<PAGE>

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

                                   FORM 10-K

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

For the fiscal year ended June 30, 2001          Commission file number 0-11580
                          ------------------                            -------

                       PHARMAKINETICS LABORATORIES, INC.
                      ---------------------------------
            (Exact Name of Registrant as Specified in its Charter)

                 Maryland                                52-1067519
           --------------------                -----------------------------
         (State of Incorporation)           (I.R.S. Employer Identification No.)

                            302 West Fayette Street
                           Baltimore, Maryland 21201
                           -------------------------
                   (Address of Principal Executive Offices)

       Registrant's Telephone Number, Including Area Code (410) 385-4500
                                                          --------------

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

                                     None
                                     ----
                             (Title of each class)

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

                         Common Stock, $.005 par value
                         -----------------------------
                               (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X  No ___
                                      ---

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

As of September 21, 2001, 2,496,129 shares of Common Stock of PharmaKinetics
Laboratories, Inc. were outstanding and the aggregate market value of Common
Stock (based upon the average bid and asked prices as reported on the OTC
Bulletin Board on that date) held by non-affiliates was $1,349,721.

Portions of the registrant's definitive proxy statement for its 2001 annual
meeting of stockholders, to be filed pursuant to Regulation 14A on or prior to
October 28, 2001, are incorporated into Part III of this report.
<PAGE>

                                    PART I

ITEM 1. BUSINESS

         PharmaKinetics Laboratories, Inc. (the "Company") is a contract
research organization ("CRO") providing a range of clinical research and
development services to the worldwide pharmaceutical and biotechnology
industries in the development of prescription and non-prescription drug
products. These services include Phase I clinical research, bioanalytical
laboratory testing, and the management and monitoring of multi-center clinical
trials. The Company offers ancillary services in these areas such as protocol
development, case report form design, data management, biostatistics and
regulatory consulting. The Company has focused its business development efforts
on both Generic and innovator pharmaceutical and biotechnology companies in the
United States ("U.S.") and Canada. As a result of the increasingly competitive
market for its services, the Company has elected to focus its business
development efforts in North America.

         The Company pursues various business opportunities in the CRO industry:
(1) providing services to innovator and generic drug companies - primarily in
the area of bioequivalence/bioavailability studies which may include both
clinical and bioanalytical laboratory services; (2) providing Phase I clinical
trials - primarily safety studies on new drugs - to the innovator pharmaceutical
industry and to biotechnology firms; (3) providing bioanalytical laboratory
services primarily to the innovator drug companies - this involves the analysis
of biological samples, typically blood samples, both from animals and humans,
which are the result of trials conducted at sites and sent to the Company's
laboratory for analysis; and (4) providing project management and monitoring
services to both generic and innovator pharmaceutical firms by overseeing the
conduct of multi-center clinical trials typically on patients. The Company's
project management expertise is in the management of smaller trials conducted at
fifteen to twenty sites with 200 - 400 patients rather than the very large
trials typically conducted by the large global CROs.

         At the end of July 1999, the Company received a Warning Letter from the
United States Food and Drug Administration ("FDA") regarding noncompliance with
certain protocol requirements in bioequivalence studies that were conducted
prior to fiscal 1999. In the Warning Letter, the FDA advised the Company to take
immediate corrective action and that the failure to do so may result in
regulatory action. The Company responded immediately and addressed the issues
raised in the Warning Letter and subsequently met with the FDA to discuss
corrective steps taken by the Company to comply with regulatory requirements.
FDA representatives have inspected the Company twice since the Warning Letter
was issued. As of the latest inspection, in December 2000, the FDA made no
adverse findings.

Services

         Phase I Services

         The Company offers complete services for the testing of pharmaceutical
products to determine bioavailability and bioequivalence.

         Bioavailability testing determines the rate and extent to which an
active drug ingredient is absorbed from a drug product and becomes available at
the site of drug action in the human body. Typically, the determination of
bioavailability is performed through the collection and laboratory analysis of
blood, urine or other specimens. However, for certain drug products which are
not absorbed or are minimally absorbed, for example ointments and creams, the
determination of bioavailability must be performed using special procedures and
equipment. Drug manufacturers are required to include information obtained from
human testing in detailed laboratory and clinical studies as part of
applications for approval to market certain new drug products, submitted to
regulatory authorities, such as the FDA. Bioavailability data is also used to
evaluate the adequacy of proposed labeling recommendations regarding dosage and
administration of a drug product, to define its profile in order to evaluate
product reformulations or changes in recommended dosage strength or dosage
regimens, and to evaluate and substantiate controlled release claims.

         Bioequivalence testing can be used to compare the bioavailability of
similar generic and brand name drugs. The FDA has established bioequivalence
requirements for certain drug products or classes of drug products that are
intended to be interchangeable. As a result, bioequivalence data is required in
the case of new formulations of certain drug products developed by generic
pharmaceutical manufacturers for marketing upon expiration of patents on brand
name drugs previously found to be safe and effective. Bioequivalence testing is
also required for

                                       2
<PAGE>

certain drug products in the case of new formulations or new dosage forms
intended to be used by the manufacturer that obtained the original approval.

         The Company also conducts Phase I clinical trials - primarily safety
studies on new drugs - for the innovator pharmaceutical industry and for
biotechnology firms.

         The clinical portions of studies are conducted pursuant to testing
plans, called protocols, which are designed to reflect the specific
characteristics of the active drug ingredients being tested. The Company employs
experts in medicine, pharmacology, analytical chemistry, statistical analysis
and data processing to design, evaluate and execute protocols according to
current scientific standards and governmental regulatory requirements.

         Protocols for the Company's clinical studies are either written by the
Company's staff or provided by the sponsor. Once developed, a protocol is
submitted for approval to the Company's Institutional Review Board ("IRB"),
which independently evaluates and, if necessary, requests revisions to the
protocol in order to safeguard the rights and welfare of the human subjects. The
IRB consists of one affiliated (non-voting) individual and ten non-affiliated
(voting) individuals, four of whom are medical doctors (one of these serving as
chairman), one pharmacologist, one clergy, and four representatives of the
community.

         For each clinical study, the Company uses volunteer study participants.
The availability of sufficient numbers of qualified and willing study
participants has at times been, and could in the future be, a limitation on the
Company's business.

         Each prospective participant is screened at the Company's facility and
examined by a physician employed by the Company. Prior to the commencement of a
study, the Company's Medical Director or another qualified individual meets with
the study participants to explain the purpose of the study and the fact that
research is involved, the procedures to be followed and the expected duration of
the testing, and to provide them with other information, including a description
of any foreseeable risks or discomforts deemed relevant, to enable them to make
an informed decision as to whether or not they want to participate in the study.
A written consent form approved by the Company's IRB for each study,
acknowledging such disclosures, is signed by each participant prior to
initiation of the study.

         Study participants usually arrive at the Company's controlled
environment facility the night before testing is to begin. To maximize
reliability of the test data, all study participants are immediately placed on a
strictly supervised schedule in which all of their activities, including eating,
drinking, sleeping, recreation and type of clothing, are tightly regulated.
Testing includes physical observation by medical personnel and a strict schedule
of collecting blood, urine and other specimens which are subjected to analysis
in the Company's analytical chemistry laboratory or by other arrangements of the
sponsor.

         Bioanalytical Laboratory Services

         Laboratory analysis determines the amount of drug present in each of
the hundreds of biological specimens generated by a given study conducted in
humans or animals. Chemists extract the drug and metabolites (compounds into
which a drug is broken down inside the body) from a specimen using a mixture of
solvents or a specific extraction column. Extracted samples are then processed
by the Company's analytical instrumentation, including high performance liquid
chromatography, and gas chromatography interfaced with various methods of
detection, including mass spectrometry. These instruments, HPLC, HPLC/MS/MS, GC
and GC/MS, separate the drug and metabolites from any other remaining substances
and have the ability to detect and quantify as little as billionths of a gram of
material. This process of extraction and detection is called an assay method.
Each drug requires the development of a unique assay method, the accuracy and
precision of which must be documented according to current scientific standards
to meet FDA requirements. The Company's research and development group develops
and validates these unique assay methods.

         The results of these assays are entered into computers maintained by
the Company to show change in the concentration of drug in the blood over time
and to determine statistically whether the product being evaluated is equivalent
to the already marketed product or other reference material. A detailed report
on the results of the analysis is prepared by Company scientists and submitted
to the client requesting the test. Following the system used by the FDA for
granting approval to market new drug products, the pharmaceutical manufacturer
may use the report to support either a New Drug Application ("NDA") or, in the
case of generic drugs, an Abbreviated New Drug Application ("ANDA"). In the
event that the study results show the product is not bioequivalent, they may
provide

                                       3
<PAGE>

the basis for additional development work and further bioequivalence studies or
the manufacturer may withdraw its NDA or ANDA application.

         The Company also provides bioanalytical laboratory services to
innovator drug companies conducting clinical trials around the country. Samples
from these trials are sent to the Company's laboratory for analysis.

         Clinical Trial Management and Monitoring

         The Company provides project management and monitoring of Phase II, III
and IV multi-center clinical trials. In the course of such projects, the
Company's personnel may be involved in document development, investigator
recruitment and selection, site evaluation, investigator meeting coordination,
on-site study monitoring, data management and statistical services.

         In studies where the Company is providing project management and/or
monitoring services, the drug is administered to patients by physicians,
referred to as investigators, at hospitals, clinics, or other locations,
referred to as sites. Potential investigators may be identified by the drug
sponsor or by the Company. The Company generally solicits investigators'
participation in the study. The trial's success depends on the successful
identification and recruitment of investigators with an adequate base of
patients who satisfy the requirements of the study protocol.

         The investigators find and enroll patients suitable for the study. The
speed with which trials can be completed is significantly affected by the rate
at which patients are enrolled. The Company's personnel closely track the rate
of patient enrollment and provide input necessary to ensure that the planned
schedule of enrollment is maintained. Prospective patients are required to
review information about the drug and its possible side effects, and sign an
Informed Consent form to record their knowledge and acceptance of potential side
effects. Patients also undergo a medical examination to determine whether they
meet the requirements of the study protocol. Patients then receive the drug and
are examined by the investigator as specified by the study protocol.

         As patients are examined and tests are conducted in accordance with the
study protocol, data are recorded on Case Report Forms ("CRFs") and laboratory
reports. The data are collected from study sites by specially trained persons
known as monitors. The Company's monitors visit sites regularly to ensure study
protocol adherence, that the CRFs are completed correctly, and that all data
specified in the protocol are collected. The monitors use completed CRFs, once
reviewed for consistency and accuracy, to enter data into an electronic
database.

         Consulting Services

         The Company provides comprehensive consulting services to
pharmaceutical and biotechnology companies including: representation with state
formularies, pre-audit facility inspections, NDA and ANDA report writing, data
assessment, report and literature review, protocol design and development, full
statistical data analysis, and liaison with the FDA.

Liability Exposure

         The Company's Phase I service tests innovator and generic (already
marketed) drugs on human volunteers pursuant to a study protocol. Such testing
involves a risk of liability for personal injury or death to participants due,
among other reasons, to possible unforeseen adverse side effects or improper
administration of the drug.

         The Company believes that the risk of liability to participants in
Phase I testing is mitigated by various regulatory requirements, including the
role of the IRB and the need to obtain each participant's informed consent. The
FDA requires that each human clinical trial be reviewed and approved by the IRB
at each study site. The Company has its own independent IRB that reviews and
approves protocols conducted at the Company's Phase I center. This is an
independent committee that includes both medical and non-medical personnel whose
major purpose is to protect the interests and well being of individuals enrolled
in the trial. After the trial begins, the IRB monitors compliance with the
protocol and measures designed to protect participants, such as the requirement
to obtain the informed consent.

         To reduce its potential liability, the Company seeks to obtain
indemnity provisions in its contracts with clients and with investigators hired
by the Company on behalf of its clients. These indemnities generally do not,
however, protect the Company against certain of its own actions such as those
involving negligence. Moreover, these

                                       4
<PAGE>

indemnities are contractual arrangements that are subject to negotiation with
individual clients and the terms and scope of such indemnities can vary from
client to client and from study to study. Finally, the financial performance of
these indemnities is not secured, so the Company bears the risk that an
indemnifying party may not have the financial ability to fulfill its
indemnification obligations. The Company could be materially and adversely
affected if it were required to pay damages or incur defense costs in connection
with a claim that is outside the scope of indemnity or where the indemnity,
although applicable, is not performed in accordance with its terms.

         The Company itself does not maintain professional malpractice insurance
related to its testing procedures as its medical personnel are required to carry
such insurance, and the Company is not a provider of medical care and related
services. The Company maintains a general liability policy which provides
coverage with a general aggregate limit of $2,000,000, a professional liability
policy with a general aggregate limit of $1,000,000, a workmen's compensation
liability policy which provides coverage of $1,000,000, and an umbrella
liability policy which has a limit of $10,000,000 for each occurrence in excess
of primary. In addition, the Company also carries a Directors and Officers
liability policy with a general aggregate limit of $2,000,000. There can be no
assurance that this insurance coverage will be adequate, or that insurance
coverage will continue to be available on terms acceptable to the Company.

Government Regulation

         The Company's services are conducted for pharmaceutical and
biotechnology companies to support their applications for approval to market new
"branded" or bioequivalent generic drug products. These companies, and therefore
the Company, are subject to extensive regulation by government authorities.
Regulatory proceedings that adversely affect the Company's clients could
adversely affect the Company's business. The repeal or significant alteration of
some or all of the laws or regulations requiring testing of the type performed
by the Company could have a material adverse effect on the Company's business.
However, regulatory changes that require additional or more complex testing to
be performed in support of the drug approval process could significantly enhance
the Company's business. Management believes that legislation and regulation, on
balance, have a favorable impact on the demand for its services by providing
sponsors and manufacturers of new drugs with additional requirements that
increase the need for outsourcing.

         The services provided by the Company and the activities of its clients
are ultimately subject to FDA regulation in the U.S. and comparable agencies in
other countries. The Company is obligated to comply with FDA requirements
governing the conduct of clinical trials as stated in the Code of Federal
Regulations. These regulations are commonly referred to as Good Clinical
Practices (GCPs) and Good Laboratory Practices (GLPs) and cover activities such
as obtaining informed consent, verifying qualifications of investigators,
complying with Standard Operating Procedures ("SOPs"), reporting adverse
reactions to drugs, and maintaining thorough and accurate records. The Company
must maintain source documents for each study for specified periods. Such
documents are frequently reviewed by the study sponsor during visits to the
Company's facility and may be reviewed by the FDA during audits. Non-compliance
with FDA regulations can result in the disqualification of data collected during
a study.

         At the end of July 1999, the Company received a Warning Letter from the
United States Food and Drug Administration ("FDA") regarding noncompliance with
certain protocol requirements in bioequivalence studies that were conducted
prior to fiscal 1999. In the Warning Letter, the FDA advised the Company to take
immediate corrective action and that the failure to do so may result in
regulatory action. The Company responded immediately and addressed the issues
raised in the Warning Letter and subsequently met with the FDA to discuss
corrective steps taken by the Company to comply with regulatory requirements.
FDA representatives have inspected the Company twice since the Warning Letter
was issued. As of the latest inspection, in December 2000, the FDA made no
adverse findings.

         The Company is subject to regulation and inspection by the Baltimore
City Health Department (for the Maryland State Department of Health and Mental
Hygiene), the Center for Disease Control of the United States Department of
Health and Human Services and other state and local agencies where the Company's
facility is located. The Company has not experienced any significant problems to
date in complying with the applicable requirements of such agencies and does not
believe that any existing or proposed regulations will require material capital
expenditures or changes in its method of operation. Management believes that the
Company is acting in accordance with all applicable federal, state and local
laws.

                                       5
<PAGE>

Competition

         The Company competes primarily against other CROs and pharmaceutical
companies' in-house research departments. The CRO industry is highly fragmented,
with several large CROs and many small specialty providers. Many of the large
full service CROs have substantially greater capital and other resources than
the Company. The continuing trend towards industry consolidation has resulted in
heightened competition among the larger CROs. The Company competes in a
specialty niche segment of the overall market where total size is a less
important competitive factor than in the overall CRO industry. Clients choose to
use the Company, or a direct competitor, on the basis of prior experience with
the Company, its reputation for quality of the service provided, the ability to
schedule the work in a timeframe which meets the client's needs, scientific and
technical capability and the price of the services performed. The Company
believes it can compete effectively in these areas.

Clients

         The Company has served most of the leading U.S. and Canadian generic
drug firms and several of the leading U.S. and European pharmaceutical
companies. The Company's clients also include companies which utilize
biotechnology and other emerging technologies to develop new drugs.

         The Company has in the past derived, and may in the future derive, a
significant portion of its revenue from a relatively limited number of major
clients. Concentrations of business in the CRO industry are not uncommon and the
Company is likely to experience such concentration in future years. A single
client contributed in excess of 10% of contract revenue, accounting for
approximately 16%, 13%, and 3% of contract revenue, for the fiscal years ended
June 30, 2001, 2000 and 1999 respectively. In addition, another client
contributed in excess of 16% for the fiscal year ended June 30, 2000.

         While an individual client may represent a significant percent of
revenues, these revenues are the result of the sum of a number of different
contracts during the year. While the complete loss of a significant client could
have a material adverse effect on the Company, the termination or loss of any
one contract would typically not have a material adverse effect on the Company's
results of operations.

Export Sales

         The Company conducts studies for a number of companies outside of the
U.S., primarily in Canada and Europe, in addition to many domestic companies.
This work is billed and paid in U.S. dollars, therefore eliminating currency
exchange risk to the Company. The following table approximates revenue
recognized by the Company from its clients outside of the United States.

                                    Fiscal Years Ended June 30,
                                    ---------------------------
                               2001             2000            1999
                               ----             ----            ----
         Canada             $  944,000       $  964,000      $2,679,000
         Europe & other        616,000          402,000         391,000
         Total              $1,560,000       $1,366,000      $3,070,000
                            ==========       ==========      ==========

Backlog

         The Company maintains a backlog of its business, representing studies
underway in-house for which revenue has not yet been recognized, and studies
that have been awarded to the Company by its various clients, but have yet to
begin. At June 30, 2001, the backlog was approximately $7.6 million. The Company
expects to recognize revenue from this backlog during fiscal 2002 and future
fiscal years.

Employees

         At June 30, 2001, the Company had 96 employees (29 of whom were part-
time employees), of which 5 hold Ph.D. or M.D. degrees and 9 others hold
advanced degrees. The Company does not have collective bargaining agreements
with any of its employees and considers its employee relations to be
satisfactory.

                                       6
<PAGE>

ITEM 2. PROPERTIES

       The Company's principal executive offices are located in Baltimore,
Maryland, where it owns a building containing approximately 142,000 square feet
of space of which approximately 117,000 square feet are utilized in the
Company's operations and 25,000 square feet could be made available for the
expansion of the Company's operations when necessary. The building contains a
consolidated analytical chemistry laboratory, a controlled live-in clinical
facility with a 120 bed capacity, and corporate-wide information and data
management systems.

ITEM 3. LEGAL PROCEEDINGS

       From time to time, the Company is involved in disputes and/or litigation
encountered in the ordinary course of its business. The Company does not believe
that the ultimate impact of the resolution of such outstanding matters will have
a material effect on the Company's financial position, results of operations or
cash flows.

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

       No matters were submitted to security holders for a vote during the
fourth quarter of the fiscal year ended June 30, 2001.

                                    PART II

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

       The Company's common stock is currently traded in the over-the-counter
market and is quoted on the OTC Bulletin Board (OTCBB: PKLB). The following
table sets forth the high and low bid prices of the common stock for the fiscal
periods indicated and as reported through the OTC Bulletin Board.

<TABLE>
<CAPTION>
                                      Year Ended                            Year Ended
                                     June 30, 2001                         June 30, 2000
                                     -------------                         -------------
         Quarter                 High               Low               High               Low
         -------                 ----               ---               ----               ---
<S>                             <C>               <C>                <C>               <C>
First                           $  0.75           $  0.63            $  1.59           $  0.88
Second                          $  0.72           $  0.28            $  1.38           $  0.63
Third                           $  0.63           $  0.38            $  1.31           $  0.78
Fourth                          $  0.70           $  0.52            $  1.25           $  0.63
</TABLE>

       Such quotations, which have been restated to give effect to the reverse
stock split described below, reflect inter-dealer prices, without retail mark-
up, markdown or commission and may not represent actual transactions. The
approximate number of shareholders of record at September 21, 2001, was 1,442.

       The Company has not declared a dividend on its common stock since its
inception and has no intention of doing so in the foreseeable future.

  Reverse Stock Split

       On April 6, 1998, the Company's stockholders approved a five-to-one
reverse split of the Company's common stock, the change of authorized shares of
the Company's common stock to 10,000,000 shares, par value $0.005 per share, and
the reduction of capital for payment of fractional shares and amendment of the
Company's Charter in connection therewith. The reverse split, which became
effective at the close of business on April 17, 1998, did not affect the rights
and privileges of holders of common stock, either before or after the reverse
split. The Company did not issue fractional shares as a result of the reverse
split, and each fraction of a share was exchanged for cash. The Company's
capital was reduced by the amount of cash paid for fractional shares, the total
payment of which was immaterial.


       The effect of the reverse stock split has been retroactively applied to
prior periods presented herein.

                                       7
<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial data for each of the years in
the five-year period ended June 30, 2001 have been derived from our consolidated
financial statements and related notes thereto as of June 30, 1997 through 2001,
and for the years then ended, which have been audited by PricewaterhouseCoopers
LLP, our independent auditors. The selected information set forth below should
be read in conjunction with our consolidated financial statements and the
related footnotes, as well as "Management's Discussion and Analysis of Financial
Condition and Results of Operations," of this Form 10-K report.

<TABLE>
<CAPTION>
                                                                      Fiscal Years Ended June 30,
                                                         2001          2000         1999          1998          1997
                                                         ----          ----         ----          ----          ----
<S>                                                  <C>           <C>           <C>          <C>            <C>
STATEMENT OF OPERATIONS DATA:
Total revenues                                       $ 8,913,310   $ 8,023,905   $ 9,828,369  $ 12,326,009   $ 9,597,536
Costs and expenses:
Cost of contracts                                      7,469,506     8,513,540     8,112,227     8,930,681     7,053,560
Selling, general and administrative expenses           1,880,074     2,462,011     2,568,900     2,210,137     2,057,212
Research and development expenses                        112,510       158,255       511,681       568,444       446,677
                                                   ---------------------------------------------------------------------
Total costs and expenses                               9,462,090    11,133,806    11,192,808    11,709,262     9,557,449
                                                   ---------------------------------------------------------------------
Operating (loss) income                                 (548,780)   (3,109,901)   (1,364,439)      616,747        40,087
Other income and expenses, net                            35,790       151,847        36,724        14,200      (149,600)
Provision for income taxes                                     -             -             -        (8,200)            -
                                                   ---------------------------------------------------------------------
Net (loss) income before deemed preferred stock
dividend                                                (512,990)   (2,958,054)   (1,327,715)      622,747      (109,513)
                                                   ---------------------------------------------------------------------
Deemed preferred stock dividend                                -             -             -    (1,020,793)            -
                                                   ---------------------------------------------------------------------
Net loss applicable to common stockholders           $  (512,990)  $(2,958,054)  $(1,327,715) $   (398,046)  $  (109,513)
                                                   ---------------------------------------------------------------------

Basic and diluted loss per common share              $     (0.21)  $     (1.19)  $     (0.53) $      (0.16)  $     (0.04)
                                                   =====================================================================
Basic and diluted weighted-average shares
outstanding                                            2,496,129     2,496,129     2,493,349     2,440,429     2,439,129
                                                   =====================================================================

<CAPTION>
                                                                                  June 30,
                                                       2001           2000         1999          1998          1997
                                                       ----           ----         ----          ----          ----
<S>                                                  <C>            <C>           <C>          <C>           <C>
BALANCE SHEET DATA:
Cash and cash equivalents                            $   414,008   $   346,574   $ 2,233,198  $  3,358,506   $   556,040
Total Assets                                         $ 5,702,649   $ 6,550,186   $ 9,284,954  $ 10,107,478   $ 5,958,732
Long-term debt                                       $         -   $    62,051   $   142,702  $    235,074   $ 1,538,945
Total Stockholders' equity                           $ 3,389,637   $ 3,902,627   $ 6,587,243  $  7,873,583   $ 2,438,241
</TABLE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

CAUTIONARY NOTE

     From time to time in this annual report on Form 10-K, we may make
statements that reflect our current expectations regarding our future results of
operations, economic performance, and financial condition, as well as other
matters that may affect our business.

     While these statements reflect our current plans and expectations, and we
base the statements on information currently available to us, we cannot be sure
that we will be able to implement these plans successfully. We may not realize
our expectations in whole or in part, in the future.

     Any of these statements we make in this annual report on Form 10-K that are
forward-looking are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. We wish to caution you that our actual
results may differ significantly from the results we discuss in the forward-
looking statements.

                                       8
<PAGE>

     We discuss factors that could cause or contribute to such differences
elsewhere in this annual report on Form 10-K under the caption "Risk Factors and
Certain Forward-Looking Information". In addition, any forward-looking
statements we make in this document speak only as of the date of this document,
and we do not intend to update any such forward-looking statements to reflect
events or circumstances that occur after that date.

INTRODUCTION

     In the following sections of this Management's Discussion and Analysis of
Financial Condition and Results of Operation ("MD&A"), we explain the general
financial condition and the results of operations for PharmaKinetics, including:

          -    what our revenues were in 2001, 2000, and 1999;
          -    why revenues and expenses changed from the year before;
          -    where our revenues came from;
          -    how all of the foregoing affect our overall financial condition;
               and
          -    what our expenditures for capital projects were in 2001, 2000 and
               1999 and a description of our capital requirements.

     As you read this MD&A, you may find it helpful to refer to our consolidated
financial statements beginning on page 15 of this annual report. These
consolidated financial statements present the results of our operations for
2001, 2000, and 1999, as well as our financial position at June 30, 2001 and
2000. We analyze and explain the annual changes in the specific line items set
forth in the section of our consolidated financial statements titled
"Consolidated Statements of Operations."

GENERAL

     PharmaKinetics Laboratories, Inc. is a contract research organization
providing services to the worldwide pharmaceutical and biotechnology industry in
the development of prescription and non-prescription drug products. The services
offered are primarily in the following areas:

          -    Phase I services;
          -    bioanalytical laboratory services;
          -    clinical trial management and monitoring; and
          -    consulting services.

     The nature of the Company's services and recurring business result in the
Company having individual clients whose business could account for 10% or more
in any fiscal year. Since the Company's inception in 1976, the Company has
assisted pharmaceutical clients with over 900 Abbreviated New Drug ("ANDA") and
New Drug ("NDA") approvals that were received as a result of the conduct of over
2,500 studies. The Company's services are provided in accordance with
regulations, promulgated by FDA, as well as submissions to the Canadian Health
Protection Branch ("HPB"), which govern clinical trials and the drug approval
process.

RESULTS OF OPERATIONS

     In this section we discuss our 2001, 2000 and 1999 revenues, costs and
expenses, and other income and expenses, as well as the factors affecting each
of them.

                                       9
<PAGE>

REVENUES

     In 2001, 2000 and 1999 our revenues consisted of the following:

<TABLE>
<CAPTION>
                                                              Fiscal Years Ended June 30,
                                                                    (in thousands)

                                                         2001            2000            1999
                                                         ----            ----            ----
       <S>                                              <C>             <C>             <C>
       Phase I Services                                 $5,458          $5,974          $7,171
       Bioanalytical Laboratory Service                  1,522             445             293
       Clinical Trial Mgt and Monitoring                 1,490           1,388           2,006
       Licensing                                            32              67             211
       Consulting services                                 411             150             147
                                                        ------          ------          ------
              Total                                     $8,913          $8,024          $9,828
                                                        ======          ======          ======
</TABLE>

     Total revenues were $8.9 million, $8.0 million and $9.8 million for the
fiscal years ended June 30, 2001, 2000 and 1999, respectively. The increase in
revenue in 2001 compared to 2000 is primarily in the areas of bioanalytical
laboratory services and consulting services. During the course of the year, the
Company had focused its marketing efforts in the area of bioanalytical
laboratory services and believes the increase in revenues is due to such
efforts. The decrease in revenue in 2000 compared to 1999 is primarily in the
areas of Phase I services and clinical trial management. The Company believes
this downturn in revenue to be directly related to the warning letter from the
FDA in July 1999.

COST OF CONTRACTS

     Cost of contracts were $7.5 million, $8.5 million and $8.1 million for the
fiscal years ended June 30, 2001, 2000 and 1999, respectively. The decrease in
cost of contracts in 2001 compared to 2000 is primarily attributable to the
Company's effort to contain and or reduce certain fixed costs. The increase in
cost of contracts in 2000 compared to 1999 is due to the Company's costs being
relatively fixed and 1999 included the reversal of an accrued expense totaling
$0.12 million a result of a liability, which did not materialize and the
recognition of a refund of approximately $0.12 million for which expenses had
previously been recognized.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling, general and administrative ("SG&A") expenses were $1.9 million,
$2.5 million and $2.6 million for the fiscal years ended June 30, 2001, 2000 and
1999, respectively. The decrease in SG&A expenses in 2001 compared to 2000 is
primarily attributable to a reduction in personnel costs of $0.2 million, a
reduction in certain business development costs of $0.1 million and the
recognition of $0.3 million in expense related to the settlement with Altana,
Inc. in fiscal year 2000. The decrease in SG&A expenses in 2000 compared to 1999
is primarily attributed to a restructuring of the Company's business development
department, the corresponding loss of one of the Company's executives, offset by
increased spending for business development related efforts, a non-recurring
expense of $0.3 million related to the settlement of the lawsuit with Altana,
Inc. and $43,000 in expenses related to the Company's Year 2000 compliance
effort.

RESEARCH AND DEVELOPMENT EXPENSES

     Research and development ("R&D") expenses were $0.1 million, $0.2 million
and $0.5 million for the fiscal years ended June 30, 2001, 2000 and 1999,
respectively. The decrease in R&D expenses in 2001 compared to 2000 is primarily
attributable to the utilization of certain of the Company's R&D personnel for
activities necessary to meet project deadlines for clients, including contracted
development work. The Company from time to time redeploys personnel based on
client requirements for contracted services. The decrease in R&D expenses in
2000 compared to 1999 is primarily attributable to the loss of certain of the
Company's research and development staff. Certain clients for whom sample
analysis and method development were part of contracted services subsidized a
portion of the Company's development efforts in 2001 and 2000. The Company
continues, when possible, to invest in its research and development effort to
develop methods for utilization in current and future studies related primarily
to its LC/MS/MS instrumentation.

                                       10
<PAGE>

INCOME TAXES

     No benefit for income taxes was recorded for the fiscal years ended June
30, 2001, 2000 and 1999, due to the uncertainty of utilizing such benefits.

OTHER INCOME AND EXPENSES

     Other income and expenses consists primarily of interest income earned on
overnight investments and interest expense related to capital lease obligations.
Income was $50,306, $51,989 and $131,349 for the fiscal years ended June 30,
2001, 2000 and 1999, respectively. The decrease in interest income in 2001
compared to 2000 and 2000 compared to 1999 is primarily related to a reduction
in the average invested cash balances. Interest expense was $14,091, $19,813 and
$29,057 for the fiscal years ended June 30, 2001, 2000 and 1999, respectively.
The decrease in interest expense in 2001 compared to 2000 and 2000 compared to
1999 is primarily due to the expiration of certain of the Company's capital
leases.

LIQUIDITY AND CAPITAL RESOURCES

     The Company had cash and cash equivalents of $414,008 at June 30, 2001. The
Company's primary source of funds is cash flow from operations, which was
$157,459. The Company utilized its cash by investing in capital assets ($27,974)
and paying down capital lease obligations ($62,051). The Company seeks to
finance the acquisition of larger capital assets through leasing arrangements.
There were no such arrangements in place at June 30, 2001 except the expiration
of an existing capital leased asset.

     The Company's near term and long-term operating strategies focus on its
sales and marketing efforts to gain new as well as previous customers. In
addition, the Company has and is pursuing cost cutting measures and is taking
other appropriate steps to manage the Company's cash balances. The Company
believes it has addressed the issues and the impact of the FDA warning letter on
its business. The Company maintains a backlog of its business, representing
studies underway in-house for which revenue has not yet been recognized, and
studies that have been awarded to the Company by its various clients, but have
yet to begin. At June 30, 2001, the backlog was approximately $7.6 million. The
Company expects to recognize revenue from this backlog during fiscal 2002 and
future fiscal years. The Company believes that the successful implementation of
its plans will enable the Company to return to profitability and allow the
Company to meet its cash needs.

     The Company cannot guarantee that the results from operations will be
sufficient to support the Company's liquidity requirements through June 30, 2002
and beyond. There can be no assurance that the above actions will be
accomplished or whether they will be adequate.

RISK FACTORS AND CERTAIN FORWARD-LOOKING INFORMATION

     As discussed in the Cautionary Note at the beginning of this MD&A, certain
statements in this MD&A and elsewhere in this annual report on Form 10-K are
forward-looking statements based on current expectations, and entail various
risks and uncertainties that could cause actual results to differ materially
from those expressed in such forward-looking statements. Such risks and
uncertainties include those set forth under the following captions. Other more
general factors that could cause or contribute to such differences include, but
are not limited to, general economic conditions, conditions affecting the
pharmaceutical industry, and consolidation resulting in increased competition
within the Company's market.

Warning Letter

     At the end of July 1999, the Company received a Warning Letter from the FDA
regarding the Company's noncompliance with certain protocol requirements in
bioequivalence studies that were conducted prior to fiscal 1999. In the Warning
Letter, the FDA advised the Company to take immediate corrective action and that
the failure to do so may result in regulatory action. The Company has responded
to the FDA and has taken the corrective actions it believes necessary to address
the issues and concerns raised in the Warning Letter. FDA representatives have
inspected the Company twice since the Warning Letter was issued. As of the
latest inspection, in December 2000, the FDA made no adverse findings. The
receipt of this letter has had, and any further regulatory action could have, a
material adverse effect on the Company's ability to market its services and
obtain new business. The resulting downturn in business has negatively affected,
and could continue to negatively affect, the Company's financial condition and
results of operations.

                                       11
<PAGE>

Dependence of the Company on the Product Development Cycles of its Clients

     Most of the Company's contracts are short term in duration. As a result,
the Company must continually replace its contracts with new contracts to sustain
its revenue. A client's product development cycle is the driving force in the
Company's ability to initiate new contracts. In addition, a client has the
ability to cancel or delay existing contracts if their product is not ready for
testing or if the testing results are not satisfactory. The Company's inability
to generate new contracts on a timely basis would have a material adverse effect
on the Company's business, financial condition, and results of operations. Since
a large portion of the Company's operating costs are relatively fixed,
variations in the timing and progress of contracts can affect results
materially.


Dependence of the Company on Certain Clients

     The Company has in the past derived, and may in the future derive, a
significant portion of its revenue from a relatively limited number of major
clients. Concentrations of business in the CRO industry are not uncommon and the
Company is likely to experience such concentration in future years. A single
client contributed in excess of 10% of contract revenue, accounting for
approximately 16%, 13%, and 3% of contract revenue, for the fiscal years ended
June 30, 2001, 2000, and 1999 respectively. In addition, another client
contributed in excess of 16% for the fiscal year ended June 30, 2000.

     While an individual client may represent a significant percent of revenues,
these revenues are the result of the sum of a number of different contracts
during the year. While the complete loss of a significant client could have a
material adverse effect on the Company, the termination or loss of any one
contract would typically not have a material adverse effect on the Company's
business, financial condition, or results of operations.

Dependence of the Company on Key Personnel

     The Company depends on a number of key individuals, the loss of any one of
which could have a material adverse effect on the Company's operations. The
Company also depends on its ability to attract and retain qualified scientific,
medical and technical employees. The Company has experienced difficulty in
recruiting individuals for such positions due to intense competition in the
marketplace. There can be no assurance that the Company will be able to retain
its existing, scientific, medical and technical personnel, or to attract and
retain qualified employees. The Company's inability to attract and retain
qualified individuals would have a material adverse effect on the Company's
business, financial condition, and results of operations.

Ability to Continuously Develop New Methodologies for Clinical and Analytical
Applications

     The Company must continuously develop analytical methodology for drug
products in order to obtain the business of its clients. Clients typically
request evidence of suitable validated analytical methods before placing work
with the Company. In addition, the Company must continue to be able to provide
solutions and advice for its clients for whom both traditional and non-
traditional drug delivery systems are used. This requires staying abreast of
current regulatory requirements and identifying applications that will assist
clients in obtaining approval for their products. The Company's inability to
provide these services on demand could have a material adverse effect on the
Company's business, financial condition, and results of operations.

Dependence of the Company on the Availability of Volunteer Study Participants

     The Company uses volunteer study participants for each Phase I clinical
study. The availability of sufficient numbers of qualified and willing study
participants has at times been, and could in the future be, a limitation on the
Company's business. The Company's inability to attract qualified individuals for
its studies would have a material adverse effect on the Company's business,
financial condition, and results of operations.

Competition and Consolidation within the Company's Market

     The Company competes primarily against other CROs and pharmaceutical
companies in-house research departments. The CRO industry is highly fragmented,
with several large CROs and many small specialty providers. Many of the large
full service CROs have substantially greater capital and other resources than
the Company. The continuing trend towards industry consolidation has resulted in
heightened competition among the larger CROs.

                                       12
<PAGE>

This consolidation has generated increased competition for clients and placed
pressures on small specialty providers. The Company competes in a specialty
niche segment of the overall market where total size is a less important
competitive factor than in the overall CRO industry. Clients choose to use the
Company, or a direct competitor, on the basis of prior experience with the
Company, its reputation for the quality of service provided, the ability to
schedule the work in a time frame that meets the client's needs, scientific and
technical capability and the price of the services performed. This may lead to
price and other forms of competition that may have a material adverse effect on
the Company and its results of operations.

Financial Results and Liquidity

     The Company has incurred losses from operations since fiscal year 1999 and
has been adversely impacted by a warning letter issued by the FDA in fiscal
2000. The Company had negative cash flows from operations for fiscal year 2000,
but generated $157,459 of cash flows from operations in fiscal year 2001.

     The Company's near term and long-term operating strategies focus on its
sales and marketing efforts to gain new as well as previous customers. In
addition, the Company has and is pursuing cost cutting measures and is taking
other appropriate steps to manage the Company's cash balances. The Company
believes it has addressed the issues and the impact of the FDA warning letter on
its business. The Company maintains a backlog of its business, representing
studies underway in-house for which revenue has not yet been recognized, and
studies that have been awarded to the Company by its various clients, but have
yet to begin. At June 30, 2001, the backlog was approximately $7.6 million. The
Company expects to recognize revenue from this backlog during fiscal 2002 and
future fiscal years. The Company believes that the successful implementation of
its plans will enable the Company to return to profitability and allow the
Company to meet its cash needs.

     The Company cannot guarantee that the results from operations will be
sufficient to support the Company's liquidity requirements through June 30, 2002
and beyond. There can be no assurance that the above actions will be
accomplished or whether they will be adequate. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risks

     The exposure to market risk for changes in interest rates relates primarily
to the Company's short-term investments, which generally have maturities of
three months or less. The Company does not use derivative financial instruments
for speculative or trading purposes. The Company invests its excess cash in
short-term fixed income financial instruments with an investment strategy to buy
and hold to maturity.

Foreign Currency Risk

     The Company does not have exposure to foreign currency exchange rate
fluctuations since the Company's contracts require payment to the Company in
U.S. dollars.

                                       13
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS
                                 ------------

To the Board of Directors and Stockholders
of PharmaKinetics Laboratories, Inc.

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 29 present fairly, in all material
respects, the financial position of PharmaKinetics Laboratories, Inc. and its
subsidiary at June 30, 2001 and 2000, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2001,
in conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule listed
in the index appearing under Item 14(a)(2) on page 29 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13 to the
financial statements, the Company has suffered recurring losses from operations
and has negative working capital. These conditions raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 13. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.


                              /s/PricewaterhouseCoopers LLP
                              -----------------------------
                              PricewaterhouseCoopers LLP

Baltimore, Maryland
August 31, 2001

                                       14
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       PHARMAKINETICS LABORATORIES, INC.
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                             June 30,
                                                                                             --------
                                                                                    2001                  2000
                                                                                    ----                  ----
                                 ASSETS
                                 ------
<S>                                                                             <C>                   <C>
Current assets:
  Cash and equivalents                                                          $    414,008          $    346,574
  Accounts receivable, net                                                         1,442,765             1,161,169
  Contracts in process                                                               129,750               737,635
  Prepaid expenses                                                                   204,596               223,480
                                                                                ------------          ------------
     Total current assets                                                          2,191,119             2,468,858

Property, plant and equipment, net                                                 3,445,542             3,992,016
Other assets                                                                          65,988                89,312
                                                                                ------------          ------------
                                                                                $  5,702,649          $  6,550,186
                                                                                ============          ============

                  LIABILITIES AND STOCKHOLDERS' EQUITY
                  ------------------------------------
Current liabilities:
  Accounts payable and accrued expenses                                         $    756,115          $  1,245,032
  Deposits on contracts in process                                                 1,556,897             1,340,476
                                                                                ------------          ------------
     Total current liabilities                                                     2,313,012             2,585,508
Long-term debt                                                                             -                62,051
                                                                                ------------          ------------
                                                                                   2,313,012             2,647,559
                                                                                ------------          ------------
Commitments and Contingent Liabilities

Stockholders' Equity:
Preferred stock, no par value; authorized 1,500,000 shares
  Class A convertible preferred stock, no par value;
     Issued and outstanding, 833,300 shares at June 30, 2001
     and 2000, respectively.                                                       4,937,500             4,937,500
  Class B convertible preferred stock, no par value;
     Issued and outstanding, 250,000 shares at June 30, 2001
     and 2000, respectively.                                                         273,438               273,438
  Common stock, $.005 par value; authorized,
     10,000,000 shares; issued and outstanding,
     2,496,129 shares at June 30, 2001 and 2000, respectively.                        12,481                12,481
  Additional paid-in capital                                                      11,929,886            11,929,886
  Accumulated deficit                                                            (13,763,668)          (13,250,678)
                                                                                ------------          ------------
     Total stockholders' equity                                                    3,389,637             3,902,627
                                                                                ------------          ------------
                                                                                $  5,702,649          $  6,550,186
                                                                                ============          ============
</TABLE>


________________________________________________________________________________
See accompanying notes to consolidated financial statements.

                                       15
<PAGE>

                       PHARMAKINETICS LABORATORIES, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                        Fiscal Years Ended June 30,
                                                                        ---------------------------
                                                                   2001             2000             1999
                                                                   ----             ----             ----
<S>                                                              <C>             <C>              <C>
Revenues                                                         $8,913,310      $ 8,023,905      $ 9,828,369

Cost of contracts                                                 7,469,506        8,513,540        8,112,227
                                                                  ---------      -----------      -----------

Gross profit (loss)                                               1,443,804         (489,635)       1,716,142


Selling, general and administrative expenses                      1,880,074        2,462,011        2,568,900
Research and development expenses                                   112,510          158,255          511,681
                                                                 ----------      -----------      -----------

Loss from operations                                               (548,780)      (3,109,901)      (1,364,439)

Other income and expenses
  Interest income                                                    49,881           51,989          131,349
  Interest expense                                                  (14,091)         (19,813)         (29,057)
  Gain on sale of investments                                             -          154,158                -
  Loss on disposal of equipment                                           -          (34,487)               -
  Write-down of investment                                                -                -          (65,568)
                                                                 ----------      -----------      -----------
                                                                     35,790          151,847           36,724
                                                                 ----------      -----------      -----------

Net loss applicable to common stockholders                       $ (512,990)     $(2,958,054)     $(1,327,715)
                                                                 ==========      ===========      ===========

Basic and diluted loss per common share                          $    (0.21)     $     (1.19)           (0.53)
                                                                 ==========      ===========      ===========

Weighted-average shares used to compute basic and diluted
loss per common share                                             2,496,129        2,496,129        2,493,349
                                                                 ==========      ===========      ===========
</TABLE>



-------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.

                                       16
<PAGE>

                       PHARMAKINETICS LABORATORIES, INC.
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                             Preferred Stock
                                                     Class A                Class B              Common Stock          Additional
                                               Number of              Number of              Number of                   Paid-in
                                                Shares      Amount      Shares     Amount      Shares       Amount       Capital
                                                ------      ------      ------     ------      ------       ------       -------
<S>                                            <C>        <C>         <C>        <C>         <C>          <C>         <C>
Balance, July 1, 1998                           833,300   $4,937,500          -  $      -    2,456,129    $   12,281  $ 11,867,086
Comprehensive loss
   Net loss
   Other comprehensive loss
    Unrealized loss on available-for-sale
    security

Total comprehensive loss

Exercise of stock options
                                                                                                40,000           200        62,800
                                                ----------------------------------------------------------------------------------
Balance, June 30, 1999                          833,300   $4,937,500          -  $      -    2,496,129    $   12,481  $ 11,929,886
                                                ----------------------------------------------------------------------------------
Comprehensive loss
   Net loss
   Other comprehensive loss

Total comprehensive loss

Issuance of preferred stock in settlement
 of lawsuit
                                                                        250,000   273,438
                                                ----------------------------------------------------------------------------------
Balance, June 30, 2000                          833,300   $4,937,500    250,000  $273,438    2,496,129    $   12,481  $ 11,929,886
                                                ----------------------------------------------------------------------------------
Comprehensive loss

   Net loss
   Other comprehensive loss

Total comprehensive loss
                                                ----------------------------------------------------------------------------------
Balance, June 30, 2001                          833,300   $4,937,500    250,000  $273,438    2,496,129    $   12,481  $ 11,929,886
                                                ----------------------------------------------------------------------------------

<CAPTION>
                                                                 Other Accumulated           Total
                                               Accumulated         Comprehensive         Stockholders'
                                                 Deficit           Income (loss)            Equity
                                                 -------           -------------            ------
<S>                                           <C>                <C>                     <C>
Balance, July 1, 1998                         $ (8,964,909)      $          21,625       $   7,873,583
Comprehensive loss
   Net loss                                     (1,327,715)                                 (1,327,715)
   Other comprehensive loss
    Unrealized loss on available-for-sale
    security                                                               (21,625)            (21,625)
                                                                                         -------------
Total comprehensive loss                                                                 $  (1,349,340)
                                                                                         -------------
Exercise of stock options
                                                                                                63,000
------------------------------------------------------------------------------------------------------
Balance, June 30, 1999                        $(10,292,624)                      -       $   6,587,243
------------------------------------------------------------------------------------------------------
Comprehensive loss
   Net loss                                     (2,958,054)                                 (2,958,054)
   Other comprehensive loss                                                                          -
                                                                                         -------------
Total comprehensive loss                                                                 $  (2,958,054)
                                                                                         -------------
Issuance of preferred stock in settlement
 of lawsuit
                                                                                               273,438
------------------------------------------------------------------------------------------------------
Balance, June 30, 2000                        $(13,250,678)                      -       $   3,902,627
------------------------------------------------------------------------------------------------------
Comprehensive loss

   Net loss                                       (512,990)                                   (512,990)
   Other comprehensive loss                                                                          -
                                                                                         -------------
Total comprehensive loss                                                                 $    (512,990)
                                                                                         -------------

------------------------------------------------------------------------------------------------------
Balance, June 30, 2001                        $(13,763,668)                      -       $   3,389,637
------------------------------------------------------------------------------------------------------
</TABLE>



     ---------------------------------------------------------------------------
     See accompanying notes to consolidated financial statements.

                                       17
<PAGE>

                       PHARMAKINETICS LABORATORIES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                              Years ended June 30,
                                                                                              --------------------
                                                                                        2001           2000             1999
                                                                                        ----           ----             ----
<S>                                                                                <C>            <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                         $  (512,990)   $ (2,958,054)      $(1,327,715)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
     Depreciation and amortization                                                     574,448         653,023           605,635
     Issuance of preferred stock in settlement of lawsuit                                    -         273,438                 -
     Gain on sale of investment                                                              -        (154,158)                -
     Loss on disposal of equipment                                                           -          34,487                 -
     Bad debt expense                                                                   37,038               -            86,600
     Write-down of investment                                                                -               -            65,568
 Changes in operating assets and liabilities:
     Accounts receivable, net                                                         (318,634)        356,861           127,223
     Contracts in process                                                              607,885         112,133          (109,684)
     Prepaid expenses and non-current other assets                                      42,208          22,907             8,054
     Accounts payable and accrued expenses                                            (488,917)        183,299           163,702
     Deposits on contracts in process                                                  216,421        (141,078)          399,549
                                                                                   -----------    ------------     -------------
        Net cash provided by (used in) operating activities                            157,459      (1,617,142)           18,932
                                                                                   -----------    ------------     -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                                                  (27,974)       (354,983)       (1,107,805)
  Proceeds from sale of investment                                                           -         177,874                 -
                                                                                   -----------    ------------     -------------
       Net cash used in investing activities                                           (27,974)       (177,109)       (1,107,805)
                                                                                   -----------    ------------     -------------

CASH FLOWS FROM FINANCING ACTIVITES:

  Proceeds from exercise of stock options                                                    -               -            63,000
  Payments on capital lease obligations                                                (62,051)        (92,373)          (99,435)
                                                                                   -----------    ------------     -------------
       Net cash used in financing activities                                           (62,051)        (92,373)          (36,435)
                                                                                   -----------    ------------     -------------

Net increase (decrease) in cash and cash equivalents                                    67,434      (1,886,624)       (1,125,308)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR                                     346,574       2,233,198         3,358,506
                                                                                   -----------    ------------     -------------
CASH AND CASH EQUIVALENTS AT THE END OF YEAR                                       $   414,008    $    346,574       $ 2,233,198
                                                                                   ===========    ============     =============

Supplemental disclosures of cash flow information:
  Interest paid                                                                    $    11,889    $     19,277       $    28,556
                                                                                   -----------    ------------     -------------
</TABLE>





--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.

                                       18
<PAGE>

                       PHARMAKINETICS LABORATORIES, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. ORGANIZATION AND DESCRIPTION OF BUSINESS

     PharmaKinetics Laboratories, Inc. (the "Company") is a contract research
organization ("CRO"), located in Baltimore, Maryland, providing a range of
clinical research and development services to the worldwide pharmaceutical and
biotechnology industries in the development of prescription and non-prescription
drug products. These services include Phase I clinical research, bioanalytical
laboratory testing, and the management and monitoring of multi-center clinical
trials. The Company offers ancillary services in these areas such as protocol
development, case report form design, data management, biostatistics and
regulatory consulting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Principles of Consolidation

     The accompanying consolidated financial statements include the results of
the Company and the PKLB Limited Partnership, a wholly owned subsidiary, which
owns the building the Company occupies. The Company includes 100% of the
building operations in its financial statements.

Segment Information

     The Company operates in one industry segment, the testing and related
research of pharmaceutical products. The Company is managed and operated as one
business. A single management team that reports to the Chief Executive Officer
comprehensively manages the entire business. The Company does not operate
separate lines of business or separate business entities. In addition, the
Company operates from its corporate headquarters located within the United
States. The Company does not have separately reportable segments as defined by
Standard of Financial Accounting Standards ("SFAS") SFAS No. 131, Disclosure
about Segments of an Enterprise and Related Information.

Cash Equivalents

     The Company classifies all highly liquid investments with an original
maturity of three months or less at the time of purchase as cash equivalents.

Accounts Receivable

     The Company grants unsecured credit to its customers. At June 30, 2001, and
2000, accounts receivable is shown net of the allowance for doubtful accounts of
$85,000 and $47,962, respectively.

Investments

     The Company classifies investments at the time of purchase as either
available-for-sale or held-to-maturity. Investments in securities that are
classified as available-for-sale are carried at their fair values. Unrealized
holding gains and losses on available-for-sale securities are excluded from
current earnings (loss) and are reported as a separate component of
stockholders' equity as "Accumulated other comprehensive income (loss)".
Realized gains and losses on available-for-sale securities are determined on a
specific identification basis.

     A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed to be other than temporary is an impairment
that would result in a reduction in the carrying amount to fair value. Such
impairment, if any, is charged to current earnings, and an adjusted cost basis
for the security is established.

Property, Plant and Equipment

     Property, plant and equipment are stated at cost. Depreciation and
amortization are calculated on the straight-line method over the estimated
useful lives of the assets, generally five years for furniture and equipment and
fifteen to thirty-six years for building and improvements. Upon the disposition
of assets, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in the

                                       19
<PAGE>

Consolidated Statements of Operations. Expenditures for repairs and maintenance
are expensed as incurred.

Contracts in Process and Deposits on Contracts

     Contracts in process include direct and indirect costs related to contract
performance. Deposits on contracts represent interim payments. Upon completion
of the contract, the customer is billed for the total contract amount less any
deposits or interim payments.

Revenue Recognition

     Revenues associated with testing services, which are short-term in
duration, are earned and recognized upon completion of all required clinical and
laboratory analysis. Operating revenue attributable to the performance of long-
term testing is recorded by contract by determining the status of work performed
to date in relation to total services to be provided. Revenues under fixed-rate
contracts include a proration of the earnings expected to be realized on the
contract based upon the ratio of costs incurred to estimated total costs.
Projected losses on contracts are provided for in their entirety when known.

     License fee income is recognized as a percentage of licensed product sales
as reported to the Company from the licensee. In fiscal year 2001, the Company
had such a license fee agreement from which it received license fee income. This
license agreement expires in fiscal year 2004. In fiscal year 1999, the Company
received license fee income from license fee agreements, which expired in June
1999. The Company recognized license fee income of $32,452, $67,579, and
$210,648, during fiscal years ended June 30, 2001, 2000, and 1999, respectively.

     The Company conducts studies for a number of companies outside of the
United States (U.S.), primarily in Canada and Europe, in addition to many
domestic companies. This work is billed and paid in U.S. dollars, so there is no
currency exchange risk to the Company. The following table approximates revenue
recognized by the Company from its clients outside of the United States.

<TABLE>
<CAPTION>
                                                                 Year Ended June 30,
                                                                 -------------------
                                                         2001             2000            1999
                                                         ----             ----            ----
     <S>                                              <C>              <C>            <C>
     Canada                                           $  944,000       $  964,000     $2,679,000
     Europe & other                                      616,000          402,000        391,000
                                                      ----------       ----------    -----------
     Total                                            $1,560,000       $1,366,000     $3,070,000
                                                      ==========       ==========     ==========
</TABLE>

Significant Client

     A single client contributed in excess of 10% of contract revenue,
accounting for approximately 16%, 13%, and 3% of contract revenue, for the
fiscal years ended June 30, 2001, 2000, and 1999 respectively. In addition,
another client contributed in excess of 16% for the fiscal year ended June 30,
2000.


Accounting for Income Taxes

     Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The measurement of deferred tax assets is
reduced, if necessary, by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax asset will not be realized. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that such tax rate changes are enacted.

Research and Development Expenses

     The nature of the Company's bioanalytical laboratory services requires the
Company to develop new assay methods for use in testing pharmaceutical products
in order to determine the amount of drug present in each of the biological
specimens tested. Each drug being tested requires the development of a unique
assay method, the accuracy and precision of which must be documented according
to current scientific standards to meet requirements established by the United
States Food and Drug Administration ("FDA"). The Company's research and
development group develops and validates these unique assay methods. These
research and development costs are expensed as incurred.

                                       20
<PAGE>

Stock-Based Compensation

     The Company discloses information relating to stock-based compensation
awards in accordance with SFAS No.123, Accounting for Stock-Based Compensation,
("SFAS 123"), and has elected to apply the provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, ("APB 25"), to
such compensation awards. Under the Company's employee stock option plans, the
Company grants employee stock options at an exercise price equal to the fair
market value at the date of grant. No compensation expense is recorded with
respect to such stock option grants. Compensation expense for options granted to
non-employees is determined in accordance with SFAS 123 as the fair value of the
consideration received or the fair value of the equity instruments issued
whichever is more reliably measured.

Earnings (Loss) per Share

     Basic earnings (loss) per share ("EPS") is computed by dividing earnings
(loss) by the weighted-average number of shares outstanding for the period. The
computation of Diluted EPS is similar to Basic EPS except that the weighted-
average number of shares outstanding for the period is increased to include the
number of additional shares that would have been outstanding if the dilutive
potential common shares had been issued. Potential common shares are excluded if
the effect on earnings (loss) per share is antidilutive.

     The following table presents the computations of basic and diluted EPS:

<TABLE>
<CAPTION>
                                                      2001             2000              1999
                                                      ----             ----              ----
          <S>                                    <C>               <C>               <C>
          Net loss                               $   (512,990)     $ (2,958,054)     $ (1,327,715)
                                                 ============      ============      ============
          Weighted-average shares outstanding       2,496,129         2,496,129         2,493,349
                                                 ============      ============      ============
          Basic and diluted EPS applicable to
            common stockholders                  $      (0.21)     $      (1.19)     $      (0.53)
                                                 ============      ============      ============
</TABLE>

     There were common stock equivalents of approximately 2,058,261, 1,750,962
and 1,682,696 at June 30, 2001, 2000, and 1999, respectively, that were
considered antidilutive and accordingly excluded in the above calculation.

Concentration of Credit Risk

     The Company is subject to credit risk related to cash balances with
financial institutions in excess of insured amounts. The risk is mitigated by
the fact that, at the close of each business day, excess funds in the Company's
operating accounts are placed in an overnight investment account collateralized
by government securities held by the financial institution.

     Three of the Company's clients accounted for 53.8% of the outstanding
accounts receivable balance at June 30, 2001. Five of the Company's clients
accounted for 75.3% of the outstanding accounts receivable balance at June 30,
2000. Clients outside the U.S. comprise 24.8% and 25.6% of the outstanding
accounts receivable balance at June 30, 2001, and 2000, respectively.

Reclassifications

     Certain prior year amounts have been reclassified to conform to the current
year presentation.

Use of Estimates

     The preparation of the Company's financial statements in conformity with
generally accepted accounting principles in the Unites States of America,
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, revenues and expenses, and disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual amounts will differ from these estimates.

                                       21
<PAGE>

Uncertainties

     The Company is subject to various risks common to many contracted research
organizations. These include, but are not limited to, dependence on product
development cycles of its clients; dependence on key personnel; the ability to
continuously develop new methodologies for clinical and analytical applications;
competition and consolidation within the market place and compliance with
government regulations and agencies, including the U.S. Food and Drug
Administration.

3. PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                   June 30,
                                                                   --------
                                                             2001             2000
                                                             ----             ----
<S>                                                     <C>              <C>
            Land                                        $    200,000     $     200,000
            Building and improvements                      3,118,428         3,109,431
            Furniture and equipment                        3,918,559         3,899,582
                                                        ------------     -------------
                                                        $  7,236,987     $   7,209,013
            Accumulated depreciation and amortization     (3,791,445)       (3,216,997)
                                                        ------------     -------------
                                                        $  3,445,542     $   3,992,016
                                                        ============     =============
</TABLE>


     Assets held under capital lease were $340,165 for June 30, 2001 and 2000.
Accumulated depreciation of assets held under capital lease at June 30, 2001 and
2000, was $238,115 and $170,082, respectively.

     During fiscal year 2000, the Company wrote-off certain fully depreciated
assets and other obsolete equipment for which a loss of $34,487 was recorded.
The historical cost basis of these assets was $317,568.

4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses consists of the following:

<TABLE>
<CAPTION>
                                                                   June 30,
                                                                   --------
                                                             2001             2000
                                                             ----             ----
            <S>                                         <C>                <C>
            Trade accounts payable                      $    509,579       $   597,477
            Accrued payroll and related expenses             116,425           140,175
            Other accrued expenses                           130,111           507,380
                                                        ------------       -----------
                                                        $    756,115       $ 1,245,032
                                                        ============       ===========
</TABLE>

5. INVESTMENT IN HYBRIDON, INC.

     At June 30, 1999, the Company held 44,642 shares of common stock and
warrants to acquire 11,161 shares of common stock, at an exercise price of $2.40
per share, of Hybridon, Inc. (OTCBB:HYBN) with a carrying value of $23,716. The
carrying value of the stock was determined by the average of the bid and ask
prices of the stock as reported by the National Quotation Bureau on June 30,
1999, which was $0.53 per share. The Company received the stock and warrants in
fiscal 1998 in exchange for an accounts receivable in the amount of $89,284. The
warrants expire on May 4, 2003 and are not subject to a call provision.

     At June 30, 1999, the market value of the Hybridon Stock was less than the
adjusted cost basis of $89,284. The difference of $65,568 was recorded as a
write-down of the investment and was reflected in the Consolidated Statements of
Operations, as the impairment of such investment was considered to be other than
temporary.

     During fiscal year 2000, the Company liquidated its common stock holdings
in Hybridon, Inc. generating cash proceeds of $177,874 and a gain on the sale of
$154,158.

                                       22
<PAGE>

6. DEBT

     Through August 1999, the Company had available a $500,000 line of credit
from a commercial bank. The terms of which provided for interest at the greater
of the prime rate or LIBOR plus 215 basis points. The line of credit was
collateralized by substantially all of the Company's assets, placed restrictions
on borrowings and investments and required maintenance of specified amounts on
net worth and minimum financial ratios. In September 1999, the Company elected
to voluntarily terminate its line of credit since it had not drawn upon the line
nor expected to utilize the line in the near future.

7. INCOME TAXES

     Significant components of the Company's deferred tax assets and liabilities
are shown below:

<TABLE>
<CAPTION>
                                                                           June 30,
                                                                           --------
                                                                    2001               2000
                                                                    ----               ----
            <S>                                                 <C>                <C>
            Deferred tax assets:
              Accounts receivable                               $     33,150       $      18,705
              Accrued liabilities                                     22,539             130,927
              Net operating loss carryforwards                     4,307,917           3,910,034
              Alternative minimum tax credits                          4,095               4,095
              General business credits                             1,557,822           1,557,822
            Valuation allowance                                   (5,738,145)         (5,521,906)
                                                                ------------       -------------
            Total deferred tax assets                                187,378              99,677
            Deferred tax liabilities:
               Property, plant and equipment                        (187,378)            (99,677)
                                                                ------------       -------------
                                                                    (187,378)            (99,677)
                                                                ------------       -------------
            Net deferred income taxes                           $          -       $           -
                                                                ============       =============
</TABLE>

     Based on the weight of evidence available at June 30, 2001 and 2000, in
management's opinion, a full valuation allowance is required to be recorded
against the Company's deferred income tax assets.

     At June 30, 2001, the Company had tax loss carryforwards of approximately
$11.0 million, which begin expiring in 2006 through 2021, and general business
credits of approximately $1.6 million that begin expiring in 2001 through 2015.
Approximately $6.4 million of net operating loss carryforwards and general
business credits are subject to limitations under Section 382 of the Internal
Revenue Code.

     The principal differences between the actual effective tax rate and the
statutory federal tax rate are as follows:

<TABLE>
<CAPTION>
                                                                            Fiscal Year Ended June 30,
                                                                            --------------------------
                                                                    2001              2000              1999
                                                                    ----              ----              ----
        <S>                                                     <C>               <C>                 <C>
        Statutory rate                                                  (34.0)%            (34.0)%           (34.0)%
        State income taxes - net of federal benefit                      (4.9)              (4.9)             (4.9)
        Valuation Allowance                                              38.9               38.9              38.9
                                                                -------------     --------------      ------------

        Effective tax rate                                                  - %                - %               - %
                                                                =============     ==============      ============
</TABLE>

                                       23
<PAGE>

8.  LEASES

     Lease expense for all operating leases, including leases with terms of less
than one year, amounted to $85,551, $84,100 and $195,400, for the years ended
June 30, 2001, 2000, and 1999, respectively. The future expected payout of
operating leases with terms in excess of one year is as follows:

                          Fiscal Year ending June 30,
                          ---------------------------

                          2002              $  33,358
                          2003                 18,522
                          2004                  7,632
                          2005                  1,488
                          2006                      -
                                            ---------
                                            $  61,000
                                            =========

9.  CAPITAL TRANSACTIONS

Class A Preferred Stock and Warrants

     In December 1997, the Company issued 833,300 shares of a newly created
Class A Convertible Preferred Stock and warrants to purchase 1,250,000 shares of
the Company's common stock, and entered into a Registration Rights Agreement and
Technology Sharing Agreement in connection therewith, to investors including
certain affiliates of Aster.Cephac S.A. and CAI Advisors & Co. (collectively,
the "Purchasers"). The securities were issued pursuant to a Preferred Share and
Warrant Purchase Agreement (the "Agreement").

     The Agreement provided for the sale to the Purchasers of a total of 833,300
shares of Class A Convertible Preferred Stock for $4,937,500 or $5.925 per
share. The preferred stock is convertible at any time into shares of common
stock at a conversion ratio of one (1) share of preferred stock for two point
one seven (2.17) shares of the Company's common stock. The conversion ratio is
subject to adjustment under certain circumstances to prevent dilution. In the
event of liquidation of the Company, the holders of the shares of preferred
stock who do not convert their shares into common stock are entitled to receive
$5.925 per share, prior to any distributions being made to the holders of any
other class or series of the Company's capital stock.

     In addition, the Agreement provided for the sale to the Purchasers, for
$62,500, warrants to purchase 1,250,000 shares of the Company's common stock,
exercisable at $6.00 per share. These warrants expired on December 23, 2000.

Class B Preferred Stock and Warrants

     In April 2000, the Company issued 250,000 shares of a newly created Class B
Convertible Preferred Stock and warrants to purchase 100,000 shares of the
Company's common stock to Altana, Inc. in settlement of a civil action. The
preferred stock is convertible at any time into shares of common stock at a
conversion ratio of one (1) share of preferred stock for one (1) share of common
stock. The conversion ratio is subject to adjustment under certain circumstances
to prevent dilution. There are no liquidation preferences. The warrants are
fully exercisable at $6.00 per share and expire in April 2003. Altana can elect
to exchange shares of the preferred stock for future studies performed by the
Company. No shares have been exchanged for future studies through June 30, 2001.

10. STOCK OPTION PLANS

Employee Stock Option Plans

     The Company has stock option plans under which incentive and non-qualified
stock options may be granted to key employees. As of June 30, 2001, there were
434,940 options outstanding, 224,907 of which were exercisable, but not
exercised, and 119,270 available for future issuance. To date, 42,130 options
have been exercised. A total of 596,340 options have been authorized for
issuance under the plans, at no less than the fair market value of the shares on
the date of grant. Options may be granted for terms up to but not exceeding ten
years and are generally fully vested after four years from the date granted.

                                       24
<PAGE>

Non-Employee Directors' Stock Option Plan

     In November 1996, the Board of Directors elected to discontinue cash
compensation for its non-employee directors and to adopt a Non-Employee
Directors Stock Option Plan (the "1996 Plan") effective November 25, 1996. The
1996 Plan was amended by resolution of the Board of Directors (the "Board") on
January 20, 1998 in order to increase the number of shares of the Company's
common stock subject to options available for grant under the 1996 Plan. Each
non-employee director shall be granted options to purchase 24,000 shares of the
Company's common stock, at the fair market value of the stock on the effective
date of the grant, which shall vest in four equal installments over four years.
The first year's grant will be pro-rated for directors joining the Board after
the effective date. The first installment shall vest on the effective date of
the grant. Thereafter, on the date of each of the next three annual meetings of
stockholders at which elections to the Board are conducted, an installment of
6,000 shares shall vest in each serving director who is re-elected to the Board.
The 1996 Plan, as amended, shall be administered by the Board or the
Compensation Committee established by the Board and provides that the number of
shares of stock that may be issued pursuant to options granted under the 1996
Plan shall not exceed in the aggregate 200,000 shares. As of June 30, 2001,
there were 78,500 options outstanding, 67,000 of which were exercisable, but not
exercised, and 109,500 options were available for future issuance. To date,
12,000 options have been exercised.

Non Employee Grants

     The Company has granted non-qualified options to purchase 211,420 shares of
the Company's common stock to non-employees. As of June 30, 2001, 159,420 of
these options were outstanding and 139,420 were exercisable, but not exercised.
All of the options were granted at fair market value of the stock on the
effective date of the grant, except for 74,500 options ("New Options"), which
were granted to the Company's former President and CEO, Mr. James K. Leslie, in
exchange for relinquishing all of his vested incentive stock options, at the
exercise prices at which the options were originally granted under the Company's
1996 Incentive Stock Option Plan. The New Options were granted in an amount
equal to the number of vested options held by Mr. Leslie on his date of
departure from the Company. The options had exercise prices above the fair
market value of the Company's common stock on the date of grant and were fully
vested on the date of grant.

     The following is a summary of the Company's share option activity and
balances as of and for the fiscal years ended June 30, 2001, 2000 and 1999:

                                            Number        Weighted-Average
                                            Of Shares     Exercise Price
                                            ---------     --------------
               Balance, July 1, 1998         528,425          $4.41
               Granted                        25,200          $1.00
               Exercised                     (40,000)         $1.58
               Forfeited                     (59,965)         $4.97
                                            --------          -----
               Balance, June 30, 1999        453,660          $4.40
               Granted                       368,600          $1.54
               Exercised                           -              -
               Forfeited                    (233,910)         $4.27
                                            --------          -----
               Balance, June 30, 2000        588,350          $2.66
               Granted                       133,000          $0.73
               Exercised                           -              -
               Forfeited                     (48,490)         $3.24
                                            --------          -----
               Balance, June 30, 2001        672,860          $2.23
                                            ========          =====

                                       25
<PAGE>

     Share options outstanding and exercisable by price range are as follows:

<TABLE>
<CAPTION>

                                          Options Outstanding                                    Options Exercisable

                                           Weighted-Average
                                               Remaining
   Range of           Outstanding as of       Contractual         Weighted-Average     Exercisable as of    Weighted-Average
Exercise Prices         June 30, 2001            Life              Exercise Price        June 30, 2001       Exercise Price
---------------         -------------            ----              --------------        -------------       --------------
<S>                   <C>                 <C>                     <C>                  <C>                  <C>
$0.64 to $5.00             567,540                8.1                  $1.36                 337,357              $1.57
$5.01 to $7.50             105,320                6.6                  $6.94                  81,970              $6.96
                           -------                ---                  -----                 -------              -----
                           672,860                7.9                  $2.23                 419,327              $2.62
                           =======                ===                  =====                 =======              =====
</TABLE>


     Using the Black-Scholes option pricing model, the per share weighted-
average fair value of all share options granted at market value on the date of
grant during fiscal years 2001, 2000 and 1999 were $0.49, $0.81 and $0.63,
respectively, and $0.16 during fiscal year 2000 for those options granted with
an exercise price greater than market value on the date of grant, with the
following weighted-average assumptions.

<TABLE>
<CAPTION>
                                                2001                   2000                       1999
                                                ----                   ----                       ----
          <S>                                  <C>                  <C>                          <C>
          Expected dividend yield                  0%                         0%                      0%
          Weighted average risk-free
          interest rate                         5.86%                      6.44%                   5.23%
          Volatility                            80.0%                      80.8%                   71.5%
          Expected life in years               5 years              2 to 5 years                 5 years
</TABLE>

     The Company applies APB 25 in accounting for share options granted to
employees and, accordingly, no compensation expense has been recognized related
to such share options to the extent that such share options were granted at an
exercise price that equaled the fair market value at the grant date. Had the
Company determined compensation cost based on the fair value at the grant date
for its share options under SFAS 123, (using the Black-Scholes pricing model),
the Company's net loss would have been adjusted to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
                                                                                       Fiscal Year Ended June 30,
                                                                                       --------------------------
                                                                              2001                2000                 1999
                                                                              ----                ----                 ----
     <S>                                                                   <C>                 <C>                 <C>
     Net loss applicable to common stockholders - as reported              $(512,990)          $(2,958,054)        $(1,327,715)
     Net loss applicable to common stockholders - pro forma                $(726,389)          $(2,956,112)        $(1,576,140)
     Basic and diluted loss per share - as reported                        $   (0.21)          $     (1.19)        $     (0.53)
     Basic and diluted loss per share - pro forma                          $   (0.29)          $     (1.18)        $     (0.63)
</TABLE>

11. 401(k) PROFIT SHARING PLAN

     The Company's 401(k) Profit Sharing Plan (the "401(k) Plan") is available
to all employees meeting certain eligibility criteria and permits participants
to contribute up to certain limits as established by the Internal Revenue Code.
The Company may make cash contributions equal to a percentage of a participant's
contribution or may contribute a discretionary amount to the 401 (k) Plan.

     The Company matches employee contributions equal to 1% contributed to such
employee's 401(k) Plan account subject to certain limitations as established by
the Internal Revenue Service. Such amounts vest 25% per year after the first two
years and are fully vested after six years of service with the Company. The
Company has made contributions of approximately $23,800, $25,400 and $26,700 for
the fiscal years ended June 30, 2001, 2000, and 1999, respectively.

                                       26
<PAGE>

12. QUARTERLY FINANCIAL DATA (Unaudited)

<TABLE>
<CAPTION>
Fiscal Year 2001                            September 30,        December 31,         March 31,           June 30,
----------------                            -------------       ------------         ---------            --------
<S>                                         <C>                 <C>                 <C>                  <C>
Revenue                                     $   2,641,846       $  2,694,064        $  1,422,784         $  2,154,615

Gross profit                                      632,368            567,123             133,986              110,327

Net earnings (loss)                         $      80,430       $     86,020        $   (309,056)        $   (370,384)

Basic earnings (loss) per share             $        0.03       $       0.03        $      (0.12)        $      (0.15)

Diluted earnings (loss) per share           $        0.02       $       0.02        $      (0.12)        $      (0.15)

<CAPTION>
Fiscal Year 2000                            September 30,        December 31,          March 31,           June 30,
----------------                            -------------        ------------          ---------           --------
<S>                                         <C>                 <C>                 <C>                  <C>
Revenue                                     $   3,210,528       $  1,884,424        $    850,748         $  2,078,205

Gross profit                                      798,689           (519,537)           (468,043)            (300,744)

Net earnings (loss)                         $     127,205       $ (1,372,533)       $   (902,470)        $   (810,256)

Basic earnings (loss) per share             $        0.05       $      (0.55)       $      (0.36)        $      (0.32)

Diluted earnings (loss) per share           $        0.03       $      (0.55)       $      (0.36)        $      (0.32)
</TABLE>

13. FINANCIAL RESULTS AND LIQUIDITY

     The Company has incurred losses from operations since fiscal year 1999 and
has been adversely impacted by a warning letter issued by the FDA in fiscal
2000. The Company had negative cash flows from operations for fiscal year 2000,
but generated $157,459 of cash flows from operations in fiscal year 2001.

     The Company's near term and long-term operating strategies focus on its
sales and marketing efforts to gain new as well as previous customers. In
addition, the Company has and is pursuing cost cutting measures and is taking
other appropriate steps to manage the Company's cash balances. The Company
believes it has addressed the issues and the impact of the FDA warning letter on
its business. The Company maintains a backlog of its business, representing
studies underway in-house for which revenue has not yet been recognized, and
studies that have been awarded to the Company by its various clients, but have
yet to begin. At June 30, 2001, the backlog was approximately $7.6 million. The
Company expects to recognize revenue from this backlog during fiscal 2002 and
future fiscal years. The Company believes that the successful implementation of
its plans will enable the Company to return to profitability and allow the
Company to meet its cash needs.

     The Company cannot guarantee that the results from operations will be
sufficient to support the Company's liquidity requirements through June 30, 2002
and beyond. There can be no assurance that the above actions will be
accomplished or whether they will be adequate. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

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

         NONE

                                       27
<PAGE>

                                   PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Pursuant to General Instruction G (3) to Form 10-K, the information
required by this Item with respect to directors is contained in the Company's
Proxy Statement for its 2001 annual meeting and is incorporated herein by
reference. Such Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days subsequent to June 30, 2001.

ITEM 11. EXECUTIVE COMPENSATION

     Pursuant to General Instruction G (3) to Form 10-K, the information
required with respect to this Item is contained in the Company's Proxy Statement
for its 2001 annual meeting and is incorporated herein by reference. Such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days subsequent to June 30, 2001.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Pursuant to General Instruction G (3) to Form 10-K, the information
required by this Item with respect to directors is contained in the Company's
Proxy Statement for its 2001 annual meeting and is incorporated herein by
reference. Such Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days subsequent to June 30, 2001.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Pursuant to General Instruction G(3) to Form 10-K, the information required
by this Item with respect to directors is contained in the Company's Proxy
Statement for its 2001 annual meeting and is incorporated herein by reference.
Such Proxy Statement will be filed with the Securities and Exchange Commission
not later than 120 days subsequent to June 30, 2001.

                                       28
<PAGE>

                                    PART IV


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

<TABLE>
<CAPTION>
                                                                                                   Page(s)
<S>                                                                                                <C>
(a) 1.  FINANCIAL STATEMENTS

          Report of Independent Accountants                                                           14

          Consolidated Balance Sheets at June 30, 2001 and 2000                                       15

          Consolidated Statements of Operations for each of the
           three years in the period ended June 30, 2001                                              16

          Consolidated Statements of Changes in Stockholders' Equity for each
           of the three years in the period ended June 30, 2001                                       17

          Consolidated Statements of Cash Flows for each of the
           three years in the period ended June 30, 2001                                              18

          Notes to Consolidated Financial Statements                                                  19

    2.  FINANCIAL STATEMENT SCHEDULE

          Report of Independent Accountants on Financial Statement Schedule                           14

          Schedule II - Valuation and Qualifying Accounts                                             30

    3.  EXHIBITS

          See Exhibit Index                                                                           32
</TABLE>

(b) REPORTS ON FORM 8-K

          NONE

                                       29
<PAGE>

                       PHARMAKINETICS LABORATORIES, INC.
                                  SCHEDULE II
                       VALUATION AND QUALIFYING ACCOUNTS
               FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                Balance at   Charged to        Charged to                     Balance at
                                Beginning    Costs and           Other                          end
Description                     of Period     Expense           Accounts      Deductions      of Period
-----------                 -------------------------------    ----------     ---------------------------
<S>                         <C>           <C>               <C>              <C>              <C>
Valuation Allowances:

  Allowance for doubtful accounts

  2001                        $    47,962    $  37,038                -                  -    $    85,000
  2000                        $   150,000    $       -                -         $ (102,038)   $    47,962
  1999                        $   150,000    $  86,600                -         $  (86,600)   $   150,000


  Deferred tax assets                                              (a)

  2001                        $ 5,521,906            -        $   216,239                -    $ 5,738,145
  2000                        $ 4,454,690            -        $ 1,067,216                -    $ 5,521,906
  1999                        $ 3,888,855            -        $   565,835                -    $ 4,454,690
</TABLE>



Notes:
------

(a)   Represents charges to deferred tax asset account.

                                       30
<PAGE>

                                  SIGNATURES

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

                                     PHARMAKINETICS LABORATORIES, INC.

     Date: September 28, 2001        By: /s/James M. Wilkinson, II, Ph.D.
           ------------------            --------------------------------
                                          James M. Wilkinson, II,Ph.D.
                                          Chief Executive Officer
                                          and President

     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
registrant and in the capacities and on the dates indicated:


     Date: September 28, 2001        /s/James M. Wilkinson, II, Ph.D.
           ------------------        ----------------------------------
                                      James M. Wilkinson, II, Ph.D.
                                      Chief Executive Officer,
                                      President and Director
                                      (Principal Executive Officer)

     Date: September 28, 2001        /s/Jeffrey A. Scheidt
           ------------------        ----------------------------------
                                      Jeffrey A. Scheidt
                                      Vice President and
                                      Chief Financial Officer
                                      (Principal Financial Officer
                                      and Principal Accounting Officer)

     Date: September 28, 2001        /s/ Leslie B. Daniels
           ------------------        ----------------------------------------
                                      Leslie B. Daniels,
                                      Director

     Date: September 28, 2001        /s/ Jerome A. Halperin
           ------------------        --------------------------------------
                                      Jerome A. Halperin,
                                      Director

     Date: September 28, 2001        /s/ Thomas F. Kearns
           ------------------        ------------------------------------
                                      Thomas F. Kearns, Jr.,
                                      Director

     Date: September 28, 2001        /s/ Kamal K. Midha
           ------------------        --------------------------------------
                                      Kamal K. Midha, C.M., Ph.D., D.SC.,
                                      Director

                                       31
<PAGE>

                                 EXHIBIT INDEX

Exhibit No.
-----------

2.        Disclosure Statement (incorporated by reference to Exhibit 2 of the
          Company's 8-K filing on April 6, 1993).

3.        (a) Amended and Restated Articles of Incorporation, dated April 6,
              1998 (incorporated by reference to Exhibit 3(a) to the Company's
              Annual Report on Form 10-K for the fiscal year ended June 30,
              1998).
          (b) Articles Supplementary relating to Class B Convertible Preferred
              Stock of the Company (incorporated by reference to Exhibit 4.1 to
              the Company's 8-K filing on April 21, 2000 ).
          (c) Bylaws, as amended and restated (incorporated by reference to
              Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for
              the quarter ended December 31, 1997).

4.        Registration Rights Agreement dated as of December 23, 1997
          (incorporated by reference to Exhibit 4.4 to the Company's January 7,
          1998 filing on Form 8-K).

10.       Material Contracts
          (a) PharmaKinetics Laboratories, Inc. Incentive Stock Option Plan
              (incorporated by reference to Registration Statement on Form S-8,
              No. 33-51840).
          (b) PharmaKinetics Laboratories, Inc. 1996 Incentive Stock Option Plan
              (incorporated by reference to Registration Statements on Form S-8,
              Nos. 333-19865 and 333-31062).
          (c) PharmaKinetics Laboratories, Inc. Non-qualified Employee Stock
              Option Plan (incorporated by reference to Registration Statement
              on Form S-8, No. 33-51838
          (d) PharmaKinetics Laboratories, Inc. Amended and Restated 1996 Non-
              Employee Director's Stock Option Plan (incorporated by reference
              to Registration Statement on Form S-8, No. 333-59647).
          (e) Severance Agreement, dated April 15, 1997, between the Company and
              Taryn L. Kunkel (incorporated by reference to Exhibit 3(f) to the
              Company's Annual Report on Form 10-K for the fiscal year ended
              June 30, 1997).
          (f) Technology Sharing Agreement dated as of December 23, 1997
              (incorporated by reference to Exhibit 99.2 to the Company's
              January 7, 1998 filing on Form 8-K).
          (g) Severance Agreement, dated November 28, 2000, between the Company
              and Cynthia A. Schurick. (Incorporated by reference to Exhibit 10
              (g) to the Company's quarterly report on Form 10Q on December 31,
              2000.)
          (h) Severance Agreement, dated November 28, 2000, between the Company
              and James M. Wilkinson, II. (Incorporated by reference to Exhibit
              10 (h) to the Company's quarterly report on Form 10Q on December
              31, 2000.)

21.       List of subsidiaries of registrant (incorporated by reference to
          Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
          fiscal year ended June 30, 1995).

23.       Consent of Independent Accountants (filed herewith).

99.       (a)  Court Order approving Debtor's Amended Plan of reorganization
               (incorporated by reference to the Company's 8-K filing on April
               6, 1993).
          (b)  Court Order approving Application for Final Decree (incorporated
               by reference to Exhibit 99 (b) to the Company's Annual Report on
               Form 10-K for the fiscal year ended June 30, 1996).

                                       32
<PAGE>

                       PHARMAKINETICS LABORATORIES, INC.
                             CORPORATE INFORMATION


DIRECTORS                                           EXECUTIVE OFFICERS

Leslie B. Daniels                                   Jeffrey A. Scheidt
Principal                                           Vice President and
CAI Advisors & Co.                                  Chief Financial Officer

Jerome A. Halperin                                  Cynthia A. Schurick
Retired CEO                                         Vice President
United States Pharmacopeial Convention, Inc.        Business Development

Thomas F. Kearns, Jr
Consultant                                          James M. Wilkinson,II, Ph.D.
                                                    President and
Kamal K. Midha, C.M., Ph.D., D.Sc.                  Chief Executive Officer
Director of Drug Metabolism
Drug Disposition Group
University of Saskatchewan, Canada

James M. Wilkinson, II, Ph.D.
President and
Chief Executive Officer
PharmaKinetics Laboratories, Inc.

INVESTOR CONTACT                                   TRANSFER AGENT

The investing public, securities analysts, and     American Stock Transfer and
shareholders seeking information about the         Trust Company
Company should direct their inquiries to:          59 Maiden Lane
                                                   New York, New York 10038
Investor Relations                                 phone (212) 936-5100
PharmaKinetics Laboratories, Inc.                  www.amstock.com
302 West Fayette Street
Baltimore, Maryland 21201
E-mail:  jscheidt@pharmakinetics.com
phone: (410) 385-4500, ext. 718


EXECUTIVE OFFICE           GENERAL COUNSEL                AUDITORS
302 West Fayette Street    Ober, Kaler, Grimes & Shriver  PricewaterhouseCooper
Baltimore, Maryland 21201  Baltimore, Maryland            LLP
                                                          Baltimore, Maryland

                                       33