquired all of the issued and outstanding capital stock of Cabestan.
The Company acquired the stock of Cabestan for a cash purchase price of
approximately $5,544,000. The Company financed the acquisition through a
combination of obtaining a $1,050,000 short term loan and through capital raised
in a Regulation S offering to non-US investors, which offering had its initial
closing on March 23, 1994 with respect to 630,000 shares of Common Stock with
net proceeds to the Company of $4,536,000. The short term loan bore interest at
the rate of 5% per annum and was repaid in full by the Company prior to its
September 30, 1994 due date out of the proceeds from the Company's Regulation S
Offering. The Company raised an aggregate of $7,022,160 in net proceeds to the
Company in its Regulation S Offering concluded in December 1994.

      Concurrently with the Company's acquisition of the stock of Cabestan,
Cabestan acquired the following assets from Bensenville Industrial Park, L.P.
("BIP") for the following considerations: (i) Building #3 in the Bensenville
Industrial Park located adjacent to Chicago's O'Hare Airport ("Building #3") for
a purchase price of $3,631,210 in cash and the assumption of an outstanding
mortgage obligation on this property of $1,876,878; (ii) a 100% beneficial
ownership interest in Building #12 in the Bensenville Industrial Park ("Building
#12") for a purchase price of $1,642,790 in cash and the assumption of an
outstanding mortgage obligation on this property of $2,999,120 and (iii) a 9.3%
limited partnership interest in Bensenville Associates Limited, an Illinois
limited partnership ("BAL") (the "Limited Partnership Interest"),


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<PAGE>

for a purchase price of $270,000. Riccardo Mortara, then a director and the
Chief Executive Officer of the Company, was, at such time, an affiliate of BIP.
Building #3 is used as a bulk warehouse/distribution center and Building #12 is
used for office space and as a service center. BAL, the former owner of the
entire Bensenville Industrial Park consisting of 14 buildings in the
Chicago/O'Hare Airport area (the "Bensenville Industrial Park"), of which
Building #3 and Building #12 were a part, is currently the owner of
approximately 12.5 acres of undeveloped land in the Bensenville Industrial Park.
Building #3 and Building #12 are collectively referred to herein as the
"Bensenville Properties." The Bensenville Properties were sold in February 1997.
See Item 2 "Description of Property".

       The opportunity to acquire Cabestan was presented to the Company by
Dremer Holding, Ltd. ("Dremer"), through its President, Riccardo Mortara, who,
at the time, was also the Company's Chief Executive Officer and a director. Mr.
Mortara is the sole officer, director and shareholder of Dremer. Also as part of
the acquisition of Cabestan, Dremer received 1,000 shares of the Series A
Preferred Stock of the Company. The Series A Preferred Stock entitled Dremer to
elect 60% of the members of the Board of Directors of the Company and
effectively afforded Mr. Mortara, after the acquisition of Cabestan, with
effective control of the Company. By January 1997, all such Series A Preferred
Stock was converted, together with a cash infusion into the Company of
$1,000,000 , into 1,000,000 shares of the Company's common stock.

      The SIM. On May 31, 1994 the Company entered into a non-binding letter of
intent (the "Letter of Intent") to acquire a 51% ownership interest in
Borgonuovo SIM S.p.A. (the "SIM"), an Italian company with principal offices
located in Milan engaged in the brokerage and asset management business. A SIM
is the Italian equivalent of a U.S. securities brokerage and investment advisory
firm. The purchase price for the 51% interest in the SIM was approximately
$2,000,000 (US). Although the Letter of Intent contemplated the purchase of the
full 51% interest in the SIM at one time at the Closing (as defined below), the
Company acquired an aggregate of 14% of the issued and outstanding capital stock
of the SIM, in increments, between the execution of the Letter of Intent and the
execution of a definitive purchase agreement, for a pro-rata portion of the
approximately $2,000,000 (US) purchase price for the full 51% interest. On
September 12, 1994, there was a simultaneous execution and closing (the
"Closing") of a Stock Purchase Agreement, by and among the Company, Kialu
S.r.l., an Italian company (the "SIM Stockholder") and Alessandro Bassetti
("Bassetti") , an individual residing in Milan (the "Stock Purchase Agreement")
with respect to the acquisition by the Company of the additional 37% interest in
the SIM for the balance of the $2,000,000 U.S. purchase price, so that on
September 12, 1994 the Company became the owner of a 51% interest in the SIM.
The Stock Purchase Agreement granted to the SIM Stockholder the right to put the
remaining 49% interest in the SIM (which includes the shares owned by Mr.
Bassetti's uncle) to the Company from and after the three year anniversary date
of the Closing. The put option entitles the SIM Stockholder to put the 49% of
the stock of the SIM to the Company at a purchase price of 49% of the net book
value of the SIM at the time of the exercise of the put option. Owing to
disagreements with management of the SIM and the SIM's poor performance, this
investment was written off in its entirety during 1995.


                                      10
<PAGE>

      Investment in PEMP - In September 1994 the Company, through IMMO
Distribution, made a passive investment of approximately $600,000 in PEMP
Investment Advisers, Inc. ("PEMP"), a company with offices in Montreal which
offers financial and tax planning services to private individuals and entities.
For its initial investment in PEMP, IMMO Distribution acquired a PEMP "network"
consisting of a randomly chosen group of PEMP clients, and was entitled to
receive a percentage of the annual financial management and other fees paid to
PEMP by the clients included in IMMO Distribution's "network." The investment in
PEMP's network was converted by IMMO Distribution into a loan in December 1994
with a variable rate of interest. This loan was converted into 800,000 shares of
the preferred stock of PEMP in June 17, 1995, which preferred shares are
entitled to an annual cumulative fixed dividend at the rate of 10% per annum.
Although Mr. Mortara had prior business dealings with PEMP, neither Mr. Mortara,
nor any officer or director of the Company, is an affiliate of PEMP. During
1996, certain parties affiliated with PEMP had agreed to redeem all such shares
for the amount of $600,000, which has not been accomplished as of the date of
this Report, nor has any interest been paid. Accordingly, effective August 1,
1996, the Company wrote down this investment in its entirety. Management is
presently evaluating its options on how to proceed with PEMP.

Financings

The Regulation S Offering

      The Company conducted an offering of its Common Stock outside of the
United States pursuant to Regulation S promulgated under the Securities Act of
1933 from March 1994 through December 1994 (the "Regulation S Offering"). In its
Regulation S Offering, the Company sought to raise up to $40,000,000 through the
sale of up to 5,000,000 shares of its Common Stock at a price of $8.00 per
share. An aggregate of 975,300 shares of Common Stock were sold in the
Regulation S Offering raising aggregate net proceeds for the Company of
$7,022,160.

      The shares offered in the Regulation S Offering were offered primarily
through Societe Financiere Privee, S.A., a financial services company located
in, and organized under the laws of, Switzerland. Mr. Mortara, the Company's
former Chief Executive Officer and a non-U.S. citizen, requested SFP to offer
the shares in the Regulation S Offering to certain of its customers. In
addition, Mr. Mortara offered the shares in the Regulation S Offering on behalf
of the Company directly to persons and entities which are among his personal and
business acquaintances. The Company paid a commission on all shares sold in the
Regulation S Offering by non-affiliates of the Company of 10% or $0.80 per share
sold in the offering. The shares which were offered through Mr. Mortara or his
affiliates were sold at a price of $7.20 per share and no commissions were paid
to Mr. Mortara or his affiliates with respect to such offers or sales. Most of
the sales in the Regulation S Offering were made to Societe Financiere Privee,
S.A., which purchased such shares as the nominee holder for approximately 166
persons and entities. Mr. Mortara is not an affiliate of Societe Financiere
Privee, S.A., but does have a pre-existing long-term business relationship with
such entity.


                                      11
<PAGE>

      The Regulation D Offering

      The Company conducted an offering of units of its debt and equity
securities in accordance with Regulation D promulgated under the Securities Act
of 1933 from June 1994 through January 31, 1995 (the "Regulation D Offering")
primarily to raise funds needed by the Company to acquire the SIM. In the
Regulation D Offering, the Company sought to raise up to $2,500,000 by the sale
of up to 50 Units (the "Units") at a price of $50,000 per Unit, each Unit
consisting of one $50,000 six month note bearing interest at a rate of 12% per
annum (the "Reg D Notes") and 1,250 shares of the Common Stock of the Company,
$.001 par value per share (the "Common Stock"). The Company sold an aggregate of
39.5 Units in the Regulation D Offering, with an aggregate of $1,975,000 in
proceeds for the Company raised in such offering in consideration for the
issuance of $1,975,000 in face amount of the Reg D Notes and 49,375 shares of
Common Stock. Baraban Capital Corporation ("BCC"), an investment banking firm
and former affiliate of the Company, guaranteed payment of principal and
interest on the Reg D Notes. Baraban Securities Incorporated, a broker-dealer
and former affiliate of the Company ("BSI") acted as the broker-dealer with
respect to the offering of the Units. In consideration for such activities BSI
received a sales commission of 10% on the Units sold and a nonaccountable
expense allowance equal to 3% on the Units sold. BSI also received 500 shares of
Common Stock of the Company for each Unit sold in the Regulation D Offering, or
an aggregate of 19,750 shares of Common Stock.

      An aggregate of $1,775,000 in principal amount and $53,250 of accrued but
unpaid interest became due and payable on the Reg D Notes on April 4, 1995, and
the Company was unable to pay such amounts, and accordingly, defaulted in the
repayment of the Reg D Notes. Societe Financiere du Seujet, an affiliate of
Riccardo Mortara, the Chief Executive Officer and a director of the Company,
agreed to deliver to the holders of the Reg D Notes which had become due and
payable, in exchange for the surrender and cancellation of such Reg D Notes,
one-half of the principal amount due on such Reg D Notes, all of the accrued and
unpaid interest on such Reg D Notes through April 4, 1995 and a new promissory
note for one-half of the original principal amount on such Reg D Notes ("New
Notes"). During the period from April 4, 1995 through June 30, 1996, an
additional 60% of the principal amount and all accrued interest through June 30,
1996 was paid on the New Notes. In May 1997, following the sale of the
Bensenville Properties, the Company paid off the full principal balance of and
all accrued interest through June 30, 1997 on the New Notes to all but one
noteholder who could not be located.

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.


                                      12
<PAGE>

Item 2. Description of Property.

      On October 15, 1996, Cabestan entered into an agreement with Brooklyn
Roads, Ltd., an Ontario corporation ("Buyer") based in Toronto pursuant to which
Buyer agreed to acquire the fee interest in the Bensenville Properties for an
aggregate consideration of $6,800,000. The consideration for the property was to
be payable in part by the assumption of an existing first mortgage loan
("Mortgage") on the property in the approximate amount of $4,750,000, and the
balance in cash at closing. There was no prior relationship between the Company
and Buyer. The agreement was amended on January 30, 1997 (the "Amendment") to
provide for a reduction in the purchase price to $6,675,000 and to add certain
minimum rent guarantees. In February 1997, Buyer's rights under the agreement,
as amended, were assigned to Carbrook LLC, a Minnesota limited liability company
("Carbrook").

      The transaction closed on February 18, 1997. The total consideration for
the sale was $6,675,000. The purchase price was funded partly in cash and partly
by assumption of the Mortgage whose balance at the time was $4,747,982. Of the
cash proceeds of the sale (approximately $1,515,000) an aggregate of $442,423
were escrowed with the title insurance company pending issuance of three letters
of credit, two (in the aggregate amount of $430,000) to secure certain rent
guarantee obligations set forth in the Amendment and one which replaces a letter
of credit previously issued to secure one of the leases on the Bensenville
Properties. Not included in the sale was Cabestan's 9.3% special limited
partnership interest in BAL. BAL, the former owner of the Bensenville Industrial
Park, is now the owner of three parcels of undeveloped land including a 5-acre
tract called Bensenville #16 and two additional parcels of 4.9 and 2.76 acres.
During 1997, an aggregate of $59,905 was paid by the Company to Carbrook in
connection with rent guarantees.

      The Bensenville Properties sold to Carbrook comprise an aggregate of
158,791 square feet of office and warehouse space on 10.33 acres, and are part
of the 14 building Bensenville Industrial Park located in Bensenville, Illinois
near Chicago's O'Hare Airport. The industrial park contains an aggregate of
1,967,698 square feet of rentable space on 125 acres and was developed by
Trammel Crow Company. In December 1993, 12 of the 14 buildings in the
Bensenville Industrial Park were sold by BAL to a single purchaser, and the
remaining two buildings, the Bensenville Properties, were distributed to BIP as
a partnership distribution in lieu of cash. BIP ultimately transferred such
buildings to Cabestan.

Item 3. Legal Proceedings.

            On July 25, 1997, the United States Securities and Exchange
Commission ("Commission") filed a complaint in the United States District Court
for the District of Columbia against the Company alleging that the Company had
failed to file its Annual Report on Form 10- KSB for the year ended December 31,
1996, two Quarterly Reports on Form 10-QSB for the


                                      13
<PAGE>

fiscal quarters ended September 30, 1996 and March 31, 1997, and five
Notifications of Late Filing with respect to its delinquent reports. The
Commission sought to compel the Company to file its delinquent periodic reports
and to enjoin the Company from any further violations of Section 13(a) of the
Exchange Act and Rules 12b-25, 13a-1 and 13a-13 thereunder. Simultaneously with
the filing of the Commission's complaint, the Company consented to the entry of
a Final Judgment granting the relief sought by the Commission and admitted that
it had not filed the periodic reports as described above. All delinquent reports
were filed by the Company by August 15, 1997 and the Company has been current in
its filings since that time.

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

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

            None.

PART II

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

      At December 31, 1997 there were 7,697,215 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, will be 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 no 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, 1997       6 1/4           3 7/8
-------------------------------------------
June 30, 1997        5 3/8           3 3/4
-------------------------------------------
September 30,        4 5/8           2 7/8
1997
-------------------------------------------


                                      14
<PAGE>

-------------------------------------------
December 31,
1997                 4 1/2           1 7/8
-------------------------------------------

Holders

      As of December 31, 1997 there were approximately 90 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

      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,
1997 ("FY 1997") were $610,701 as opposed to $325,071 for the year ended
December 31, 1996 ("FY 1996"). This increase was due principally to the
inclusion of a full year of Inoteb's operations, as opposed to half a year in FY
1996. The net loss for FY 1997 widened to $3,378,564 from $1,660,697 in FY 1996.
This was due primarily to a reserve against loss on impairment of intangible
assets ($1,478,778) and to a significant increase in amortization expense (from
$115,051 in FY 1996 to $682,500 in FY 1997) of which approximately $483,000 was
accelerated as a result of the resignation of Mr. Mortara. Operating expenses
were relatively stable on a comparative basis.

Financial Condition, Liquidity and Capital Resources

      The Company's liquidity was better in FY 1997 as opposed to FY 1996. The
Company's


                                      15
<PAGE>

cash position increased from $9142 at December 31, 1996 to $506,930 at December
31, 1997, primarily as a result of the receipt of proceeds from the sale of its
Bensenville facility from which it realized net cash proceeds of approximately
$1,515,000.The Company's liquidity was also helped by the infusion of an
additional $1,000,000 into the Company (through January 1997) in connection with
the conversion of its Series A Preferred Stock. Management believes that it has
sufficient resources to fund the Company's operations through December 31, 1998.

      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 its obligation to raise funds for research
and development. The Company is actively seeking a significant investor/joint
venture partner to infuse significant additional capital into the Company and is
presently in negotiations with certain investors to fill that role. No assurance
can be had that any such agreement will be entered into or, if entered into,
that it will be sufficient to fund all the Company's capital requirements.

Current Plans of the Company

      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 1998 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.

      In their report on the Company's financial statements included herein, the
Company's auditors have raised substantial doubts about the Company's ability to
continue as a going concern. See "Financial Statements".

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
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


                                      16
<PAGE>

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, 1998:

      Nasser Nassiri, Age 35, Chairman of the Board, President and a Director
      Ramine Almassi, Age 33, Secretary, Treasurer and a Director
      Jean Darondel, Age 55, 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 publishing
and advertising group. He also serves as a director and officer of Automated
Financial Systems, Inc., a publicly-held US company.


                                      17
<PAGE>

      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 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. 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 Exchange
Commission initial reports of stock ownership and reports of changes in stock
ownership. Due to administrative oversight, Mr. Nassiri was late in reporting,
during one month, certain changes in beneficial ownership which occurred in
1997. Also due to administrative oversight, Mr. Darondel was late in reporting
his initial statement of beneficial ownership.

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 and has only sought reimbursement of his expenses.

      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 1997, the Company reimbursed Mr. Nassiri an aggregate of
approximately $38,000 for expenses incurred. In addition, there is no
prohibition on advances being made by the Company to its officers and


                                      18
<PAGE>

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 June 11, 1996, the Company granted to each of Riccardo Mortara and
Nasser Nassiri, options for each of them to purchase up to 125,000 (currently
166,667) shares of the Company's common stock at an exercise price of $7.75 (now
$5.81) per share. The options are exercisable at any time during the five year
period following their grant.

      On December 31, 1996, the Company granted to each of Riccardo Mortara and
Nasser Nassiri, options for each of them to purchase up to 325,000 shares of the
Company's common stock at an exercise price of $3.75 per share. The
consideration for the grant of such options was their continued service as
directors of the Company. The options are exercisable at any time during the
five year period following their grant. The option exercise price was below the
market price of the shares of the Company's common stock on the date of grant.

      On October 21, 1997, the Company granted to each of Nasser Nassiri and
Ramine Almassi, options for each of them to purchase up to 350,000 shares of the
Company's common stock at an exercise price of $2.375 per share. The
consideration for the grant of such options was nominal. The options are
exercisable at any time during the five year period following their grant. The
option exercise price was the market price of the shares of the Company's common
stock on the date of grant.

      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 is 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.

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

      The following table sets forth information, as of January 31, 1998,
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
--------------------------------------------------------------------------------


                                      19
<PAGE>

--------------------------------------------------------------------------------
Jean Darondel                    225,000(1)                  2.8
--------------------------------------------------------------------------------
Ramine Almassi                   350,000(2)                  4.3
--------------------------------------------------------------------------------
Nasser Nassiri                   883,772(3)                 10.3
--------------------------------------------------------------------------------
All Officers/Directors as a
Group (3 persons)              1,458,772                    16.0
--------------------------------------------------------------------------------

(1) Includes 225,000 immediately exercisable options.

(2) Includes 350,000 immediately exercisable options.

(3) Includes 841,667 immediately exercisable options.

Item 12. Certain Relationships And Related Transactions.

      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".

      The Company acquired 3H from two entities which are clients of Societe
Financiere du Seujet, the financial services company of which Riccardo Mortara,
former Chairman and director of the Company, is the owner. Mr. Mortara did not
receive any compensation in connection with such acquisition, and Mr. Mortara
disclaims any beneficial ownership of either of such entities or of any of the
Company's securities owned by such entities. See Item 1 - "Description of
Business - Background".

      A company owned and controlled by Riccardo Mortara received 1,000 shares
of the Series A Preferred Stock of the Company for services rendered by it to
the Company. The services rendered included the negotiation and structuring of
the acquisition of the Bensenville Properties by Cabestan, and the negotiation
and structuring of the acquisition by the Company of Cabestan. At various times
through January 1997, all such shares of Series A Preferred Stock were converted
into shares of common stock. See "Business- Discontinued Operations".

      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. See Item 1. "Description of 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


                                      20
<PAGE>

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.


                                      21
<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: 4/15/98                       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
----------------------------
Nasser Nassiri                      Chairman of the Board         4/15/98
                                    and a director


s/ Ramine Almassi
----------------------------
Ramine Almassi                      Treasurer, Secretary and      4/15/98
                                    a director


s/ Jean Darondel                    Director                      4/15/98
----------------------------
Jean Darondel


                                      22
<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*

10.29 Stock Option Agreement, dated October 21, 1997, by and between Biocoral
      and Ramine Almassi*

10.30 Consulting Agreement, dated September 1, 1997, by and between Biocoral and
      Nasser Nassiri*

10.31 Stock Option Agreement, dated October 1, 1997, by and between Biocoral and
      Jean Darondel*

10.32 Agreement, dated November 1, 1997, by and between Biocoral, Vida Nassiri
      Khoobdehi and Jean Darondel*

10.33 Stock Option Agreement, dated October 1, 1997, by and between Biocoral and
      Jean-Louis Patat*

10.34 Stock Option Agreement, dated October 1, 1997, by and beween Biocoral and
      Alberto Jussman*
<PAGE>

10.35 Stock Option Agreement, dated October 21, 1997 by and between Biocoral and
      Rosy Eloy*

10.36 Stock Option Agreement, dated February 3, 1998, by and between Biocoral
      and Jean Darondel*

*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, 1997 AND 1996                                              F-4

CONSOLIDATED STATEMENTS OF OPERATIONS
  YEARS ENDED DECEMBER 31, 1997 AND 1996                                  F-5

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
  YEARS ENDED DECEMBER 31, 1997 AND 1996                                  F-6

CONSOLIDATED STATEMENTS OF CASH FLOWS
  YEARS ENDED DECEMBER 31, 1997 AND 1996                                  F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                F-8/21


                                      * * *


                                      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.
(a Delaware corporation) AND SUBSIDIARIES as of December 31, 1997 and 1996, 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 66.95%-owned subsidiary as of
December 31, 1997, which statements reflect total assets of approximately
$930,000 and $1,080,000 as of December 31, 1997 and 1996, respectively, and
losses from continuing operations of approximately $432,000 and $772,000 for the
year ended December 31, 1997 and the period from July 1, 1996 (date of
acquisition) through December 31, 1996, respectively. Those statements were
audited by other auditors whose report (which contains an explanatory paragraph
with respect to Inoteb, SA's ability to continue as a going concern) 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, 1997 and 1996, and their results of operations and cash flows
for the years then ended, in conformity with generally accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company and Inoteb SA, its principal operating
subsidiary, have incurred significant recurring losses and, as a result, the
Company had a working capital deficiency and an accumulated deficit at December
31, 1997. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans regarding those matters also
are described in Note 1. The consolidated financial statements do not include
any adjustments relating to the recoverability and classification of reported
asset amounts or the amounts and classification of liabilities that might
result from the outcome of this uncertainty.


                                        J.H. COHN LLP
Englewood Cliffs, New Jersey
March 27, 1998


                                      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, 1997 and 1996, and the related
consolidated statements of operations, stockholders' deficiency and cash flows
for the year ended December 31, 1997 and the period from July 1, 1996 (the
effective date of the Company's acquisition by Biocoral, Inc.) to December 31,
1996. 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, 1997 and 1996, and their results of operations and
cash flows for the year ended December 31, 1997 and the period from July 1, 1996
to December 31, 1996, in conformity with generally accounting principles in the
United States.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the financial statements (which are not presented separately herein), the
Company has incurred significant recurring losses and, as a result, it had a
working capital deficiency and an accumulated deficit at December 31, 1997.
Those conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans regarding those matters also are
described in Note 2. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of reported asset
amounts or the amounts and classification of liabilities that might result from
the outcome of this uncertainty.

                                           CONSULTAUDIT S.A.

Paris, France
February 27, 1998


                                      F-3
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>
                      ASSETS                                  1997             1996
                                                           -----------     -----------
<S>                                                        <C>             <C>        
Current assets:
   Cash                                                    $   506,930     $     9,142
   Accounts receivable, net of allowance for
     doubtful accounts of $245,900 and $261,300                104,600         153,700
   Inventories                                                 177,500         251,100
   Net assets of discontinued operations                       430,000       1,971,007
   Other current assets                                         95,000         202,500
                                                           -----------     -----------
        Total current assets                                 1,314,030       2,587,449
Property and equipment, net of accumulated
   depreciation of $149,500 and $98,100                        109,053         226,936
License fees, net of accumulated amortization
   of $160,956                                                               1,324,794
Goodwill, net of accumulated amortization of
   $16,000                                                                     153,984
Other assets                                                   188,682         192,412
                                                           -----------     -----------
        Totals                                             $ 1,611,765     $ 4,485,575
                                                           ===========     ===========

                  LIABILITIES AND
        STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
   Current portion of long-term debt                       $   352,825     $   255,100
   Notes payable:
     Related parties                                           428,811
     Other                                                      25,000         517,500
   Accounts payable and accrued liabilities                    591,302         893,970
                                                           -----------     -----------
        Total current liabilities                            1,397,938       1,666,570
Long-term debt, net of current portion                         447,875         786,500
                                                           -----------     -----------
        Total liabilities                                    1,845,813       2,453,070
                                                           -----------     -----------

Commitments and contingencies

Stockholders' equity (deficiency):
   Preferred stock, par value $.001 per share;
     1,000,000 shares authorized; 300 shares
     issued and outstanding in 1996
   Common stock, par value $.001 per share; 
     20,000,000 shares authorized; 7,697,215 
     and 7,242,722 shares issued and
     outstanding                                                 7,697           7,243
   Additional paid-in capital                               12,509,248      12,080,191
   Accumulated deficit                                     (12,295,993)     (8,917,429)
   Unearned compensation                                      (455,000)     (1,137,500)
                                                           -----------     -----------
        Total stockholders' equity (deficiency)               (234,048)      2,032,505
                                                           -----------     -----------
        Totals                                             $ 1,611,765     $ 4,485,575
                                                           ===========     ===========
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-4
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                              1997             1996
                                                           -----------     -----------
<S>                                                        <C>             <C>        
Revenues:
   Sales                                                  $   526,900      $   250,300
   Other income                                                83,801           74,771
                                                          -----------      -----------
        Totals                                                610,701          325,071
                                                          -----------      -----------

Operating expenses:
   Cost of sales                                              172,400          142,300
   Research and development, net of subsidies                 234,400          297,600
   Interest                                                    49,888          114,101
   Depreciation of property and equipment                      51,400           98,100
   Amortization of other assets                                                115,051
   Amortization of unearned compensation                      682,500
   Consulting and professional fees                           489,238          294,708
   Other operating expenses                                   642,603          454,339
                                                          -----------      -----------
        Totals                                              2,322,429        1,516,199
                                                          -----------      -----------
Loss before other expenses (credits)                       (1,711,728)      (1,191,128)

Other expenses (credits):
   Loss on disposal of investment in non-
     marketable securities                                                    (600,000)
   Write-off of intangible assets                          (1,478,778)
   Minority interest in loss of subsidiary                                     117,225
                                                          -----------      -----------
Loss from continuing operations                            (3,190,506)      (1,673,903)
                                                          -----------      -----------
Discontinued real estate operations:
   Income from operations                                                      213,206
   Loss on disposal                                          (188,058)        (200,000)
                                                          -----------      -----------
Income (loss) from discontinued operations                   (188,058)          13,206
                                                          -----------      -----------
Net loss                                                  $(3,378,564)     $(1,660,697)
                                                          ===========      ===========
Loss per common share:
   Loss from continuing operations -- basic               $      (.42)     $      (.29)
   Loss from discontinued operations -- basic                    (.02)
                                                          -----------      -----------
      Net loss per common share -- basic                  $      (.44)     $      (.29)
                                                          ===========      ===========
Weighted average common shares outstanding                  7,630,282        5,679,046
                                                          ===========      ===========
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-5
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                        Preferred Stock     Common Stock
                        ---------------   ----------------
                        Number            Number            Additional                                 Total
                          of                of                Paid-In    Accumulated    Unearned    Stockholders'
                        Shares   Amount   Shares    Amount    Capital      Deficit    Compensation     Equity
                        ------   ------   ------    ------    -------      -------    ------------     ------
<S>                     <C>       <C>     <C>        <C>     <C>         <C>           <C>           <C>
Balance, January 1,
  1996                   1,000    $  1    5,913,316  $5,913  $ 9,394,020  $(7,256,732)               $2,143,202

Proceeds from sale
   of common stock                          266,667     267      619,733                                620,000

Cancellation of pre-
   ferred stock in con-
   nection with sale of
   common stock           (700)     (1)     933,333     933      699,068                                700,000

Cancellation of common
   stock in connection
   with terminated ac-
   quisition                             (1,711,110) (1,711)       1,711

Common stock issued
   to acquire 56% of
   Inoteb SA                              1,840,516   1,841      228,159                                230,000

Issuance of compensa-
   tory stock options                                          1,137,500               $(1,137,500)

Net loss                                                                   (1,660,697)               (1,660,697)
                        ------    ----    ---------  ------  ----------- ------------  -----------   ----------
Balance, December 31,
  1996                     300      --    7,242,722   7,243   12,080,191   (8,917,429)  (1,137,500)  2,032,505

Cancellation of pre-
  ferred stock in con-
  nection 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 un-
  earned 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)
                        ======    ====    =========  ======  =========== ============  ===========   ==========
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-6
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                              1997             1996
                                                          -----------      -----------
<S>                                                       <C>              <C>         
Operating activities:
   Net loss                                               $(3,378,564)     $(1,660,697)
   Adjustments to reconcile net loss to
     net cash used in operating activities:
     Loss on impairment of intangible assets                1,478,778
     Depreciation of property and equipment                    51,400           98,100
     Loss on disposal of property and equipment                83,541
     Effect of governmental subsidies on
        research and development expenses                    (120,000)
     Write-off of nonmarketable securities                                     600,000
     Amortization of other assets                                              115,051
     Amortization of unearned compensation                    682,500
     Minority interest in loss of subsidiary                                  (117,225)
     Common stock issued for consulting services              129,511
     (Income) loss from discontinued operations               188,058          (13,206)
     Changes in operating assets and liabilities:
        Accounts receivable                                    49,100          160,600
        Inventories                                            73,600           66,600
        Other current assets                                  107,500          247,027
        Other assets                                            3,730              630
        Accounts payable and accrued lia-
          bilities                                           (302,668)      (1,235,192)
                                                          -----------      -----------
            Net cash used in operating activi-
               ties                                          (953,514)      (1,738,312)
                                                          -----------      -----------
Investing activities:
   Net cash acquired in purchase of Inoteb SA                                  259,000
   Capital expenditures                                       (17,058)         (99,936)
   Advances from related party                                                 (85,491)
   Net proceeds from disposal of real estate
     operations                                             1,085,000
            Net cash provided by investing                -----------      -----------
               activities                                   1,067,942           73,573
                                                          -----------      -----------
Financing activities:
   Principal payments on short-term obligations              (224,551)
   Proceeds from long-term obligations                         69,000
   Principal payments on long-term obligations               (189,900)         (75,200)
   Proceeds from notes payable to related
     parties                                                  428,811
   Proceeds from sales of common stock                        300,000        1,320,000
                                                          -----------      -----------
            Net cash provided by financing
               activities                                     383,360        1,244,800
                                                          -----------      -----------
Net increase (decrease) in cash                               497,788         (419,939)
Cash, beginning of year                                         9,142          429,081
                                                          -----------      -----------
Cash, end of year                                         $   506,930      $     9,142
                                                          ===========      ===========
Supplemental disclosure of cash flow data:
   Interest paid                                          $    88,996      $   111,493
                                                          ===========      ===========
</TABLE>

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 originally organized 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. During July 1996, BioCoral exercised
            its option for the purchase of the controlling interest in Inoteb
            (see Note 2).

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

            As of December 31, 1997, substantially all of the Company's
            continuing operations were biomaterials operations conducted through
            Inoteb, which was 66.95%-owned as of that date. 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 had generated limited amounts
            of revenues from its biomaterials operations through December 31,
            1997 and, as a result, it wrote off the costs as of that date of
            goodwill and licensing fees that it had incurred and capitalized in
            the development of its biomaterials operations.


                                      F-8
<PAGE>

                          BIOCORAL, INC. AND SUBSIDIARIES

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

      Business (concluded):

            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.

      Basis of presentation:

            The accompanying consolidated financial statements have been
            prepared based on the assumption that the Company will continue as
            a going concern. However, the Company has generated limited amounts
            of revenues from its biomaterials operations and has incurred
            significant recurring losses from its continuing and discontinued
            operations, including net losses of $3,378,564 and $1,660,697 in
            1997 and 1996, respectively. As a result, the Company had a working
            capital deficiency of $83,908 and an accumulated deficit of
            $12,295,993 at December 31, 1997. Inoteb, the Company's principal
            operating subsidiary, also had a working capital deficiency and an
            accumulated deficit. These conditions, among others, raise
            substantial doubts about the ability of the Company to continue as
            a going concern.

            Management believes that the Company's commercial success and
            ability to ultimately generate profitable biomaterials operations
            and continue as a going concern will depend to a significant extent
            on the Company's ability to obtain from regulatory authorities,
            such as the Food and Drug Administration, the approvals that will be
            necessary to enable it to sell its products in the United States and
            certain other countries. Management expects that the approval
            process is likely to be very costly and time consuming, and that the
            Company will need substantial additional amounts of working capital
            to fund operations while it further develops its technology and
            obtains the regulatory approvals.

            Management believes that the Company will need a minimum of
            approximately $700,000 to finance its operations through at least
            January 1, 1999. Management plans to obtain such resources through
            loans from, or sales of capital stock to, related and/or unrelated
            parties. Management believes that if the Company cannot obtain such
            resources from other parties, the Company's chairman of the board of
            directors and chief executive officer is committed to and will
            provide the funds through loans or the purchase of the Company's
            capital stock. Management will also seek such funds from joint
            venture or other strategic partners. However, management cannot
            provide any assurances that the Company will be successful in
            obtaining such financing and regulatory approvals, or that even if
            it does obtain such financing and regulatory approvals it will be
            able to generate profitable operations on a sustained basis. The
            accompanying consolidated financial statements do not include any
            adjustments that might be necessary should the Company be unable to
            continue as a going concern.


                                      F-9
<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 majority-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:

            At December 31, 1997 and 1996, substantially all of the Company's
            cash was held in foreign banks.

      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-10
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

      Goodwill:

            Prior to being written-off upon recognition of its impairment,
            goodwill, which represented the excess of the costs of acquiring the
            medical products manufacturing business over the fair value of the
            net assets at the date of acquisition, was being amortized using the
            straight-line method over an estimated useful life of five years.

      Advertising:

            The Company expenses the cost of advertising and promotions as
            incurred. Advertising costs charged to operations were not material
            in 1997 and 1996.

      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.

      Stock split:

            In November 1996, the Board of Directors of the Company declared a
            four for three stock split on the Company's common stock which was
            effected in the form of a stock dividend and was paid on December
            16, 1996. All common share and per share amounts have been
            retroactively restated to reflect the effect of the four for three
            stock split.

      Income (loss) per common share:

            Effective December 31, 1997, the Company adopted the provisions of
            Statement of Financial Accounting Standards No. 128, Earnings per
            Share ("SFAS 128"), which replaces the presentation of "primary"
            and "fully-diluted" income (loss) per common share required under
            previously promulgated accounting standards with the presentation of
            "basic" and "diluted" income (loss) per common share.


                                      F-11
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

      Income (loss) per common share (concluded):

            Basic net income (loss) per common share is calculated by dividing
            net income or loss for each period by the weighted average number
            of common shares outstanding during the period. The calculation of
            diluted net income (loss) per common share is similar to that of
            basic net income (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, principally those issuable upon the exercise of
            stock options, were issued during the period.

            Since the Company had losses in 1997 and 1996, the assumed effects
            of the exercise of outstanding stock options were anti-dilutive and,
            accordingly, diluted per share amounts have not been presented in
            the accompanying consolidated statements of operations. In addition,
            the basic per share amounts presented in the accompanying
            consolidated statements of operations which were computed in
            accordance with SFAS 128 do not differ from those computed under
            previously promulgated accounting standards.

      Other recent accounting pronouncements:

            In June 1997, the Financial Accounting Standards Board issued
            Statement of Financial Accounting Standards No. 130, Reporting
            Comprehensive Income ("SFAS 130"), and Statement of Financial
            Accounting Standards No. 131, Disclosures about Segments of an
            Enterprise and related Information ("SFAS 131"), which could require
            the Company to make additional disclosures in its financial
            statements no later than for the year ending December 31, 1998. SFAS
            130 defines comprehensive income, which includes items in addition
            to those reported in the statement of operations, and requires
            disclosures about its components. Management believes that the
            adoption of SFAS 130 will not have a material impact on the
            Company's disclosures. SFAS 131 requires disclosures for each
            segment of a business and the determination of segments based on its
            internal management structure. Management is in the process of
            evaluating whether SFAS 131 will require the Company to make any
            additional disclosures.

      Reclassifications:

            Certain accounts in the 1996 consolidated financial statements have
            been reclassified to conform with 1997 presentations.


                                      F-12
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 1997.

      Acquisition of the majority interest in 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 and, accordingly, the
            results of operations of Inoteb have been included in the
            consolidated totals from July 1, 1996, the effective date of the
            acquisition.

            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
                                                               ==========


                                      F-13
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Acquisitions and dispositions (continued):

      Acquisition of the majority interest in Inoteb (concluded):

            The following unaudited pro forma information shows the results of
            continuing operations for the year ended December 31, 1996 as though
            Inoteb had been acquired at the beginning of 1996:

                  Revenues                                   $  700,471
                  Loss from continuing operations            (2,172,028)
                  Loss per common share - basic                    (.32)
                  Weighted average common shares
                    outstanding - basic                       6,863,659

            In addition to combining the historical results of operations of the
            Company and Inoteb, the pro forma results include adjustments to
            reflect depreciation and amortization based on the fair values of
            assets acquired and the minority interest in the net loss (subject
            to the limitation explained below).

            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 acquisition of
            Inoteb was deemed to be impaired and the remaining carrying value of
            $153,984 was written off in 1997.

            The Company initially recorded approximately $117,000 as the
            minority interest in connection with its purchase of the 56%
            interest in Inoteb in July 1996. The minority interest in Inoteb's
            net loss during the period from July 1, 1996, the effective date of
            acquisition, through December 31, 1996 exceeded the minority
            interest initially recorded by approximately $222,000 and,
            accordingly, that amount was included in the Company's net loss for
            1996.

            During 1997, the Company increased its ownership percentage in
            Inoteb to 66.95% by purchasing additional shares of common stock
            directly from Inoteb for the Company 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.

            As a result, income earned by Inoteb subsequent to December 31,
            1997, if any, will be allocated entirely to the Company until such
            time as the Company recovers excess losses of approximately $395,000
            that were not charged to the minority interest.


                                      F-14
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Acquisitions and dispositions (concluded):

      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. Mr. Mortara is
            a principal stockholder of the Company. 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. The purchaser paid approximately
            $4,748,000 by assuming a mortgage note on the properties and paid
            $1,945,000 in cash, of which $430,000 was deposited in escrow to
            secure certain minimum rent guarantees made to the purchaser and
            approximately $1,515,000 was remitted to the Company.

            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 net assets of the Company's discontinued real estate operations
            as of December 31, 1997 and 1996 are set forth in Note 12.


                                      F-15
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - Income taxes:

            As of December 31, 1997, the Company had net operating loss
            carryforwards of approximately $6,203,000 available to reduce future
            Federal taxable income which, if not used, will expire at various
            dates through 2012. Due to changes in the ownership of the Company,
            the utilization of these loss carryforwards may be subject to
            substantial annual limitations.

            Deferred tax assets of approximately $2,109,000 and $1,634,000
            attributable to the potential benefits from such net operating loss
            carryforwards as of December 31, 1997 and 1996, respectively, were
            offset by equivalent valuation allowances due to the uncertainties
            related to the extent and timing of the Company's future taxable
            income. There were no other material temporary differences as of
            these dates.

Note 4 - Property and equipment:

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

                                                    1997           1996
                                                  --------       --------

                Land                              $ 10,000       $ 11,400
                Buildings and improvements         163,610        150,400
                Equipment and furnishings           84,943        163,236
                                                  --------       --------
                                                   258,553        325,036
                Less accumulated depreciation      149,500         98,100
                                                  --------       --------

                  Totals                          $109,053       $226,936
                                                  ========       ========

Note 5 - Investment in nonmarketable securities:

            In September 1994, IMMO Limited invested $600,000 in PEMP, Inc.
            ("PEMP"). The investment was in the form of a loan at December 31,
            1994. It was converted into nonmarketable preferred shares during
            1995 which are entitled to an annual cumulative 10% dividend. PEMP
            is a Canadian financial advisory firm and an affiliate of PEMP
            Investment Advisors, Inc., a beneficial owner of shares of the
            Company's common stock.

            In August 1996, based on PEMP's inability to make the dividend
            payments, management of the Company deemed the investment in PEMP to
            be worthless, and it was written off in 1996.


                                      F-16
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 - Short-term notes payable:

            At December 31, 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 12,298
            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 $11,000 in 1997.

            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 August 1995, the
            Company paid 80% of the principal balance and was able to negotiate
            an extension of the due date. During 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, 1997. Management anticipates that the
            Company will repay the remaining balance as soon as it can locate
            the remaining noteholder.

Note 7 - Long-term debt:

            Long-term debt at December 31, 1997 and 1996 consisted of the
            following:

                                                          1997         1996
                                                        --------    ----------
                Term loans payable monthly in 
                  varying installments, including
                  interest at rates ranging from 
                  6.95% to 9.5%, through December
                  2001 (A)                              $397,600    $  524,600
                Noninterest bearing advances in-
                  itially scheduled to be paid
                  in monthly installments through
                  2002 (B)                               403,100       517,000
                                                        --------    ----------
                                                         800,700     1,041,600
                Less current portion                     352,825       255,100
                                                        --------    ----------
                Long-term debt                          $447,875    $  786,500
                                                        ========    ==========


                                      F-17
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 - Long-term debt (concluded):

            (A)   The loans were secured by equipment with a net carrying value
                  of approximately $109,053 at December 31, 1997.

            (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.

            Principal payment requirements on long-term obligations in each of
            the five years subsequent to December 31, 1997 are as follows:

                Year Ending
                December 31,                                  Amount
                ------------                                  ------

                    1998                                    $352,825
                    1999                                     134,925
                    2000                                     111,925
                    2001                                     100,925
                    2002                                     100,100

            Management of the Company believes that the term loans and the
            noninterest bearing advances had carrying values that approximated
            their fair values as of December 31, 1997 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.

Note 8 - Common stock issued or issuable to Consultants and advisors:

            On October 21, 1997, the Company issued 54,493 shares of common
            stock for consulting services with a fair market value of $129,511
            or $2.38 per share which was charged to operating expenses in 1997
            (including $100,000 for the fair market value of 42,105 shares
            issued to the Company's chief executive officer). These were noncash
            transactions that are not reflected in the accompanying 1997
            consolidated statement of cash flows.

            On October 1, 1997, the Company formed a Scientific Advisory Board
            ("SAB") with four members who will advise the Company on scientific
            and medical developments relating to its products. Although the
            Company is not contractually obligated to compensate the members of
            the SAB, management intends to issue shares of the Company's common
            stock with a fair value of $39,000 to them on April 1, 1998 and
            October 1, 1998 to compensate them for their services. Accordingly,
            the Company accrued a liability of $19,500 for such compensation as
            of December 31, 1997, which would have required the issuance of
            approximately 5,400 shares as payment based on the fair market value
            of the Company's common shares as of December 31, 1997.

Note 9 - 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.

            --    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.


                                      F-18
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 - Stock option plan (continued):

            --    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.

            These options are exercisable for a five year period from the date
            of issuance. At December 31, 1997, there were no other outstanding
            options and options to purchase 241,666 shares were available for
            grant. Accordingly, the weighted average exercise price of the
            options outstanding and exercisable at December 31, 1997 and 1996
            was $3.56 and $4.45 per share, respectively. The weighted average
            fair value of the options granted in 1997 and 1996 was $2.42 and
            $5.61 per share, respectively.

            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 is
            being amortized on a straight-line basis over periods of up to five
            years. The unamortized portion of unearned compensation is presented
            separately in and deducted from stockholders' equity in the
            Company's consolidated balance sheets. General and administrative
            expenses for 1997 include amortization of $682,500, of which
            approximately $483,000 was accelerated as a result of the
            resignation of Mr. Mortara.

            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.


                                      F-19
<PAGE>

                         BIOCORAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 - Stock option plan (concluded):

            The compensation cost, pro forma loss and loss per common share from
            continuing operations and net loss and net loss per common share for
            1997 and 1996 determined using a fair value based method of
            accounting for the stock options granted in 1997 and 1996, as
            required by SFAS 123, would not differ materially from the
            corresponding historical amounts.

Note 10- Preferred stock:

            At January 1, 1996, there were 1,000 shares of nonconvertible,
            Series A preferred stock outstanding, all of which were owned by a
            company controlled by Mr. Mortara. During 1996, a total of 700
            shares of preferred stock outstanding were canceled and 933,333
            shares of common stock were sold to the holder for $700,000. 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 11- Terminated acquisition:

            The Company had issued 1,955,556 common shares in 1995 in connection
            with a proposed acquisition of a new subsidiary. The acquisition
            proposal was terminated and 1,711,110 of the shares were canceled as
            of December 31, 1996. The Company has ordered its transfer agent not
            to transfer any of the remaining shares.

Note 12- Discontinued operations:

            The assets and liabilities of the Company's discontinued real estate
            operations as of December 31, 1997 and 1996 consisted of the
            following:

                                                         1997         1996
                                                      --------     ----------
                Cash                                               $  200,000
                Cash held in escrow                   $430,000
                Property and equipment, net of
                  accumulated depreciation                          6,654,000
                Mortgage note payable                              (4,767,000)
                Other liabilities                                    (115,993)
                                                      --------     ----------
                Net assets                            $430,000     $1,971,007
                                                      ========     ==========

            Income (loss) from discontinued real estate operations reflects
            charges for interest of $38,764 and $338,075 for 1997 and 1996,
            respectively. Depreciation was discontinued when the property and
            equipment was written down to net realizable value in 1995 and there
            was no charge for depreciation expense in 1997 and 1996.


                                      F-20
<PAGE>

                           BIOCORAL, INC. AND SUBSIDIARIES

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13- Segment and geographic information:

            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.

            Information about the Company's operations in different geographic
            locations for 1997 and 1996 is shown below:

                             United
                             States        France       Ireland     Consolidated
                             ------        ------       -------     ------------
           1997

           Net sales                     $  526,900                 $   526,900
           Loss from
             continuing
             operations    $(1,400,005)    (432,400)  $(1,358,101)   (3,190,506)
           Identifiable
             assets            676,801      929,653         5,311     1,611,765

           1996

           Net sales                        250,300                     250,300
           Loss from
             continuing
             operations       (255,321)    (771,700)     (646,882)   (1,673,903)
           Identifiable
             assets          2,067,341    1,079,984     1,338,250     4,485,575

Note 14- Subsequent event:

            On February 3, 1998, the Company granted options to purchase 200,000
            shares of common stock pursuant to the plan exercisable at $3.25 per
            share, the fair market value of the shares on the date of the grant
            (see Note 9).

                                      * * *


                                      F-21
<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: 4/15/98                       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
----------------------------
Nasser Nassiri                      Chairman of the Board         4/15/98
                                    and a director


s/ Ramine Almassi
----------------------------
Ramine Almassi                      Treasurer, Secretary and      4/15/98
                                    a director


s/ Jean Darondel                    Director                      4/15/98
----------------------------
Jean Darondel


                                      22