<PAGE>

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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                  FORM 10-K/A
       FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark one)

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

  For the fiscal year ended June 30, 2000

                                       OR

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934

  For the Transition Period from            to

                         Commission file number 0-27854

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

                         Bone Care International, Inc.
             (Exact name of registrant as specified in its charter)

               Wisconsin                               39-1527471
    (State or other jurisdiction of                  (IRS Employer
     incorporation or organization)               Identification No.)

           One Science Court                               53711
           Madison, Wisconsin                          (Zip Code)
    (Address of principal executive
                offices)

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

       Registrant's telephone number, including area code: (608) 236-2500
          Securities registered pursuant to Section 12(b) of the Act:

                                      None

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

                        Common Stock, without par value
                        Preferred Stock Purchase Rights
                                (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. [X]

   As of August 31, 2000, there were issued and outstanding 11,456,668 shares
of Common Stock. The aggregate market value of the voting and non-voting common
equity held by nonaffiliates of the registrant was $194,232,127 as of August
31, 2000, assuming solely for purposes of this calculation that all directors
and executive officers of the Registrant are "affiliates". This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.

                      DOCUMENTS INCORPORATED BY REFERENCE

   Portions of Bone Care International, Inc. Proxy Statement for its 2000
Shareholders Meeting to be held on November 15, 2000 (Part III).

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--------------------------------------------------------------------------------
<PAGE>

                         BONE CARE INTERNATIONAL, INC.

                                    INDEX TO
                           ANNUAL REPORT ON FORM 10-K
                        For the Year Ended June 30, 2000

<TABLE>
<CAPTION>
                                                                                                  Page
                                                                                                  ----
<S>       <C>                                                                                     <C>
Part I

Item 1    Business...............................................................................   2

Item 2    Properties.............................................................................  13

Item 3    Legal Proceedings......................................................................  13

Item 4    Submission of Matters to a Vote of Security Holders....................................  14

Part II

Item 5    Market for Registrant's Common Equity and Related Stockholder Matters..................  15

Item 6    Selected Financial Data................................................................  16

Item 7    Management's Discussion and Analysis of Financial Condition and Results of Operations..  17

Item 7A   Quantitative and Qualitative Disclosures about Market Risk.............................  20

Item 8    Financial Statements and Supplementary Data............................................  21

Item 9    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...  35

Part III

Item 10   Directors and Executive Officers of the Registrant.....................................  36

Item 11   Executive Compensation.................................................................  36

Item 12   Security Ownership of Certain Beneficial Owners and Management.........................  36

Item 13   Certain Relationships and Related Transactions.........................................  36

Part IV

Item 14   Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................  36
Signatures......................................................................................   37
Index to Exhibits...............................................................................   38
</TABLE>

   In this Annual Report on Form 10-K, "Bone Care," "we," "us" and "our" refer
to Bone Care International, Inc. unless context suggests otherwise.

                                       i
<PAGE>

                           FORWARD-LOOKING STATEMENTS

   This Annual Report on Form 10-K includes forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. We have based these forward-looking statements largely on our
current expectations and projections about future events and financial trends
affecting the financial condition of our business. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions
about Bone Care, including, among other things:

  . general economic and business conditions, both nationally and in our
    markets;

  . our expectations and estimates concerning future financial performance,
    financing plans and the impact of competition;

  . anticipated trends in our business;

  . existing and future regulations affecting our business;

  . our early stage of development;

  . the uncertainty of our future profitability;

  . our ability to satisfy the FDA's conditions for marketing approval for
    Hectorol;

  . our ability to commercialize Hectorol; and

  . other risk factors set forth under "Risk Factors" in this prospectus.

   In addition, in this prospectus, the words "believe", "may", "will",
"estimate", "continue", "anticipate", "intend", "expect" and similar
expressions, as they relate to Bone Care, our business or our management, are
intended to identify forward-looking statements.

   Unless otherwise required by law, we undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise after the date of this filing. However,
we acknowledge our obligation to disclose material developments related to
previously disclosed information. In light of these risks and uncertainties,
the forward-looking events and circumstances discussed in the filing may not
occur and actual results could differ materially from those anticipated or
implied in the forward-looking statements.

                                       1
<PAGE>

ITEM 1. BUSINESS

Overview

   Bone Care is a pharmaceutical company engaged in discovering, developing and
commercializing improved vitamin D-hormone therapies to treat secondary
hyperparathyroidism in patients with kidney, or renal disease, and
osteoporosis, and other diseases including psoriasis and cancers of the
prostate, breast and colon. We were founded 16 years ago as a subsidiary of
Lunar Corporation, located in Madison, Wisconsin, and were spun-off from Lunar
in 1996.

   We licensed our first product, Hectorol, in 1987 from the University of
Wisconsin, a leading vitamin D research center. Hectorol, also known as
doxercalciferol, is a vitamin D replacement therapy approved by the FDA in two
formulations to treat secondary hyperparathyroidism in patients with end-stage
renal disease, or ESRD. Hectorol is a safe and effective therapy for reducing
elevated levels of parathyroid hormone (PTH) in blood in the management of
secondary hyperparathyroidism, a disease characterized by excessive secretion
of PTH. Long-term hyperparathyroidism if left untreated can result in muscle
weakness, bone loss and fractures. Virtually all ESRD patients suffer from
secondary hyperparathyroidism. In June 1999, we obtained FDA approval for
Hectorol Capsules, and in October 1999, we began selling this orally
administered product in the United States. In April 2000, we obtained FDA
approval for Hectorol Injection, and, in late August 2000, we began selling
this intravenous product in the United States. We recently completed two Phase
III trials for Hectorol Capsules to treat secondary hyperparathyroidism in pre-
dialysis patients, and we plan to file with the FDA a supplemental New Drug
Application for this indication by March 2001. In addition, we also are
developing Hectorol and new vitamin D therapies to treat these and several
other diseases.

Background

   D-hormones are produced in the body from vitamin D that is either ingested
or generated in the skin from sunlight exposure. D-hormones have essential
roles in human health; they regulate (1) parathyroid hormone (PTH) secretion by
the parathyroid glands, (2) the absorption of calcium by the small intestine,
(3) muscle function, and (4) the proliferation and maturation of several types
of normal and abnormal cells. D-hormone deficiency occurs when the kidneys are
unable to produce D-hormones. Without sufficient D-hormone levels, PTH
secretion is increased and calcium absorption in the small intestine is reduced
leading to bone disease.

   Hyperparathyroidism is a disease characterized by excessive secretion of PTH
by the parathyroid glands. Hyperparathyroidism is classified by the medical
community as either "primary" or "secondary", depending on the underlying
cause. Primary hyperparathyroidism is the less common type of
hyperparathyroidism and is caused by a disorder in one or more of the
parathyroid glands, usually a tumor. Surgical removal of the affected
parathyroid glands is the only effective treatment. Secondary
hyperparathyroidism is the more common type of hyperparathyroidism and is
caused by diseases unrelated to the parathyroid glands. It is seen in varying
severity in virtually all ESRD patients, in whom normal kidney function is lost
and dialysis is required for survival. Secondary hyperparathyroidism in renal
disease continues and worsens unless treated with D-hormone therapy.

   D-hormone replacement therapy is used in many countries as a treatment for
pre-dialysis and dialysis patients with secondary hyperparathyroidism. The
goals of D-hormone therapy are to decrease blood PTH levels and to normalize
blood calcium, thereby treating or preventing bone disease, and other adverse
effects of elevated PTH. Currently, there are three primary competitive D-
hormone products being marketed for secondary hyperparathyroidism: calcitriol,
paricalcitol and alfacalcidol. The challenge in administering therapies is to
deliver a sufficiently high dose to be effective without causing toxic side
effects, including:

  . Excessive calcium in the blood, which increases the risk that calcium-
    rich deposits will develop in soft tissues, such as in the heart and
    arteries causing cardiac arrest, or in the kidneys accelerating kidney
    failure in pre-dialysis patients.

                                       2
<PAGE>

  . Excessive phosphorus in the blood, which stimulates secretion of PTH by
    the parathyroid glands and exacerbates secondary hyperparathyroidism.

  . Excessive calcium in the urine, which increases the risk that calcium-
    rich deposits will develop in the kidneys, and this accelerates kidney
    failure in pre-dialysis patients.

   Due to the risks of these side effects, competitive D-hormones are
customarily administered at low dosages which are at times ineffective.
Starting dosages are increased cautiously, if at all, to minimize the chance of
these toxic side effects, rather than to optimize therapeutic response.
Intravenous products are favored in the United States marketplace because of
several factors: (1) drug administration is assured at the time of dialysis by
a healthcare professional; (2) repeated oral delivery of active D-hormones
promotes their breakdown in the intestine so that the amount delivered to the
parathyroid glands is reduced; and (3) Medicare reimbursement is only available
for intravenous products. In addition, intravenous delivery of competitive D-
hormones immediately causes abnormally high levels of D-hormones in the blood
followed by abnormally low levels as the D-hormones are eliminated rapidly from
the body. After oral delivery of competing D-hormone products, blood levels
also rapidly drop to abnormally low levels. This is in contrast to the
relatively constant blood levels of D-hormones which are maintained in
individuals with normal kidney function without side effects, yielding
consistent efficient regulation of PTH secretion.

The Bone Care Solution

   We have two FDA approved products to treat secondary hyperparathyroidism in
ESRD patients, Hectorol Injection and Hectorol Capsules, and we are in the
process of developing Hectorol and other products for additional applications.
Hectorol offers:

  . Safe and Effective Treatment. Data obtained from our clinical trials have
    demonstrated that Hectorol is a safe and effective therapy for treating
    secondary hyperparathyroidism in ESRD patients. In these trials, Hectorol
    reduced blood levels of PTH in more than 90% of the treated patients with
    minimal side effects. Based on these and other trials, we believe that
    Hectorol compares favorably to competitive D-hormone products, including
    calcitriol, paricalcitol and alfacalcidol, however, we have not performed
    comparative trials to demonstrate these conclusions.

  . Oral Delivery that Expands Market Opportunities. Hectorol Capsules
    provide a safe, convenient and effective orally delivered therapy that we
    believe could be applied to address larger therapeutic markets than ESRD
    when approved by the FDA for additional indications. Intravenous D-
    hormone products are used only in hemodialysis patients under medical
    supervision. Competitive intravenous D-hormones are not well suited for
    oral delivery because they are fully active on delivery, which can cause
    certain cells lining the small intestine to absorb too much calcium and
    phosphorus, leading to side effects. Hectorol, on the other hand, is an
    inactive pro-hormone that, after oral delivery, is not recognized by
    these intestinal cells. Therefore, Hectorol does not over-stimulate
    absorption of calcium and phosphorus during absorption by the intestine.

  . A Pro-Hormone that Provides Consistent Levels of Natural D-Hormones.
    Hectorol is a pro-hormone, an inactive chemical substance that is slowly
    metabolized by the liver into two active and naturally occurring D-
    hormones. Activated Hectorol is released into the bloodstream at a rate
    which closely mimics the steady production and release of these same
    D-hormones by normal kidneys. Normal blood levels of D-hormones allow
    efficient regulation of PTH secretion by the parathyroid glands with few
    side effects.

  . A Potentially Wider Therapeutic Window. We believe that there is indirect
    evidence that Hectorol has a wider range, or therapeutic window, between
    a minimum effective dose and a dose with significant side effects than
    competitive D-hormone therapies. There are currently no direct
    comparisons of Hectorol to competitive D-hormone therapies in ESRD
    patients and we have not conducted these studies in any human subjects.
    Animal studies, however, have demonstrated that Hectorol has fewer side
    effects than

                                       3
<PAGE>

   calcitriol or alfacalcidol when delivered at doses of equivalent potency.
   A wider therapeutic window would facilitate improved individualized
   patient therapy and reduce episodes of temporary drug withdrawal, thereby
   improving long-term patient outcome and increasing the ease of patient
   management and monitoring.

Our Strategy

   Our strategy is to develop new D-hormone products and commercialize our two
newly approved products, Hectorol Injection and Hectorol Capsules, by:

  . Expanding Our Sales and Marketing Infrastructure. We will continue to
    develop our internal sales and marketing capabilities to address the over
    $400 million D-hormone market in the United States for ESRD patients and
    for related markets that could be effectively addressed with a small,
    highly targeted sales and marketing effort. We will seek to establish
    mutually beneficial alliances or marketing agreements with partners who
    can rapidly penetrate geographic markets and therapeutic areas where we
    have no current or planned sales presence.

  . Competitively Pricing Hectorol. Recent concerns as expressed in two bills
    considered in the United States Congress about the costs of D-hormone
    therapy for ESRD patients may be a catalyst for exploring more cost-
    effective D-hormone treatments. Hectorol is priced in the United States
    at a modest premium to the older D-hormone, calcitriol, but below the
    recently launched D-hormone, paricalcitol. We believe Hectorol's
    competitive pricing will create interest by third-party payors and
    facilitate its acceptance in the United States market. Hectorol Injection
    is priced below a competing product, Zemplar, which is under review by a
    number of third-party payors due to its significantly higher price
    without a clearly demonstrated therapeutic advantage compared to other D-
    hormone treatments. Hectorol Capsules also represent an attractive cost-
    effective alternative to intravenous D-hormone therapies. While oral D-
    hormone therapies are not reimbursed by Medicare, they are favored
    outside of the United States. We are the only United States company with
    both oral and intravenous D-hormone products and we believe we are well
    positioned to take advantage of changes in preference for the method of
    delivery.

  . Expanding the Approved Indications for Hectorol. We plan to seek FDA
    approval to market Hectorol for secondary hyperparathyroidism in pre-
    dialysis and elderly osteoporosis patients, as well as for psoriasis and
    cancers of the prostate, breast and colon. We have completed two Phase
    III trials with pre-dialysis patients and are planning a Phase II trial
    in elderly osteoporosis patients suffering from secondary
    hyperparathyroidism. We currently are conducting Phase II trials in
    prostate cancer patients and we are planning Phase II trials in psoriasis
    patients.

  . Developing Additional Product Offerings. We will continue to use our
    significant research, clinical and regulatory expertise to identify and
    develop, internally or through licensing from third parties, new
    D-hormones with improved efficacy and safety for targeted diseases.

Our Products

   We are discovering, developing and commercializing improved vitamin D-
hormone therapies to treat a variety of diseases where current treatments are
either unavailable or inadequate. Our products have not been compared with
competitive D-hormone therapies in clinical studies, but comparative studies in
several animal species have demonstrated that our products have a wider range,
or therapeutic window, between a minimum effective dose and a dose with
significant side effects. These studies compared our products, Hectorol, and/or
LR-103, to calcitriol and/or alfacalcidol, and showed that our products are 3-
to 30-times less toxic when administered at doses with equivalent potency. We
monitored for the same side effects as those affecting pre-dialysis or ESRD
patients receiving D-hormone therapy, including hypercalcemia,
hyperphosphatemia, and hypercalciuria. Additional animal studies have shown
that, unlike Hectorol and LR-103, competitive D-hormone therapies cause
significant calcium deposits in the kidneys when delivered in doses equivalent
to those used to treat patients. We cannot, however, be certain that additional
clinical studies will support our conclusion that Hectorol has a wider
therapeutic window than other D-hormone therapies.

                                       4
<PAGE>

   The following table summarizes the status of our products and our product
development programs:

<TABLE>
<CAPTION>
                                        Clinical
                                       Development
                                   -------------------
                                           Phase Phase
                      Pre clinical Phase I  II    III    Filing   Launch
                      ------------ ------- ----- ----- ---------- ------
<S>                   <C>          <C>     <C>   <C>   <C>        <C>
Secondary
 Hyperparathyroidism
  Hectorol Injection
    Dialysis

  Hectorol Capsules
    Dialysis


    Pre-Dialysis                                       March 2001
    Osteoporosis

Hyperproliferative Diseases
  Hectorol Capsules
    Prostate Cancer
    Psoriasis


  Oral LR-103
    Psoriasis and Cancers

  Oral BCI-202
    Psoriasis
</TABLE>


 = Completed
 = In process

 Hectorol Injection

   We developed Hectorol Injection for use in the approximately 250,000 ESRD
patients in the United States who undergo hemodialysis three times per week.
The FDA approved Hectorol Injection in April 2000 after initially declining to
accept our New Drug Application for review. We provided the FDA with
supplemental analyses that demonstrated the equivalence of Hectorol Injection
and Hectorol Capsules and reinforced the safety and efficacy of Hectorol
Injection. Our application included data from two Phase III trials which
involved a total of 70 patients and consisted of an eight-week monitoring
period in which no D-hormone therapies were given, followed by a 12-week period
in which patients received open-label treatment with Hectorol Injection at
hemodialysis. The study endpoint for effectiveness was the observed reduction
in blood PTH levels and the endpoints for safety were the observed rates of
hypercalcemia and hyperphosphatemia. In both trials, after 12 weeks of open-
label treatment, blood PTH levels were reduced 40-50%. These reductions were
statistically significant (p less than 0.01). In both studies, blood PTH
reached a predetermined optimal range in more than 70% of treated patients.
Hectorol Injection normalized blood calcium but also caused infrequent episodes
of hypercalcemia and hyperphosphatemia. In April 2000, we obtained FDA approval
for Hectorol Injection, and in late August 2000, we began selling the product.
The approval was accompanied by a Phase IV commitment to complete a post-
approval Phase IV trial in pediatric patients with ESRD by August 2002. If we
fail to satisfy this commitment in a timely manner, the FDA could withdraw its
existing approval.

 Hectorol Capsules

   Hectorol Capsules are approved for use in the approximately 284,000 ESRD
patients in the United States, however, we are only marketing the product to
the subgroup of approximately 34,000 ESRD patients who undergo dialysis outside
of clinics. In addition, we are conducting clinical trials of Hectorol Capsules
to gain FDA approval for use in other larger disease populations. The FDA
approved Hectorol Capsules in June 1999 based on the results of two Phase III
trials involving a total of 211 subjects. Each trial consisted of an eight-week
monitoring period in which no D-hormone therapies were given, followed by a 16-
week period in which patients received open-label treatment with Hectorol
Capsules at hemodialysis, and an eight-week period in which patients received
in a double-blinded randomized fashion continuing treatment with either
Hectorol

                                       5
<PAGE>

Capsules or a matching placebo. The study endpoint for effectiveness was the
observed reduction in blood PTH levels and the endpoints for safety were the
observed rates of hypercalcemia and hyperphosphatemia. In both trials, after 16
weeks of open-label treatment, blood PTH levels were reduced more than 50%.
These reductions were statistically significant (p<0.01). In addition, blood
PTH reached a pre-determined optimal range in 83%
of the treated patients. At the end of the eight additional weeks of blinded
treatment, mean blood PTH levels in patients receiving Hectorol Capsules
remained approximately 50% below those receiving a matching placebo.
Differences in mean blood PTH levels between patients receiving Hectorol
Capsules and those receiving placebo treatments were clinically and
statistically significant. Hectorol Capsules normalized blood calcium levels
but caused infrequent episodes of hypercalcemia and hyperphosphatemia.

   In addition to treating dialysis patients, we are developing Hectorol
Capsules to treat pre-dialysis patients and elderly osteoporosis patients with
secondary hyperparathyroidism.

     Secondary Hyperparathyroidism in Pre-Dialysis Patients. Secondary
  hyperparathyroidism begins to develop in patients with modest reductions in
  kidney function and becomes more severe as ESRD progresses. We estimate
  that there are at least 600,000 pre-dialysis patients in the United States.

     Evidence from published clinical research suggests that early
  intervention with D-hormone replacement therapy can slow the progression of
  secondary hyperparathyroidism in pre-dialysis patients. Rocaltrol is
  approved in the United States and we believe oral alfacalcidol is used in
  certain foreign markets to treat pre-dialysis patients. As with their use
  in dialysis patients, however, these competitive oral products can cause
  toxic side effects at the doses required for effective treatment and can
  hasten the onset of dialysis.

     We recently completed two randomized, double blind, placebo-controlled
  Phase III trials for Hectorol Capsules to treat secondary
  hyperparathyroidism in pre-dialysis patients. The trials consisted of an
  eight-week monitoring period in which no D-hormone therapies were given,
  followed by a 24-week period in which patients were treated with either
  Hectorol Capsules or a matching placebo. The study endpoint for
  effectiveness was the observed reduction in blood PTH levels and the
  endpoints for safety were the observed rates of hypercalcemia,
  hyperphosphatemia and hypercalciuria, and significant decreases in kidney
  function. In both studies, Hectorol significantly reduced blood PTH levels
  relative to a matching placebo, without significant side effects. We intend
  to use the results from these two trials as the basis for filing with the
  FDA a supplemental New Drug Application by March 2001, requesting approval
  to market Hectorol Capsules for secondary hyperparathyroidism in these pre-
  dialysis patients.

     Secondary Hyperparathyroidism in Elderly Osteoporosis Patients. We plan
  to further investigate the use of Hectorol Capsules to treat secondary
  hyperparathyroidism in elderly osteoporosis patients. Of the 16 million
  people in the United States over the age of 75 years, we estimate that two
  to four million have secondary hyperparathyroidism associated with
  osteoporosis. In many elderly individuals, there is reduced responsiveness
  of the parathyroid glands, the small intestine and muscles to D-hormones.
  Higher D-hormone levels are needed in the blood of these individuals to
  control PTH secretion and to maintain both intestinal calcium absorption
  and muscle strength. Often these individuals develop secondary
  hyperparathyroidism. Left untreated, the elevated level of PTH in the blood
  causes bone loss which increases the risk of debilitating fractures. In
  addition, decreased muscle strength increases the risk of falling, which in
  turn, further increases the risk of fractures. Fractures often result in
  disfigurement, decreased mobility and, in some cases, extensive
  hospitalization and chronic nursing home care.

     In the United States, there are currently no FDA-approved D-hormone
  therapies to treat patients with osteoporosis, however, D-hormone therapies
  are approved in Europe, Asia, Australia and other markets. Controlled
  clinical trials conducted in these markets using oral calcitriol or oral
  alfacalcidol demonstrated increased or stabilized bone mass and reduced
  rates of fractures. However, other trials conducted in the United States
  have produced mixed results, possibly due to the use of inconsistent doses.
  Higher doses of oral calcitriol produced increases in spinal and total body
  bone mass, whereas lower doses showed little effect. Lower doses were used
  in several trials due to the unacceptable frequency of hypercalcemia and
  hypercalciuria. These results suggest that D-hormone therapies with
  improved safety profiles may enable

                                       6
<PAGE>

  more consistent delivery of higher doses for improved therapeutic effects
  in elderly osteoporosis patients with secondary hyperparathyroidism.

     In 1992, we completed a Phase II trial in the United States to evaluate
  Hectorol Capsules to treat postmenopausal osteoporosis. We and our
  corporate collaborators concluded that the data from the trial did not
  provide a sufficient basis for initiating pivotal Phase III trials with
  Hectorol Capsules to treat postmenopausal osteoporosis. Based on published
  reports that D-hormones have efficacy in patients with secondary
  hyperparathyroidism, we plan to initiate an additional Phase II trial of
  Hectorol Capsules in elderly osteoporosis patients to treat secondary
  hyperparathyroidism. We plan to discuss this potential Phase II trial with
  the FDA within the next six months and to initiate the trial in 2001 if a
  satisfactory design can be agreed upon with the FDA. Until a satisfactory
  design can be agreed upon, we cannot determine the duration of the trial.

 Hyperproliferative Diseases

   In addition to having a role in parathyroid function and calcium and
phosphorus metabolism, D-hormones have an important role in controlling the
development of skin, prostate, breast and colon cells. We are investigating the
use of Hectorol Capsules and other improved D-hormone therapies to treat cell
growth diseases, or hyperproliferative diseases, involving these cells,
including psoriasis, and prostate, breast and colon cancers. Our preliminary
studies, as well as research conducted by others, suggest that these cells show
substantially reduced growth rates when exposed to D-hormones and D-hormone
analogs.

     Psoriasis. We are developing Hectorol in a delayed, sustained release
  formulation, as an oral D-hormone therapy for psoriasis, a chronic disease
  that most often affects the skin. Psoriatic lesions are characterized by an
  abnormal thickening or growth of the skin, usually on the scalp, elbows,
  knees, and shins. Microscopic examination of these lesions reveals an
  increased rate of skin cell division, together with a decrease in the time
  required for these cells to migrate to the skin surface, resulting in
  thickening or growth of the skin.

     According to the National Psoriasis Foundation, psoriasis affects more
  than seven million individuals in the United States of which approximately
  1.5 million are being treated by a physician. A similar prevalence rate is
  observed in Europe. Psoriasis affects people of all ages, with most
  exhibiting mild or moderate lesions. No cure for psoriasis exists. Dovonex
  (topical calcipotriol marketed by Bristol-Myers Squibb Company) is a
  synthetic D-hormone analog of calcitriol and is approved to treat psoriasis
  in the United States. Dovonex and tacalcitol, another D-hormone analog, are
  approved to topically treat psoriasis in many countries outside of the
  United States. Currently, no oral D-hormones are approved to treat
  psoriasis in the United States.

     Controlled clinical studies have demonstrated that orally administered
  D-hormones can cause significant improvement in psoriatic lesions reducing,
  in particular, skin redness, scaling and thickness. In many patients,
  complete clearing of psoriatic lesions is observed during the course of D-
  hormone treatment. We plan to conduct a Phase II trial in 2001 to determine
  the effectiveness of orally delivered Hectorol as a treatment for
  psoriasis.

     Prostate, Breast and Colon Cancers. We intend to develop Hectorol
  Capsules or another compound to treat prostate, breast and colon cancers.
  These cancer cells are similar because they contain specific D-hormone
  receptors and have shown reductions in cell division rates when treated
  with D-hormones in vitro. Oncologists consider D-hormones to be promising
  new treatments for these three cancers, but the frequent side effects
  observed with D-hormones have inhibited clinical evaluations of this class
  of compounds. We believe that no D-hormone has received marketing approval
  for cancer anywhere in the world.

     Prostate cancer has become the most commonly diagnosed tumor in American
  men. The American Cancer Society (ACS) estimates that in the year 2000,
  180,000 men will be diagnosed with, and 32,000 men will die from, prostate
  cancer. Breast cancer is the second leading cause of death among women in
  the United States. According to ACS estimates, in the year 2000, 184,000
  women will be diagnosed with,

                                       7
<PAGE>

  and 41,000 women will die from, breast cancer. Colon cancer is the third
  most common cancer in American men and women. In the year 2000, 94,000 men
  and women will be diagnosed with, and 48,000 people will die from, colon
  cancer. The major known risk factors for prostate cancer, namely old age,
  race, and residence at northern latitudes, are all associated with low
  blood levels of vitamin D, the natural precursor for D-hormones. Incidence
  rates for breast and colon cancers also correlate with residence in
  northern latitudes. Mortality rates for these three cancers increase as
  exposure to ultraviolet radiation, the principal source of vitamin D in the
  human body, decreases.

     We completed a Phase I trial in January 1999 in patients with terminal
  prostate cancer to determine the maximum tolerable dose of Hectorol
  Capsules without side effects. These patients had diseases which could be
  monitored by objective imaging techniques while simultaneously evaluating
  safety endpoints such as hypercalcemia and hyperphosphatemia. Results from
  this Phase I trial showed that 70% of patients treated for at least 12
  weeks were free of disease progression. We are currently conducting a Phase
  II trial in terminal prostate cancer patients. Preliminary results indicate
  that six of the 13 evaluated patients treated with Hectorol Capsules became
  free of disease progression for at least six months. We have enrolled an
  additional 13 patients in this trial. If the results of this trial remain
  significant at the end of 2001, we plan to initiate Phase III trials using
  Hectorol Capsules in patients with prostate cancer. We have not yet
  initiated Phase II trials in patients with breast or colon cancer.

 LR-103 and BCI-202

   We are investigating the use of LR-103, BCI-202 and other research compounds
in pre-clinical studies to evaluate them to treat psoriasis and prostate,
breast and colon cancers. LR-103 is a naturally occurring D-hormone that is
produced by the kidneys from vitamin D. LR-103 is one of the D-hormones
produced from Hectorol.

   Hectorol's chemical structure differs from calcitriol and alfacalcidol only
in a few areas. Results from animal studies indicate that Hectorol shows a 3-
to-15-fold lower incidence of toxic side effects compared to calcitriol and
alfacalcidol at doses having equivalent potency. Consequently, we synthesized
and examined a series of compounds related to Hectorol in which chemical
structural changes were systematically made to these areas. From this research,
we determined that Hectorol is activated, in part, to LR-103, whereas
calcitriol and alfacalcidol cannot be so activated.

   We have since synthesized LR-103 and closely related analogs and have
studied their pharmacological properties in biological models in collaboration
with the USDA. LR-103 is as potent as Hectorol, calcitriol and alfacalcidol,
but is 30 times less likely than calcitriol and alfacalcidol to cause toxic
side effects. In addition, we have observed that LR-103 inhibits growth of skin
cells as well as breast and colon cancer cells. Most importantly, LR-103 is
readily absorbed after oral delivery and circulates through the bloodstream to
tissues which respond to D-hormones. LR-103 currently is in the late stages of
pre-clinical research and we plan to begin Phase I clinical studies with LR-103
in calendar 2001.

   BCI-202 is a novel pro-hormone that is metabolized to LR-103. This promising
pharmaceutical candidate is in an early stage of pre-clinical development. We
cannot be certain that future studies will yield safe and effective results
that warrant continued development.

Sales and Marketing

   Hectorol Capsules, which we commercially introduced in October 1999 and
Hectorol Injection, which we commercially introduced in late August 2000, are
currently being marketed for ESRD patients in the United States by our direct
sales force. We believe that the ESRD market in the United States is well
defined and therefore, is suited for a highly focused, direct sales and
marketing effort. In addition, we believe that our pricing strategy balances
the physicians' focus on patient care with dialysis clinics' desire for greater
profit and third-party payors' desire to control treatment costs.

                                       8
<PAGE>

   We are directing our marketing efforts to the following key decision makers:

  . Nephrologists. The nephrologist is the physician responsible for the care
    of patients diagnosed with early and end-stage renal disease. This care
    includes delivering D-hormone replacement therapy, which may be
    administered based on protocols developed in conjunction with the
    dialysis clinics. We estimate that in the United States there are
    approximately 5,100 nephrologists caring for 284,000 dialysis patients
    and over 600,000 pre-dialysis patients.

  . Dialysis Clinics. The nephrologist is generally associated with a clinic
    that performs dialysis procedures. In the United States, a limited number
    of large corporations control the majority of these clinics with the
    largest eight corporations controlling more than 66% of in-center
    dialysis facilities and the largest three controlling over 50% of all in-
    center dialysis facilities. Generally these clinics bill for services
    provided to ESRD patients, including D-hormone therapy. These clinics
    work with the nephrologist to maximize both the quality of patient care
    and profits.

  . Third-Party Payors. Dialysis clinics who administer intravenous D-
    hormones seek reimbursement from third-party payors who generally are
    either insurance companies or governmental agencies, including Medicare
    and Medicaid. These payors set reimbursement levels for products and
    services which the clinics provide to dialysis patients. Payors,
    including the United States government, have increasingly focused on
    containing costs, which has impacted the reimbursement of various
    products and, in turn, affected clinical use of certain products. For
    example, some payors' reduction in reimbursement levels for Calcijex
    (intravenous calcitriol), which take effect on October 1, 2000, may drive
    dialysis clinics currently using Calcijex toward alternative D-hormone
    products with more favorable reimbursement. We are positioning both
    Hectorol Capsules and Hectorol Injection as safe, effective and
    attractively priced products, and our strategy is to establish Hectorol
    products as preferred D-hormone therapies. Currently, oral D-hormone
    products are not reimbursed for use by hemodialysis patients. However,
    given payors' focus on cost containment, we believe that oral therapies
    represent an attractive, cost-effective alternative to more expensive
    intravenous therapies.

   During the last six months, we accelerated the growth of our direct sales
and marketing organization. As of October 6, 2000, the organization consisted
of 31 people, including a Vice President-Sales and Marketing, a Marketing
Director and 23 direct sales people. In addition, we have hired a group of
certified nephrology nurses to assist in using Hectorol. We intend to allocate
significantly greater resources to our sales and marketing organization to
support the commercialization of Hectorol. We intend to expand our direct sales
force to 30 people by December 2000 and to hire additional nephrology nurses.
Additionally, we will seek to establish mutually beneficial alliances or
marketing agreements with partners who can access geographic markets and
therapeutic areas where we have no current or planned sales presence.

   Hectorol is distributed to patients and dialysis centers through both direct
and traditional wholesale and retail channels. We have contracted for selected
administrative and distribution services from a third-party company having a
proven record of providing services to wholesale and retail customers in the
continental United States, Hawaii and Puerto Rico.

Competition

   We operate in a field in which new discoveries occur at a rapid pace.
Competitors may succeed in developing technologies or products that are more
effective than ours or in obtaining regulatory approvals for their drugs more
rapidly than we are able to, which could render our products obsolete or
noncompetitive. Competition is intense and is expected to continue to increase.
Many competitors, including biotechnology and pharmaceutical companies, are
actively engaged in the research and development of products in similar areas,
including the fields of hyperparathyroidism, osteoporosis, and prostate, breast
and colon cancer.

   A number of pharmaceutical and biotechnology companies are developing new
products for the treatment of the same diseases we have targeted. Abbott
Laboratories, Inc. markets intravenous calcitriol (Calcijex) and

                                       9
<PAGE>

Roche Pharmaceuticals markets oral calcitriol (Rocaltrol). These drugs are
approved to manage secondary hyperparathyroidism in kidney dialysis patients in
the United States and in European countries. Abbott Laboratories, Inc. received
marketing approval from the FDA in April 1998 for intravenous paricalcitol
(Zemplar), a new D-hormone analog to treat secondary hyperparathyroidism in
kidney dialysis patients. Roche Pharmaceuticals markets oral calcitriol
(Rocalctrol) in the United States to manage secondary hyperparathyroidism in
pre-dialysis and ESRD patients. A number of companies, including Leo
Pharmacuetical Products A/S, TEVA Pharmaceuticals and Chugai Pharmaceutical
Company Co., Ltd., market oral or
intravenous alfacalcidol, a synthetic analog of calcitriol, in Europe and Asia
under various trade names for both secondary hyperparathyroidism and
osteoporosis. Other companies, including Amgen, Inc. and NPS Pharmaceuticals,
Inc., also are developing new therapies to manage secondary hyperparathyroidism
in kidney dialysis patients in the United States and foreign markets. Leo
Pharmaceutical Products A/S and ILEX Oncology, Inc. are developing D-hormone
therapies to treat cancers. Leo Pharmaceutical Products A/S, Bristol-Myers
Squibb Company and other companies are marketing a topical D-hormone (Dovonex)
in major markets of the world to treat psoriasis. Teijin Limited is marketing
topical tacalcitol to treat psoriasis outside the United States.

Intellectual Property

   Our success will depend in part on our ability to develop patentable
products and technologies and obtain patent protection for our products and
technologies both in the United States and other countries. We currently have
42 issued patents and 91 pending applications worldwide. We have several United
States patents covering the use of Hectorol for the prevention and treatment of
secondary hyperparathyroidism and metabolic bone disease, including renal
osteodystrophy. Patents covering secondary hyperparathyroidism begin to expire
in 2010. Patents covering metabolic bone disease begin to expire in 2009.

   A corresponding patent for the use of Hectorol to prevent and manage
secondary hyperparathyroidism in kidney dialysis patients is pending before the
European and Japanese patent offices. If issued, both patents would expire in
2016. A corresponding patent for the use of Hectorol to prevent and treat
metabolic bone disease has been issued by the European Patent Office and
expires in 2009. Patent applications for similar coverage are pending in other
countries.

   We also own United States patents for the use of Hectorol for treating
prostate cancer that expire in 2013. We have filed counterpart patent
applications in Europe and other geographic markets, including Japan that
expire in 2017. We own United States patents for delayed sustained release
formulations of Hectorol as a treatment for psoriasis. Foreign counterpart
applications are also pending in Europe, Japan and other major markets. The
psoriasis related patents expire in 2013.

   The issued composition of matter patent covering Hectorol has expired. Our
issued patents and pending patent applications relating to Hectorol are method-
of-use patents. A method-of-use patent encompasses the use of a compound or
composition to treat a specified condition but does not encompass the compound
itself, the active ingredient used in the composition or composition itself, or
the method of making the composition or the compound used in the composition.
Method-of-use patents provide less protection than composition of matter
patents because of the possibility of off-label or authorized uses if other
companies market or make the compound for other uses.

   We have a license from the Wisconsin Alumni Research Foundation to practice
several of their process patents for the synthesis of Hectorol. Under this
license, which extends at least through July 2, 2013 and terminates upon the
expiration of the last licensed patent, the Wisconsin Alumni Research
Foundation has agreed not to license to other parties the patents to
manufacture Hectorol for use or sale anywhere in the world as long as the
license agreement is in effect and we pay royalties based on Hectorol sales. We
also have our own patent in the United States for methods of synthesizing
Hectorol and patent applications pending in other geographic markets, including
Japan.

                                       10
<PAGE>

   We have granted Draxis Health Inc. a license to use and sell Hectorol in
Canada for secondary hyperparathyroidism, osteoporosis and other metabolic bone
diseases. We also have granted Draxis a license in Canada to all know-how
developed by or on behalf of us relating to the use of Hectorol for those
indications. Draxis entered into the license agreement in 1990 and paid Bone
Care $100,000 for the rights to treat secondary hyperparathyroidism and
metabolic bone disease with Hectorol in Canada. The agreement does not include
royalty payments and expires upon the expiration date of the last to expire of
the Canadian patents which is 2016.

   We own issued patents and have pending patent applications in the United
States and other countries relating to other D-hormones. Our patents and
pending applications include claims to compounds, compositions, methods of
synthesizing the compounds and compositions, methods of use and methods of
delivery of active D-hormone and D-hormone analogs.

   We and the USDA jointly own rights to LR-103 under issued patents and
pending patent applications. The USDA has granted to us an exclusive worldwide
license to make, use and sell products covered under their rights. If we do not
commercialize these products by April 7, 2002, the USDA may modify or terminate
the license. We will, however, retain co-marketing rights under these patents.
This license terminates upon the expiration of the last licensed patent.

   In addition to patent protection, we also rely on proprietary information
and trade secrets. We require our employees, consultants, and advisors to
execute confidentiality agreements upon commencement of an employment or a
consulting relationship with us.

Manufacturing

   We have no internal manufacturing capabilities. We have contracted and
intend to contract with others to produce active pharmaceutical ingredients and
for the subsequent manufacturing and packaging of finished drug products. We
purchase the active ingredient Hectorol from an FDA-inspected and approved
supplier. We believe this FDA-inspected and approved supplier and other
suppliers can produce Hectorol in a quantity sufficient to support
commercialization of our finished drug products. We use FDA-inspected
manufacturers to produce, formulate and package Hectorol as finished drug
products, including capsules suitable for oral delivery and solutions suitable
for intravenous delivery.

   All of our suppliers have FDA-inspected facilities that operate under
current Good Manufacturing Practices regulations established by the FDA. These
regulations govern all stages of the drug manufacturing process, and are
intended to assure that drugs produced will have the identity, strength,
quality and purity represented in their labeling for all intended uses. If we
were to establish our own manufacturing facility, we would need additional
funds and would have to hire and train additional personnel and comply with the
extensive regulations applicable to the facility. We believe our relationships
with our suppliers are good.

   The sole manufacturer of Hectorol Injection has received, following a
routine inspection of its manufacturing facility, a warning letter from the FDA
identifying general deviations from the FDA's current Good Manufacturing
Practices regarding manufacturing procedures, records and training. While most
of the deviations were not specifically applicable to Hectorol Injection, any
general deviation can affect the capabilities of the manufacturing site. The
manufacturer has advised us that a response to the warning letter has been
submitted and that they are working directly with the FDA to resolve the FDA's
concerns, including those specifically related to Hectorol Injection. We
believe that our manufacturer is adequately addressing the FDA's concerns
relating to Hectorol Injection, although there can be no assurance that the FDA
will find that our manufacturer's responses and proposed corrective actions are
adequate or that the FDA will not take further action. If the FDA is not
satisfied with our manufacturer's responses and proposed corrective action, the
FDA could take regulatory actions against our manufacturer, including seizure
of products, injunction against further manufacture, recall or other actions
that could interrupt production of Hectorol Injection. Any such action would
have a material adverse effect on us.

                                       11
<PAGE>

Government Regulation

   Pharmaceutical products are subject to extensive regulation under the
Federal Food, Drug and Cosmetic Act by the FDA in the United States and similar
health authorities in foreign countries. This rigorous regulation governs,
among other things, testing for safety and effectiveness, manufacturing,
labeling, storage, recordkeeping, import, export, advertising, marketing and
distribution of pharmaceutical products. Any new drug candidate must undergo
lengthy, rigorous and costly pre clinical testing, clinical trials and other
procedures mandated by the FDA and foreign regulatory authorities prior to
approval for sale.

   Before testing agents with potential therapeutic value in healthy human test
subjects, stringent government requirements for pre clinical data must be
satisfied. The data, obtained from studies in several animal species, as well
as from laboratory studies, are submitted in an investigational New Drug
Application to the FDA or its equivalent in countries outside the United States
where clinical studies are to be conducted. Pre-clinical data must provide an
adequate basis for evaluating both the safety and the scientific rationale for
the initiation of clinical trials.

   Clinical trials are typically conducted in three sequential phases, although
these phases may overlap. Phase I frequently begins with initial introduction
of the compound into healthy human subjects. Prior to patient introduction, the
product is tested for safety, adverse affects, dosage, tolerance, absorption,
metabolism, excretion and clinical pharmacology. Phase II typically involves
studies in a small sample of the intended patient population to assess the
efficacy of the compound for a specific indication to determine dose tolerance
and the optimal dose range as well as to gather additional information relating
to safety and potential adverse effects. Phase III trials are undertaken to
further evaluate clinical safety and efficacy in an expanded patient population
which suffers from the targeted illness at geographically dispersed study sites
to determine the overall risk-benefit ratio of the compound and to provide an
adequate basis for product labeling. Each trial is conducted in accordance with
certain standards under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the
investigational New Drug Application.

   Data from pre-clinical and clinical trials are submitted to the FDA as a New
Drug Application for marketing approval and to other health authorities as a
marketing authorization application. The process of completing clinical trials
for a new drug is likely to take a number of years and requires the expenditure
of substantial resources. Preparing a New Drug Application or marketing
authorization application involves considerable data collection, verification,
analysis and expense. There can be no assurance that the FDA, or any other
health authority, will grant approval on a timely basis, if at all. The
approval process is affected by a number of factors, primarily the risks and
benefits demonstrated in clinical trials as well as the severity of the disease
and the availability of alternative treatments. The FDA or other health
authorities may deny a New Drug Application or marketing authorization
application if the authority's regulatory criteria are not satisfied or may
require additional testing or information.

   Even after initial FDA or other health authority approval has been obtained,
further studies, including Phase IV post-marketing studies, may be required to
provide additional data on safety. Additional studies will be required to gain
approval for the use of a product as a treatment for clinical indications other
than those for which the product was initially tested and may be required for
Hectorol Injection and Hectorol Capsules. Also, the FDA or other regulatory
authorities may require post-marketing reporting to monitor the side effects of
the drug. Results of post-marketing programs may limit or expand marketing of
the products. Further, if there are any modifications to the drug, including
changes in indication, manufacturing process or labeling or a change in
manufacturing facility, an application seeking approval of such changes will be
required to be submitted to the FDA or other regulatory authority.

   The manufacture and marketing of Hectorol is subject to ongoing regulation,
including compliance with the FDA's current Good Manufacturing Practices,
adverse event reporting requirements and the FDA's general prohibitions against
promoting products for "off-label" uses, or uses not listed on the FDA-approved
labeling.

                                       12
<PAGE>

We also are subject to inspection and market surveillance by the FDA for
compliance with these and other requirements. Any enforcement action resulting
from failure to comply with these requirements could affect the manufacture and
marketing of Hectorol. In addition, the FDA could withdraw a previously
approved product from the market upon receipt of new information.

   Before our products can be marketed outside of the United States, they are
subject to regulatory approval similar to FDA requirements in the United
States, although the requirements governing the conduct of clinical trials and
other premarket approval requirements vary widely from country to country, and
the time spent in gaining approval varies from that required for FDA approval.
FDA approval does not assure approval by other regulatory authorities and we
cannot predict whether foreign regulatory approvals will be granted. In some
countries, the sales price of a drug product must also be approved. The pricing
review period often begins after market approval is granted. Even if a foreign
regulatory authority approves any of our products, we cannot predict whether
satisfactory prices for our products will be approved.

   We must also comply with numerous federal, state and local laws, regulations
and recommendations relating to safe working conditions, current Good
Laboratory Practices, current Good Manufacturing Practices and the experimental
use of animals. We cannot predict the extent of governmental regulation or the
impact of new governmental regulations which might have an adverse effect on
the discovery, development, production and marketing of our products, and
require us to incur significant costs to comply with the regulations.

   Our research and development processes involve the controlled use of
hazardous materials, chemicals and radioactive materials, and produce waste
products. We are subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of such
materials and waste products. Although we believe that our safety procedures
for handling and disposing of such materials comply with the standards
prescribed by such laws and regulations, the risk of accidental contamination
or injury from these materials cannot be eliminated completely. In the event of
such an accident, we could be held liable for
any damages that result and any such liability could exceed our financial
resources. We believe we comply in all material respects with applicable
environmental laws and regulations.

   Completing the multitude of steps necessary before marketing a new drug or
obtaining a new indication for Hectorol requires the expenditure of
considerable resources and a lengthy period of time. Delay or failure in
obtaining the required approvals, clearances or permits by us, our corporate
partners or our licensees would have a material adverse effect on our ability
to generate sales or royalty revenue. The impact of new or changed laws or
regulations cannot be predicted with any accuracy.

Employees

   As of October 6, 2000, we had 65 full-time employees, including 23 in
research and development, 31 in sales and marketing and 11 in administration.
Four of our employees have Ph.D. degrees. None of our employees are represented
by a union and we consider our employee relations to be good.

ITEM 2. PROPERTIES

   We currently lease approximately 12,000 square feet of office and laboratory
space in Madison, Wisconsin. This lease expires on January 10, 2001. We have
entered into a lease for a new facility which has approximately 34,000 square
feet of office and laboratory space in Middleton, Wisconsin. The new lease
begins in December 2000 and expires in December 2005. We believe our facilities
are adequate to meet our needs for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

   We may be a defendant from time to time in actions arising out of our
ordinary business operations. There are no material legal proceedings pending.

                                       13
<PAGE>

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

   None.

Executive Officers of the Registrant

   As of October 6, 2000, the executive officers of the Registrant are as
follows:

<TABLE>
      <S>                 <C> <C>
      Name                Age Position
      ----                --- --------
      Richard B. Mazess,
       Ph.D.               61 Chairman of the Board

      Charles W. Bishop,
       Ph.D.               49 President, Chief Executive Officer and Director

      Robert A. Beckman    46 Director, Acting Vice President-Finance

      Dale W. Gutman       47 Vice President-Finance

      Paul V. Peterson     49 Vice President-Sales and Marketing
</TABLE>

   Richard B. Mazess, Ph.D., our founder, has served as a director since 1984.
Dr. Mazess served as President from our inception in 1984 through February
1996, and has served as our Chairman of the Board since February 1996. Dr.
Mazess had been President and a director of Lunar Corporation prior to the sale
of Lunar in August 2000. Lunar developed and sold x-ray and ultrasound bone
densitometers for the diagnosis and monitoring of osteoporosis and other
metabolic bone diseases. Dr. Mazess became Professor Emeritus of Medical
Physics at the University of Wisconsin--Madison in 1985, and has been on the
faculty of the Department of Medical Physics since 1968.

   Charles W. Bishop, Ph.D. joined us in 1987 as Project Director and was named
Vice President in 1990, and President and Chief Executive Officer in February
1996. Dr. Bishop has been a director since 1989. Dr. Bishop received a Ph.D.
degree in Nutritional Biochemistry from Virginia Polytechnic Institute and
completed a four-year National Institutes of Health Postdoctoral Fellowship in
Vitamin D Biochemistry at the University of Wisconsin--Madison.

   Robert A. Beckman. Mr. Beckman has been a director since 1989 and was Vice
President-Finance for the period May 1996 through November 1996. Mr. Beckman
had been Vice President of Finance-Lunar since 1987 until the sale of Lunar in
August 2000. Mr. Beckman currently is Acting Vice President-Finance for Bone
Care during Mr. Gutman's convalescence.

   Dale W. Gutman joined us in December 1996 as Vice President-Finance. From
1986 to December 1996, Mr. Gutman served as Vice President and Corporate
Controller of the Chas. Levy Company, a distributor of magazines and books to
independent and mass market retailers throughout the United States. Mr. Gutman
is convalescing well from a serious automobile accident in December 1999,
during which time Mr. Beckman is serving as Acting Vice President-Finance.

   Paul V. Peterson joined us in April 1998 as Vice President-Sales and
Marketing. From 1973 to March 1998, Mr. Peterson served in a variety of sales
and marketing positions of increasing responsibility with Pharmacia & Upjohn,
Inc., a pharmaceutical company, where he last served as Director of Sales, U.S.
Peptide Hormones.

   Officers are elected to serve, subject to the discretion of the Board of
Directors, until their successors are appointed.

                                       14
<PAGE>

                                    PART II

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

   Our common stock is quoted on the Nasdaq National Market of The Nasdaq Stock
Market under the symbol "BCII" and has been publicly traded since May 1996. The
following table sets forth high and low sales prices as reported on The Nasdaq
Stock Market for fiscal years 1999 and 2000 as indicated.

<TABLE>
<CAPTION>
                                                                   High   Low
                                                                  ------ ------
      <S>                                                         <C>    <C>
      Fiscal Year Ended June 30, 1999
        First Quarter............................................ $10.25 $ 7.25
        Second Quarter...........................................  11.88   7.69
        Third Quarter............................................  14.75  10.25
        Fourth Quarter...........................................  15.31   9.00
      Fiscal Year Ending June 30, 2000
        First Quarter............................................  11.50   8.75
        Second Quarter...........................................  12.62   8.00
        Third Quarter............................................  26.75   9.62
        Fourth Quarter...........................................  27.00  15.34
</TABLE>

   As of June 30, 2000, our common stock was held by approximately 209
shareholders of record.

   We have never declared or paid any cash dividends on our common stock and we
do not plan on paying any in the near future. Any future determination as to
the declaration and payment of dividends will be at the discretion of our board
of directors and will depend on then existing conditions, including our
financial condition, results of operations, contractual restrictions, capital
requirements, business prospects and other factors our board of directors deem
relevant.

                                       15
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

   The following table sets forth selected statements of operations data for
the years ended June 30, 1996, 1997, 1998, 1999 and 2000. Also included in this
table are our balance sheet data as of June 30, 1996, 1997, 1998, 1999 and
2000. The financial data with respect to our statements of operations for the
years ended June 30, 1998, 1999 and 2000 and with respect to our balance sheets
as of June 30, 1999 and 2000 are derived from our financial statements that
appear elsewhere in this prospectus and that have been audited by our
independent auditors. For our fiscal years ended June 30, 1999 and prior fiscal
years, KPMG LLP served as our independent auditors. For the fiscal year ended
June 30, 2000 Arthur Andersen LLP served as our independent auditors. The
following statements of operations data for fiscal years ended June 30, 1996
and 1997 and balance sheet data as of June 30, 1996, 1997 and 1998 are derived
from our audited financial statements not included in this filing. You should
read the financial statement data in conjunction with the discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements and the related notes to those
audited financial statements included elsewhere in this filing.

<TABLE>
<CAPTION>
                                           Year Ended June 30,
                                ----------------------------------------------
                                 1996     1997      1998      1999      2000
                                -------  -------  --------  --------  --------
                                  (in thousands, except per share data)
<S>                             <C>      <C>      <C>       <C>       <C>
Statements of Operations Data:
Revenues......................  $    19  $    39  $    --   $    --   $    385
Operating expenses:
  Cost of sales...............       12       38       --        --        103
  Inventory write-off.........      --       --        --        --        400
  Research and development....    1,158    2,885     3,932     3,455     4,048
  Marketing and
   administrative.............      197      439       898     2,855     6,282
                                -------  -------  --------  --------  --------
    Total operating expenses..    1,367    3,362     4,830     6,310    10,833
                                -------  -------  --------  --------  --------
Loss from operations..........   (1,348)  (3,323)   (4,830)   (6,310)  (10,448)
Interest income, net..........       90      529       340       533       656
Income tax expense............      --       --        --        --        (13)
                                -------  -------  --------  --------  --------
Net loss......................  $(1,258) $(2,794) $ (4,490) $ (5,777) $ (9,805)
                                =======  =======  ========  ========  ========
Net loss per common share-
 basic and diluted............  $ (0.26) $ (0.32) $  (0.51) $  (0.57) $  (0.89)
                                =======  =======  ========  ========  ========
Weighted average common shares
 outstanding..................    4,894    8,713     8,747    10,055    11,071
<CAPTION>
                                                 June 30,
                                ----------------------------------------------
                                 1996     1997      1998      1999      2000
                                -------  -------  --------  --------  --------
                                              (in thousands)
<S>                             <C>      <C>      <C>       <C>       <C>
Balance Sheet Data:
Cash and cash equivalents.....  $11,061  $ 8,532  $  3,484  $  7,314  $  4,736
Marketable securities.........      --       --        --        --      4,972
Working capital...............   11,004    8,103     3,073     7,956     9,229
Total assets..................   12,261    9,900     5,813    10,303    12,460
Total long-term liabilities...      --       --        --        --        --
Accumulated deficit...........   (2,736)  (5,530)  (10,020)  (15,797)  (25,602)
Total shareholders' equity....   12,182    9,420     5,122     9,717    11,083
</TABLE>

                                       16
<PAGE>

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

   The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and our financial statements and the related notes
included elsewhere in this filing.

Overview of Our Business

   Bone Care is a pharmaceutical company engaged in discovering, developing and
commercializing improved vitamin D-hormone therapies to treat secondary
hyperparathyroidism in patients with kidney, or renal disease, and
osteoporosis, and other diseases including psoriasis and cancers of the
prostate, breast and colon. We were founded 16 years ago as a subsidiary of
Lunar Corporation, located in Madison, Wisconsin, and were spun-off from Lunar
in 1996.

   We licensed our first product, Hectorol, in 1987 from the University of
Wisconsin, a leading vitamin D research center. Hectorol, also known as
doxercalciferol, is a vitamin D replacement therapy approved by the FDA in two
formulations to treat secondary hyperparathyroidism in patients with end-stage
renal disease or ESRD. Hectorol is a safe and effective therapy for reducing
elevated levels of parathyroid hormone (PTH) in blood in the management of
secondary hyperparathyroidism, a disease characterized by excessive secretion
of PTH. Long-term hyperparathyroidism if left untreated can result in muscle
weakness, bone loss and fractures. Virtually all ESRD patients suffer from
secondary hyperparathyroidism. In June 1999, we obtained FDA approval for
Hectorol Capsules, and in October 1999, we began selling this orally
administered product in the United States. In April 2000, we obtained FDA
approval for Hectorol Injection, and in late August 2000, we began selling this
intravenous product in the United States. We recently completed two Phase III
trials for Hectorol Capsules to treat secondary hyperparathyroidism in pre-
dialysis patients, and we plan to file with the FDA a supplemental New Drug
Application for this indication by March 2001. In addition, we also are
developing Hectorol and new vitamin D therapies to treat these and several
other diseases.

   Since our inception in 1984, we have generated minimal revenue from
operations and substantially all of our resources have been dedicated to:

  . the development, patenting, pre-clinical testing, and clinical trials of
    Hectorol Capsules and Hectorol Injection;

  . the development of manufacturing processes for Hectorol Capsules and
    Hectorol Injection;

  . pursuing United States regulatory approvals of Hectorol Capsules and
    Hectorol Injection;

  . the sales and marketing associated with the launch of Hectorol Capsules
    and Hectorol Injection; and

  . research and development and pre-clinical testing of other potential
    product candidates.

   We have lost money since inception and, as of June 30, 2000, have an
accumulated deficit of approximately $25.6 million. Our only sources of revenue
have been:

  . revenues from the launch of Hectorol Capsules.

  . licensing fees associated with our early stage research collaborations,
    which licenses have since expired; and

  . fees from conducting incidental laboratory assay services.

   We estimate that commercialization, regulatory compliance, and sales efforts
associated with Hectorol Capsules and Hectorol Injection could require in
excess of $10 million prior to achieving profitable operating levels. Further,
development of LR-103, BCI-202 and other product candidates, or expansion of
Hectorol into other therapeutic areas, will require significant, time-consuming
and costly research and development, pre-clinical testing and extensive
clinical trials prior to submission of any regulatory application for
commercial use. We plan to continue pre-clinical testing of LR-103 and BCI-202
in order to begin Phase I clinical trials on both product candidates within
three years. The pre-clinical efforts could cost approximately $3 million. In

                                       17
<PAGE>

addition, we plan to conduct Phase II, and possibly begin Phase III, clinical
trials to expand the approved indications for Hectorol. The cost of these
trials could exceed $10 million through June 2002. We expect to incur
substantial losses at least through 2001 until revenues from the sale of
Hectorol products are sufficient to offset those expenses. The amount and
timing of our operating expenses will depend on many factors, including:

  . the extent to which Hectorol Capsules and Hectorol Injection obtain
    market acceptance;

  . the costs of sales and marketing activities associated with Hectorol
    Capsules and Hectorol Injection;

  . the status of our research and development activities;

  . the costs involved in preparing, filing, prosecuting, maintaining,
    protecting, and enforcing our patent claims and other proprietary rights;

  . our ability to maintain our current manufacturing capabilities through
    relationships with third parties or establish those capabilities
    internally;

  . technological and other changes in the competitive landscape; and

  . evaluation of the commercial viability or potential of product
    candidates.

   As a result, we believe that period-to-period comparisons of our financial
results are not necessarily meaningful.

Results of Operations for Fiscal Years Ended June 30, 2000 compared to June 30,
1999

   Revenues consisted of three elements in the fiscal year ended June 30, 2000.

  . $234,741 of revenue for sales of Hectorol Capsules;

  . $125,000 of revenue related to a letter of intent to license Hectorol to
    a foreign pharmaceutical company which was subsequently cancelled; and

  . $24,996 of other revenue, including fees from incidental laboratory assay
    services.

   We had no revenue in the fiscal year ended June 30, 1999. We began selling
Hectorol Capsules in the United States in October 1999. Revenues from shipments
of Hectorol Capsules and the related costs are deferred at the time of shipment
to wholesalers and are recognized at the time the product is sold by these
wholesalers to retail users of the product. Revenues of $234,741 were
recognized in fiscal year 2000 and related cost of sales were $102,834. This
resulted in gross margin of $131,907. For the year ended June 30, 2000, the
total sales value of Hectorol Capsules shipped, net of $409,655 of returned
product, was $348,282, having a net cost of $152,836. This resulted in deferred
income of $63,539 representing the gross margin of our product not yet sold to
end users. We continue to evaluate data related to sales exchanges, wholesaler
inventories and retail sales. We believe we will have enough data to reasonably
estimate future returns when retail customers have purchased from wholesalers a
high percentage of our initial shipments or when the product approaches its
expiration date. We intend to recognize future revenues and related costs upon
shipment of Hectorol Capsules once a reasonable estimate of future returns can
be calculated.

   In the fourth quarter of fiscal year 2000, we wrote-off $400,000 of excess
inventory representing amounts which we estimate will not be sold prior to
expiration.

   In June 1999, we entered into a letter of intent with a pharmaceutical
company establishing terms under which exclusive rights to Hectorol would be
licensed to the potential foreign partner in one foreign country. In June 1999,
we received a payment of $125,000 upon signing a letter of intent. The payment
was recognized as revenue in December 1999 when negotiations terminated.

   Our research and development expenses were $4,048,608 in fiscal year 2000
and $3,455,401 in fiscal year 1999. These expenses increased in fiscal year
2000 due to increased early-stage research and increased regulatory and filing
compliance efforts associated with the manufacture and sale of Hectorol
Capsules and Hectorol Injection.

                                       18
<PAGE>

   Marketing and administrative expenses were $6,281,614 in fiscal year 2000
and $2,854,785 in fiscal year 1999 an increase of $3,426,829. Marketing
expenses increased $2,765,760, from $1,715,837 in fiscal year 1999 to
$4,481,597 in fiscal year 2000. The increase resulted from the following:

  . approximately $1.1 million due to increased sales and marketing personnel
    costs;

  . approximately $800,000 due to increased promotional activities; and

  . approximately $900,000 due to resources relating to sales and marketing
    activities. The department has grown from 3 to 42 employees.

   These expenses increased as we began marketing activities relating to the
launch of Hectorol Capsules and preparations to launch Hectorol Injection,
which we began selling in late August 2000.

   Our growth has also resulted in the increase of administrative expenses.
Administrative expenses increased $661,069, from $1,138,948 in fiscal year 1999
to $1,800,017 in fiscal year 2000. The increase was the result of our overall
growth and our use of third-party consultants.

   Interest income increased to $655,574 in fiscal year 2000 from $533,571 in
fiscal year 1999. In October 1999, our cash balance increased approximately
$11.0 million as a result of receiving the net proceeds of a common stock
offering. The increase in interest income was due to the resulting higher level
of average cash balances.

Results of Operations for Fiscal Years Ended June 30, 1999 compared to June 30,
1998

   We did not sell products or services in fiscal years ended June 30, 1999 or
1998.

   Our research and development expenses were $3,455,401 in fiscal year 1999
and $3,932,008 in fiscal year 1998. These expenses decreased because during
fiscal 1998, we completed research activities related to producing commercial
quantities of Hectorol Capsules. Some of the decrease in the expenses was
offset by increased regulatory filing and compliance costs during fiscal year
1999.

   Marketing and administrative expenses were $2,854,785 in fiscal year 1999
and $898,274 in fiscal year 1998. Expenses increased because we began pre-
marketing activities relating to the launch of Hectorol Capsules.

   Interest income increased to $533,571 in fiscal year 1999 from $340,349 in
fiscal year 1998. In July 1998, our cash balance increased approximately $10.3
million as a result of receiving the net proceeds of a common stock offering.
The increase in interest income was due to the resulting higher level of
average cash balances.

Liquidity and Capital Resources

   In October 1999, we completed a directed public offering of 1,229,058 shares
of newly issued common stock at a price of $9.02 per share. We received net
proceeds of approximately $11.0 million from the sale. In July 1998, we
completed a directed public offering of 1,326,000 shares of common stock at a
price of $8.00 per share. We received net proceeds of approximately $10.3
million from the sale.

   Net cash used in operating activities was $7,995,937 in fiscal year 2000,
$6,403,670 in fiscal year 1999, and $4,255,461 in fiscal year 1998. The cash
used by operating activities was used primarily to fund research and
development as well as marketing and commercialization efforts for Hectorol
Capsules and Hectorol Injection.

   We have experienced negative cash flows from operations since our inception
and do not anticipate generating sufficient positive cash flows to fund our
operations until we achieve, if ever, significant revenues

                                       19
<PAGE>

from the sale of Hectorol Capsules and Hectorol Injection. We have expended,
and expect to continue to expend in the future, substantial funds for our:

  . research and development programs;

  . pre-clinical and clinical testing;

  . regulatory processes, including completion of FDA post-approval Phase IV
    commitments for Hectorol Capsules and Hectorol Injection;

  . manufacturing expenses;

  . sales and marketing programs; and

  . other operating expenses.

   Cash, cash equivalents and short-term marketable securities were $9,707,955
at June 30, 2000 and $7,313,551 at June 30, 1999. Cash and cash equivalents are
currently invested primarily in short-term investment grade United States
government, municipal and corporate debt securities.

   On November 17, 2000, we entered into a line of credit agreement with
Firstar Bank, Madison, Wisconsin. Under the terms of the agreement, we may
borrow up to $6,000,000. Amounts outstanding under this facility will bear
interest at prime (9.50% at June 30, 2000). In addition, we will pay a
commitment fee of $500 per month. The line of credit matures in December 2002.
Borrowings under this facility have been personally guaranteed by Richard B.
Mazess, our Chairman and the owner of 27.2% of our common stock prior to the
offering.

   Based upon our current plans, we believe that with the net proceeds of this
offering, we will have sufficient funds to meet our operating expenses and
capital requirements for at least the next two years. Thereafter, we may need
to raise additional capital to fund our operations, however, we do not have any
specific plans to raise additional capital. If we seek additional funds, equity
offerings or other sources would be considered. There is no assurance that such
additional funds will be available on acceptable terms, if at all. Should our
plans not be consummated, we may have to seek alternative sources of capital,
effect borrowings under our line of credit described above, or re-evaluate our
operating plans.

   At June 30, 2000, we had state tax net operating loss carryforwards of
approximately $24,742,000 and state research and development tax credit
carryforwards of approximately $222,000 which will begin expiring in 2009. We
also had federal net operating loss carryforwards of approximately $21,940,000
and research and development tax credit carryforwards of approximately
$957,000, which will begin expiring in 2012.

Recent Accounting Pronouncements

   In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
Revenue Recognition (SAB No. 101), to provide guidance on the recognition,
presentation and disclosure of revenue in financial statements. SAB No. 101
does not modify existing literature on revenue recognition. SAB No. 101
explains the staff's general framework for revenue recognition. We believe we
have conformed to the guidance of SAB No. 101 in recognizing revenue related to
the sales of Hectorol.

Impact of Year 2000

   We are not aware of any material problems resulting from Year 2000 issues,
either with our products, our internal systems, or the products and services of
third parties. We will continue to monitor our mission critical computer
applications and those of our suppliers and vendors throughout the year 2000 to
ensure that any latent Year 2000 matters that may arise are addressed promptly.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   Our sales from inception to date have been made to United States customers
and, as a result, we have not had any exposure to factors such as changes in
foreign currency exchange rates or weak economic conditions in

                                       20
<PAGE>

foreign markets. However, in future periods, we expect to sell in foreign
markets, including Europe and Asia. As our sales are made in United States
dollars, a strengthening of the United States dollar could make our products
less competitive in foreign markets. As of June 30, 2000, we did not hold any
short- or long-term investments other than short-term investment grade United
States government, municipal and corporate debt securities and, therefore, we
do not believe that short-term fluctuations in interest rates would materially
affect the value of our investments. Therefore, no quantitative tabular
disclosures are required.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         BONE CARE INTERNATIONAL, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Report of Independent Public Accountants.................................  22

Report of Independent Public Accountants.................................  23

Balance Sheets at June 30, 1999 and 2000.................................  24

Statements of Operations for the Years Ended June 30, 1998, 1999 and
 2000....................................................................  25

Statements of Shareholders' Equity for the Years Ended June 30, 1998,
 1999 and 2000...........................................................  26

Statements of Cash Flows for the Years Ended June 30, 1998, 1999 and
 2000....................................................................  27

Notes to the Financial Statements........................................  28
</TABLE>

                                       21
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors
Bone Care International, Inc.:

   We have audited the accompanying balance sheet of Bone Care International,
Inc. (a Wisconsin corporation) as of June 30, 2000, and the related statements
of operations, shareholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit. The financial statements of Bone Care International, Inc. as of
June 30, 1999 and 1998, were audited by other auditors whose report dated
August 6, 1999, on those statements included an explanatory paragraph with
respect to the Company's ability to continue as a going concern.

   We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bone Care International,
Inc. as of June 30, 2000, and the results of its operations and its cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States.

ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin
August 4, 2000 (except with
respect to the matter
discussed in Note 10, as to
which the date is November 17,
2000)

                                       22
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors
Bone Care International, Inc.:

   We have audited the accompanying consolidated balance sheets of Bone Care
International, Inc. and subsidiary (Bone Care) as of June 30, 1999 and 1998,
and the related consolidated statements of operations, shareholders' equity,
and cash flows for each of the years in the two-year period ended June 30,
1999. These consolidated financial statements are the responsibility of Bone
Care's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

   We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

   In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bone Care
International, Inc. and subsidiary as of June 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
two-year period ended June 30, 1999, in conformity with generally accepted
accounting principles.

   The accompanying consolidated financial statements have been prepared
assuming that Bone Care will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, Bone Care has suffered recurring
losses from operations that 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 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

KPMG LLP

Chicago, Illinois
August 6, 1999

                                       23
<PAGE>

                         BONE CARE INTERNATIONAL, INC.

                                 BALANCE SHEETS

                             June 30, 1999 and 2000

<TABLE>
<CAPTION>
                          ASSETS                               1999         2000
                          ------                            -----------  -----------

<S>                                                         <C>          <C>
Current assets:
  Cash and cash equivalents...............................  $ 7,313,551  $ 4,735,780
  Marketable securities...................................          --     4,972,175
  Accounts receivable.....................................          --        29,481
  Inventories.............................................    1,119,262      639,271
  Other current assets....................................      110,017      229,438
                                                            -----------  -----------
      Total current assets................................    8,542,830   10,606,145
Property, plant, and equipment--at cost:
  Leasehold improvements..................................       97,319      115,532
  Furniture and fixtures..................................      101,144      102,482
  Machinery and other equipment...........................      579,008      920,699
                                                            -----------  -----------
                                                                777,471    1,138,713
  Less--Accumulated depreciation and amortization.........      467,879      692,525
                                                            -----------  -----------
                                                                309,592      446,188
Patent fees, net of accumulated amortization of $645,013
 at June 30, 1999 and $810,401 at June 30, 2000...........      862,645      958,980
Excess of cost over fair value of net assets acquired, net
 of accumulated amortization of $821,856 at June 30, 1999
 and $911,304 at June 30, 2000............................      538,061      448,613
Other noncurrent assets...................................       50,133          --
                                                            -----------  -----------
                                                            $10,303,261  $12,459,926
                                                            ===========  ===========

<CAPTION>
           LIABILITIES AND SHAREHOLDERS' EQUITY
           ------------------------------------

<S>                                                         <C>          <C>
Current liabilities:
  Accounts payable........................................  $   202,686  $   400,949
  Accrued liabilities--
    Accrued clinical study and research costs.............      171,988      213,718
    Compensation payable..................................       43,311      137,261
    Due to customers......................................          --       409,655
    Other.................................................       43,477      151,617
  Deferred income.........................................      125,000       63,539
                                                            -----------  -----------
      Total current liabilities...........................      586,462    1,376,739
Shareholders' equity:
  Preferred stock--authorized 2,000,000 shares of $.001
   par value; none issued.................................          --           --
  Common stock--authorized 28,000,000 shares of no par
   value: issued and outstanding 10,173,396 and 11,456,668
   at June 30, 1999 and 2000, respectively................   11,393,883   11,393,883
  Additional paid-in capital..............................   14,119,761   25,299,954
  Accumulated deficit.....................................  (15,796,845) (25,602,090)
  Accumulated other comprehensive income (loss)...........          --        (8,560)
                                                            -----------  -----------
      Total shareholders' equity..........................    9,716,799   11,083,187
                                                            -----------  -----------
                                                            $10,303,261  $12,459,926
                                                            ===========  ===========
</TABLE>
                 See accompanying notes to financial statements

                                       24
<PAGE>

                         BONE CARE INTERNATIONAL, INC.

                            STATEMENTS OF OPERATIONS

                    Years Ended June 30, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                          1998         1999          2000
                                       -----------  -----------  ------------
<S>                                    <C>          <C>          <C>
Revenues.............................. $       --   $       --   $    384,737
Operating expenses:
  Cost of sales.......................         --           --        102,834
  Inventory write-off.................         --           --        400,000
  Research and development............   3,932,008    3,455,401     4,048,608
  Marketing and administrative........     898,274    2,854,785     6,281,614
                                       -----------  -----------  ------------
                                         4,830,282    6,310,186    10,833,056
                                       -----------  -----------  ------------
    Loss from operations..............  (4,830,282)  (6,310,186)  (10,448,319)
Interest income.......................     340,349      533,571       655,574
                                       -----------  -----------  ------------
    Loss before income tax............         --           --     (9,792,745)
Income tax expense....................         --           --         12,500
                                       -----------  -----------  ------------
    Net loss.......................... $(4,489,933) $(5,776,615) $ (9,805,245)
                                       ===========  ===========  ============
Net loss per common share--basic and
 diluted.............................. $     (0.51) $     (0.57) $      (0.89)
                                       ===========  ===========  ============
</TABLE>

                See accompanying notes to financial statements.

                                       25
<PAGE>

                         BONE CARE INTERNATIONAL, INC.

                       STATEMENTS OF SHAREHOLDERS' EQUITY

                    Years Ended June 30, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                                                           Accumulated
                                                Additional                    Other
                         Number of    Common      paid-in   Accumulated   Comprehensive
                           shares      stock      capital     deficit     Income (Loss)     Total
                         ---------- ----------- ----------- ------------  -------------  -----------
<S>                      <C>        <C>         <C>         <C>           <C>            <C>
Balance at June 30,
 1997...................  8,722,382 $11,393,883 $ 3,555,925 $ (5,530,297) $        --    $ 9,419,511
  Issuance of shares
   under stock option
   plan.................     86,424         --      192,403          --            --        192,403
  Issuance of stock
   awards...............        150         --          --           --            --            --
  Net loss for the year
   ended June 30, 1998..        --          --          --    (4,489,933)          --     (4,489,933)
                         ---------- ----------- ----------- ------------  ------------   -----------
Balance at June 30,
 1998...................  8,808,956  11,393,883   3,748,328  (10,020,230)          --      5,121,981
  Issuance of shares
   under stock option
   plan.................     38,440         --      101,499          --            --        101,499
  Issuance of common
   stock................  1,326,000         --   10,269,934          --            --     10,269,934
  Net loss for the year
   ended June 30, 1999..        --          --          --    (5,776,615)          --     (5,776,615)
                         ---------- ----------- ----------- ------------  ------------   -----------
Balance at June 30,
 1999................... 10,173,396  11,393,883  14,119,761  (15,796,845)          --      9,716,799
  Net loss for the year
   ended June 30, 2000..        --          --          --    (9,805,245)          --     (9,805,245)
  Unrealized loss on
   marketable
   securities...........        --          --          --           --         (8,560)       (8,560)
                                                                                         -----------
  Total comprehensive
   (loss)...............        --          --          --           --            --     (9,813,805)
  Issuance of shares
   under stock option
   plan ................     54,114         --      204,583          --            --        204,583
  Issuance of stock
   awards...............        100         --          --           --            --            --
  Issuance of common
   stock................  1,229,058         --   10,975,610          --            --     10,975,610
                         ---------- ----------- ----------- ------------  ------------   -----------
Balance at June 30,
 2000................... 11,456,668 $11,393,883 $25,299,954 $(25,602,090) $     (8,560)  $11,083,187
                         ========== =========== =========== ============  ============   ===========
</TABLE>


                See accompanying notes to financial statements.

                                       26
<PAGE>

                         BONE CARE INTERNATIONAL, INC.

                            STATEMENTS OF CASH FLOWS

                    Years Ended June 30, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                            1998         1999         2000
                                         -----------  -----------  -----------
<S>                                      <C>          <C>          <C>
Cash flows from operating activities:
  Net loss.............................. $(4,489,933) $(5,776,615) $(9,805,245)
  Adjustments to reconcile net loss to
   net cash used in operating
   activities--
    Depreciation and amortization.......     309,781      402,263      637,809
    Inventory write-off.................         --           --       400,000
    Loss on disposal of fixed assets....      16,703          --           --
    Changes in assets and liabilities--
      Accounts receivable...............         --           --       (29,481)
      Inventories.......................    (176,935)    (889,762)      79,991
      Other current assets..............     (50,162)     (59,855)    (119,421)
      Other noncurrent assets...........     (75,265)      25,132       50,133
      Accounts payable..................     (81,860)     143,101      198,263
      Accrued liabilities...............     292,210     (372,934)     653,475
      Deferred income...................         --       125,000      (61,461)
                                         -----------  -----------  -----------
        Net cash used in operating
         activities.....................  (4,255,461)  (6,403,670)  (7,995,937)
                                         -----------  -----------  -----------
Cash flows from investing activities:
  Purchase of marketable securities,
   net..................................         --           --    (4,980,735)
  Purchase of property, plant and
   equipment............................    (332,174)    (157,329)    (361,242)
  Patent fees...........................    (354,538)    (278,827)    (420,050)
                                         -----------  -----------  -----------
        Net cash used in investing
         activities.....................    (686,712)    (436,156)  (5,762,027)
                                         -----------  -----------  -----------
Cash flows from financing activities:
  Proceeds (costs) from issuance of
   common stock, net....................    (297,570)  10,567,504   10,975,610
  Proceeds from exercise of stock
   options..............................     192,403      101,499      204,583
                                         -----------  -----------  -----------
        Net cash provided by (used in)
         financing activities...........    (105,167)  10,669,003   11,180,193
                                         -----------  -----------  -----------
        Net increase (decrease) in cash
         and cash equivalents...........  (5,047,340)   3,829,177   (2,577,771)
Cash and cash equivalents at beginning
 of year................................   8,531,714    3,484,374    7,313,551
                                         -----------  -----------  -----------
Cash and cash equivalents at end of
 year................................... $ 3,484,374  $ 7,313,551  $ 4,735,780
                                         ===========  ===========  ===========
</TABLE>


                 See accompanying notes to financial statements

                                       27
<PAGE>

                         BONE CARE INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS

                          June 30, 1998, 1999 and 2000

(1)Summary of Significant Accounting Policies

 Description of Business

   Bone Care International, Inc. (Bone Care) is engaged in discovering,
developing and commercializing improved D-hormone therapies. In June 1999, Bone
Care received approval from the U.S. Food and Drug Administration for an oral
formulation of Hectorol(R), and in May 2000, Bone Care received approval for
the intravenous formulation. Hectorol(R) is a synthetic D-hormone analog to
manage secondary hyperparathyroidism in kidney dialysis patients. Bone Care
also performs blood assays to determine the variety and level of D-hormone
metabolites in blood for both internal research and on behalf of third parties.

   The financial statements include the accounts of Bone Care and its wholly
owned subsidiary, Continental Assays Corporation through June 11, 1998, the
date of its dissolution.

 Liquidity

   Bone Care has incurred losses since its inception and expects to incur
substantial product launch and additional research and development costs prior
to reaching profitability. Based upon its current plans, Bone Care believes it
has sufficient funds and borrowing availability (see Note 10) to meet its
operating expenses and capital requirements through the second quarter of
fiscal year 2002. Thereafter, Bone Care will need to raise additional capital
to fund its operations. Bone Care intends to seek such additional funding from
equity offerings to existing shareholders or other third parties. There is no
assurance that such additional funds will be available on acceptable terms, if
at all. Should the plans contemplated by management not be consummated, Bone
Care may have to seek alternative sources of capital, effect borrowings under
its line of credit or reevaluate its operating plans.

 Revenue Recognition

   Bone Care began shipping Hectorol Capsules in October 1999. Because Hectorol
is Bone Care's first product, Bone Care does not have historical data to
estimate returns and exchanges in accordance with SFAS No. 48, "Revenue
Recognition When Right of Return Exists." Revenues from shipments of Hectorol
Capsules and the related costs are deferred at the time of shipment to
wholesalers and are included in the Statement of Operations at the time the
product is sold by these wholesalers to retail users of the product. For the
year ended June 30, 2000, the total sales value of Hectorol Capsules shipped,
net of $409,655 of returned product, was $348,282 having a net cost of
$152,836. Revenues of $234,741 were recognized for the year ended June 30, 2000
having a cost of $102,834 based on the amount of capsules wholesalers have sold
to retail users.


   Bone Care's June 30, 2000 balance sheet includes deferred income of $63,539
related to Hectorol Capsule sales not yet sold to retail users. Bone Care's
standard sales terms do not allow customers to return products for refunds;
however, products may be exchanged. As of June 30, 2000, Bone Care has accrued
$409,655 as amounts due to customers for returned products. Bone Care continues
to evaluate data related to sales exchanges, wholesaler inventories and retail
sales. Bone Care believes it will have enough data to reasonably estimate
future returns when retail customers have purchased from wholesalers a high
percentage of Bone Care's initial shipments or when the product approaches its
expiration date. Bone Care intends to recognize future revenues and related
costs upon shipment of Hectorol Capsules once a reasonable estimate of future
returns can be calculated.

   License fees received by Bone Care are recognized as income when the
associated licensing obligations are satisfied.

   Revenues from assay services are recognized as services are performed.

                                       28
<PAGE>

                         BONE CARE INTERNATIONAL, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

                          June 30, 1998, 1999 and 2000


 Cash, Cash Equivalents and Marketable Securities

   Highly liquid investments with remaining maturities of ninety days or less
at the time of purchase are considered to be cash equivalents. Other highly
liquid marketable securities with remaining maturities of one year or less at
the time of purchase are classified as marketable securities.

 Inventory

   Inventory is stated at the lower of cost or market; cost is determined by
the first-in, first-out method. Inventory consists of:

<TABLE>
<CAPTION>
                                                                  June 30,
                                                             -------------------
                                                                1999      2000
                                                             ---------- --------
      <S>                                                    <C>        <C>
      Raw materials......................................... $  404,354 $209,979
      Work-in-process.......................................    714,908   22,178
      Finished goods........................................        --   407,114
                                                             ---------- --------
                                                             $1,119,262 $639,271
                                                             ========== ========
</TABLE>

   Bone Care periodically reviews its inventory carrying levels. During fiscal
2000 Bone Care wrote-off $400,000 of excess inventory representing amounts
which Bone Care estimates will not be sold prior to expiration.

 Depreciation and Amortization

   Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives. A combination of straight-line and accelerated methods of
depreciation are used for financial statement and income tax reporting
purposes.

   The cost of property, plant, and equipment are depreciated over the
following estimated useful lives:

<TABLE>
<CAPTION>
      Asset classification                                 Estimated useful life
      --------------------                                 ---------------------
      <S>                                                  <C>
      Machinery, furniture, and fixtures..................       5-7 years
      Leasehold improvements..............................    2.9-31.5 years
</TABLE>

 Intangible Assets

   The excess of cost over fair value of net assets acquired is being amortized
on a straight-line basis over a 15-year period. Legal costs incurred to
register patents are amortized over a period of up to 10 years. Bone Care
continuously reviews intangibles to assess recoverability from expected future
operations using undiscounted cash flows. Impairment would be recognized in
operating results if a permanent diminution in value occurred. Impairment would
be measured using fair value.

 Research and Development Costs

   Materials, labor, and overhead expenses related to research and development
projects are charged to operations as incurred.

                                       29
<PAGE>

                         BONE CARE INTERNATIONAL, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

                          June 30, 1998, 1999 and 2000


 Stock-based Compensation

   Stock-based compensation related to employees and non-employee directors is
recognized using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and thus there is no compensation expense for options granted with exercise
prices equal to the fair value of Bone Care's common stock on the date of the
grant. Stock-based compensation related to non-employees is not material.

 Net Loss Per Share

   Net loss per share is based on a weighted average number of shares of common
stock of 8,746,677, 10,055,327 and 11,070,667, for the years ended June 30,
1998, 1999 and 2000, respectively. Options to purchase common stock have been
excluded from the calculation of diluted earnings per share as the impact of
these options on diluted earnings per share would be antidilutive. The excluded
options totaled 527,778, 548,638 and 690,054 for the years ended June 30, 1998,
1999 and 2000, respectively.

 Income Taxes

   Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

 Fair Value of Financial Instruments

   The fair value of financial instruments, which consisted of cash and cash
equivalents, marketable securities, receivables, accounts payable, and accrued
liabilities, approximated their carrying values at June 30, 1999 and 2000.

 Concentration of Suppliers Risk

   Bone Care purchases Hectorol's active pharmaceutical ingredient from one
supplier. In addition, Bone Care utilizes one supplier to formulate, and
another supplier to package, Hectorol. However, management believes that other
suppliers, formulators, and vendors are available and could provide these goods
and services to Bone Care on comparable terms. A change in suppliers, however,
could cause a delay in manufacturing and a possible loss of sales, which would
affect operating results adversely.

 Use of Estimates

   In preparing the financial statements, Bone Care's management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

                                       30
<PAGE>

                         BONE CARE INTERNATIONAL, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

                          June 30, 1998, 1999 and 2000


(2)Foreign License Agreement

   In June 1999, Bone Care entered into a letter of intent with a
pharmaceutical company which established terms under which exclusive rights to
Hectorol(R) would be licensed to the potential foreign partner in one foreign
country. In fiscal 1999 Bone Care received a payment of $125,000 upon signing a
letter of intent. The payment was recognized as revenue in December 1999 when
negotiations terminated.

(3)Shareholders' Equity

   In October 1999, Bone Care completed a directed public offering of 1,229,058
shares of common stock at a price of $9.02 per share. The price per share was
approximately 7.5% below the average trading price of the previous four weeks.
Proceeds of $10,975,610, net of offering costs, were received from the sale.

   In July 1998, Bone Care completed a directed public offering of 1,326,000
shares of common stock at a price of $8.00 per share. The price per share was
approximately 5% below the average trading price of the previous 30 days.
Proceeds of $10,269,934, net of offering costs, were received from the sale.
Certain directors of the Company purchased 276,000 of the shares sold.

   On October 10, 1997, a 2-for-1 stock split was declared in the form of a
stock dividend to shareholders of record on October 27, 1997. The dividend was
paid November 14, 1997. Accordingly, all common share and per share data in the
accompanying financial statements have been adjusted to give retroactive effect
to the stock split.

(4)Stock Options

   Bone Care has granted options to key employees and directors under two
separate programs.

   The 1989 option plan is intended to qualify as an incentive stock option
plan within the meaning of Section 422 of the Internal Revenue Code of 1986.
Stock options to purchase shares of Bone Care's common stock granted under this
plan may be exercised, with certain exceptions in the case of the optionee's
death or retirement, only during employment. Stock options granted are
exercisable, during the optionee's lifetime, only by the optionee. The stock
options are all fully vested and expire 10 years from the granting date. In
June 1990, the Board of Directors of Bone Care agreed not to issue any new
options under this plan, and except for a grant in March 1996 of replacement
stock options to purchase 78,970 shares in exchange for the forfeiture of an
equal amount of previously granted stock options, has not made any subsequent
grants under this plan.

   Under the second option program, titled the Bone Care International, Inc.
1996 Stock Option Plan, a total of 1,000,000 shares of common stock were made
available, of which 242,320 remain available for grant at June 30, 2000.
Options granted under this program vest over periods ranging from nine months
to five years. The options will expire 10 years from the granting date, or upon
termination of employment.

                                       31
<PAGE>

                         BONE CARE INTERNATIONAL, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

                          June 30, 1998, 1999 and 2000


   A summary of stock option activity and related information is presented
below:

<TABLE>
<CAPTION>
                                           Year ended June 30,
                            -----------------------------------------------------
                                  1998              1999              2000
                            ----------------- ----------------- -----------------
                                     Weighted          Weighted          Weighted
                                     average           average           average
                                     exercise          exercise          exercise
                            Options   price   Options   price   Options   price
                            -------  -------- -------  -------- -------  --------
   <S>                      <C>      <C>      <C>      <C>      <C>      <C>
   Outstanding--beginning
    of year................ 491,652   $2.49   527,778   $3.84   548,638   $ 4.71
   Granted................. 130,850    7.81    89,900    9.09   221,250    12.09
   Exercised............... (86,424)   2.19   (38,440)   2.64   (54,114)    3.78
   Terminated/canceled.....  (8,300)   3.57   (30,600)   5.18   (25,720)    7.68
                            -------   -----   -------   -----   -------   ------
   Outstanding--end of
    year................... 527,778   $3.84   548,638   $4.71   690,054   $ 7.04
                            -------   -----   -------   -----   -------   ------
   Exercisable at end of
    year................... 130,266   $2.35   202,550   $3.17   277,360   $ 3.80
                            =======   =====   =======   =====   =======   ======
   Weighted average fair
    value of options
    granted during year.... $  4.00           $  5.02           $  6.99
                            =======           =======           =======
</TABLE>

   The options outstanding at June 30, 2000 have been segregated into five
ranges for additional disclosure as follows:

<TABLE>
<CAPTION>
                           Options outstanding          Options exercisable
                  ------------------------------------- --------------------
                    Options                    Weighted             Weighted
     Range of     outstanding Weighted average average  Exercisable average
     exercise     at June 30,    remaining     exercise at June 30, exercise
      prices         2000     contractual life  price      2000      price
     --------     ----------- ---------------- -------- ----------- --------
   <S>            <C>         <C>              <C>      <C>         <C>
    $2.11-$5.75     305,454         5.8         $ 2.60    216,660    $ 2.50
    $7.50-$8.75     126,850         7.8           7.94     47,000      7.92
       $9.00        150,250         9.3           9.00        --        --
      $10.25         43,500         7.7          10.25     25,700     10.25
   $15.25-$23.56     64,000         9.8          19.67        --        --
</TABLE>

   Bone Care has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation,
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.

   Pro forma information regarding net loss and net loss per share is required
by SFAS No. 123, which also requires that the information be determined as if
Bone Care had accounted for its employee stock options granted subsequent to
June 30, 1995 under the fair market value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions:

<TABLE>
<CAPTION>
                                                    1998      1999      2000
                                                  --------- --------- ---------
      <S>                                         <C>       <C>       <C>
      Risk-free interest rate....................      5.9%      5.4%      6.1%
      Expected market price volatility factor....      0.55      0.51      0.53
      Weighted average expected life............. 4.6 years 6.0 years 6.0 years
</TABLE>

   No dividends are expected to be paid.

                                       32
<PAGE>

                         BONE CARE INTERNATIONAL, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

                          June 30, 1998, 1999 and 2000


   The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair market value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

   For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Bone Care's
pro forma information follows:

<TABLE>
<CAPTION>
                                          1998         1999          2000
                                       -----------  -----------  ------------
      <S>                              <C>          <C>          <C>
      Net loss:
        As reported................... $(4,489,933) $(5,776,615) $ (9,805,245)
        Pro forma.....................  (4,672,909)  (6,062,349)  (10,276,600)
      Net loss per share--basic and
       diluted:
        As reported................... $     (0.51) $     (0.57) $      (0.89)
        Pro forma.....................       (0.53)       (0.60)        (0.93)
</TABLE>

(5)Shareholders' Rights Plan and Preferred Stock

   In 1996, Bone Care adopted a Shareholders' Rights Plan. Under this plan,
each share of common stock has associated with it one preferred share purchase
right (a Right). Under certain circumstances, each Right would entitle holders
to purchase from Bone Care 1/200th of one share of Series A Junior
Participating Preferred Stock for the price of $12.50 per 1/200th of a share.
The Rights do not have voting or dividend rights, and until they become
exercisable, have no dilutive effect on per-share earnings. The Rights are not
presently exercisable and are transferable only with the related shares of
common stock. The Board of Directors has designated 140,000 shares of the
Preferred Stock as Series A Junior Participating Preferred Stock in connection
with the Rights.

(6)Income Taxes

   As of June 30, 2000, Bone Care has federal and state net operating loss and
R & D tax credit carryforwards expiring as follows:

<TABLE>
<CAPTION>
                                             Federal               State
                                       -------------------- --------------------
                                                     R&D                  R&D
                                           NOL      credit      NOL      credit
                                       ----------- -------- ----------- --------
      <S>                              <C>         <C>      <C>         <C>
      2009............................ $       --  $    --  $   388,000 $ 24,000
      2010............................         --       --      596,000   24,000
      2011............................         --       --    1,146,000   18,000
      2012............................     322,000      --    3,061,000   24,000
      2013............................   2,726,000  219,000   4,682,000   34,000
      2014............................   4,376,000  275,000   5,667,000   42,000
      2015............................         --       --    9,202,000   56,000
      2019............................   5,518,000  190,000         --       --
      2020............................   8,998,000  273,000         --       --
                                       ----------- -------- ----------- --------
          Total....................... $21,940,000 $957,000 $24,742,000 $222,000
                                       =========== ======== =========== ========
</TABLE>

                                       33
<PAGE>

                         BONE CARE INTERNATIONAL, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

                          June 30, 1998, 1999 and 2000


   Significant components of Bone Care's deferred tax assets at June 30, 1999
and 2000 are as follows:

<TABLE>
<CAPTION>
                                                         1999          2000
                                                      -----------  ------------
      <S>                                             <C>          <C>
      Deferred tax assets:
        Inventory reserves........................... $    23,000  $    225,000
        Deferred income..............................      57,000        58,000
        Accrued liabilities..........................      11,000        41,000
        Other........................................      15,000        33,000
        Federal net operating loss carryforward......   4,418,000     7,459,000
        Federal R&D tax credit carryforward..........     677,000       957,000
        State net operating loss carryforward........   1,231,000     1,955,000
        State R&D tax credit carryforward............     177,000       222,000
        Valuation allowance..........................  (6,335,000)  (10,634,000)
                                                      -----------  ------------
      Net deferred tax assets........................     254,000       315,000
      Deferred tax liabilities:
        Patents......................................    (254,000)     (316,000)
                                                      -----------  ------------
      Total deferred taxes........................... $       --   $        --
                                                      ===========  ============
</TABLE>

   The net change in the valuation allowance for the years ended June 30, 1999
and 2000 was an increase of $2,832,000 and $4,299,000, respectively.
Realization of deferred tax assets is dependent upon generating sufficient
taxable income prior to the expiration of the related carryforward period.
Management believes it is more likely than not that such deferred tax assets
may expire unused and, accordingly, has established a valuation against them.

   Income tax expense of $12,500 for the year ended June 30, 2000 consists of
foreign taxes.

(7)Lease Commitments

   Bone Care has an operating lease for its office and laboratory facilities.
The lease commenced in January 1998 and expires in January 2001. Total lease
expense was $110,000 for each of the years ended June 30, 1998, 1999 and 2000.
Bone Care has entered into a new operating lease for office and laboratory
facilities which will commence in December 2000 and terminate in December 2005.
Lease payments under these leases include utilities, operating costs, and
property taxes. The new lease agreement provides for lease payments which
aggregate $52,686 per month. Minimum future payments under these leases as of
June 30, 2000, are as follows:

<TABLE>
             <S>                            <C>
             2001.......................... $  414,635
             2002..........................    642,374
             2003..........................    660,039
             2004..........................    678,190
             2005..........................    696,841
             thereafter....................    293,625
                                            ----------
                 Total..................... $3,385,704
                                            ==========
</TABLE>

(8)Profit-sharing Plan

   Bone Care has established a 401(k) profit sharing plan covering
substantially all employees. Employer contributions to the plan are at the
discretion of the Board of Directors. Bone Care's policy is to fund profit

                                       34
<PAGE>

sharing plan contributions as they accrue. Profit sharing expenses amounted to
$9,031, $19,648 and $22,710 for the years ended June 30, 1998, 1999 and 2000,
respectively.

(9)Quarterly Financial Data (Unaudited)

   Summary quarterly financial data for the years ended June 30, 1999 and 2000
are summarized as follows:

<TABLE>
<CAPTION>
                                            First   Second    Third   Fourth
                                           quarter  quarter  quarter  quarter
                                           -------  -------  -------  -------
                                            (In thousands except for per
                                                     share data)
      <S>                                  <C>      <C>      <C>      <C>
      2000:
        Revenue........................... $   --   $   206  $    59  $   120
        Loss from operations..............  (2,072)  (2,681)  (2,575)  (3,120)
        Net loss..........................  (1,983)  (2,491)  (2,375)  (2,956)
        Net loss per share--basic and
         diluted..........................   (0.19)   (0.22)   (0.21)   (0.26)
      1999:
        Revenue........................... $   --   $   --   $   --   $   --
        Loss from operations..............  (1,607)  (1,569)  (1,825)  (1,309)
        Net loss..........................  (1,421)  (1,441)  (1,702)  (1,213)
        Net loss per share--basic and
         diluted..........................   (0.15)   (0.14)   (0.17)   (0.12)
</TABLE>

(10) Subsequent Event

   On November 17, 2000, Bone Care entered into a line of credit agreement
with a bank. Under the terms of the agreement, Bone Care may borrow up to
$6,000,000. Amounts outstanding under this facility will bear interest at
prime (9.50% at June 30, 2000). In addition, Bone Care will pay a commitment
fee of $500 per month. The line of credit matures in December 2002. Borrowings
under this facility have been personally guaranteed by the Chairman, a
significant shareholder of Bone Care.

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

   On January 27, 2000, we dismissed KPMG LLP ("KPMG") as our independent
accountant. The decision to dismiss KPMG was approved by our board of
directors and was not separately voted on by the audit committee of our board
of directors. KPMG's reports on our financial statements for the years ended
June 30, 1999 and 1998 did not contain an adverse opinion or a disclaimer of
opinion, and were not qualified or modified as to audit scope or accounting
principles; provided, however, that KPMG's report on our financial statements
for the year ended June 30, 1999 contained an explanatory paragraph relating
to our ability to continue as a going concern. In connection with the audits
of our financial statements for the years ended June 30, 1999 and 1998, we had
no disagreements with KPMG on matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of KPMG, would have caused
them to make reference to such disagreements in their report on our financial
statements for such years. During the period from July 1, 1999 through January
27, 2000, we had discussions with KPMG related to the appropriate reserve for
sales of Hectorol. At the time of dismissal of KPMG, we had not resolved with
KPMG the appropriate reserve amount for our financial statements. We have
authorized KPMG to respond fully to the inquiries of the independent
accountant we engaged to succeed KPMG. During the years ended June 30, 1999
and 1998 and the period from July 1, 1999 through January 27, 2000, there have
been no reportable events (as defined in Regulation S-K item 304(a)(i)(v)).
KPMG furnished us with a letter addressed to the SEC which was filed as an
exhibit to our Form 8-K/A filed with the SEC on February 11, 2000 in which
KPMG stated that during the period July 1, 1999 to January 26, 2000, in
connection with KPMG's review of our second quarter financial statements, KPMG
had a disagreement with our management regarding the company's method of
recognizing revenue and the amount of revenue recorded. KPMG also stated that
they read the statements included in our Form 8-K filed with the SEC with
respect to

                                      35
<PAGE>

this matter and that KPMG agreed with those statements, except that (i) KPMG
did not agree with the statement that on January 27, 2000 we dismissed KPMG as
our independent public accountant and that KPMG was notified of its dismissal
on January 26, 2000 and (ii) KPMG was not in a position to agree or disagree
with our statement that the decision to dismiss KPMG was approved by our board
of directors and was not separately voted on by the audit committee of our
board of directors.

   On February 14, 2000, we engaged Arthur Andersen LLP ("Arthur Andersen") as
our independent accountants. The decision to engage Arthur Andersen LLP was
made on the recommendation of the audit committee of our board of directors.
During the two most recent fiscal years and interim periods subsequent to June
30, 1999 and prior to engaging Arthur Andersen, neither we nor anyone on our
behalf consulted Arthur Andersen regarding the application of accounting
principles to a specified transaction, either completed or proposed, or the
type of audit opinion that might be rendered on our financial statements or,
except as described below, any matter that was either the subject of a
disagreement (as defined in Regulation S-K item 304(a)(i)(iv)) or a reportable
event (as defined in Regulation S-K item 304(a)(i)(v)). Prior to January 27,
2000 when we dismissed KPMG as our independent accountants, we did not consult
Arthur Andersen regarding any matter which was the subject of a disagreement
between us and KPMG. On February 11, 2000, we began to consult Arthur Andersen
concerning the appropriate reserve amount for returns of Hectorol, and Arthur
Andersen assisted us in drafting a response filed February 15, 2000 with the
SEC concerning our reserve policy. We did not consult KPMG concerning these
matters following the dismissal of KPMG. We subsequently revised our revenue
recognition policy to defer revenues and the related costs at the time of
Hectorol shipments to wholesale distributors until the time the product is sold
by these wholesalers to retail users of the product. We filed amendments and
restated our Form 10-Q for the period ended December 31, 1999 on March 21, 2000
and April 5, 2000 to reflect this revision in our revenue recognition policy.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   Bone Care incorporates by reference the information required by this Item
from Bone Care's definitive Proxy Statement for its 2000 Shareholders Meeting
to be held on November 15, 2000, ("Proxy Statement") which will be filed with
the Securities and Exchange Commission not later than 120 days after the end of
our fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

   Bone Care incorporates by reference the information required by this Item
from the Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   Bone Care incorporates by reference the information required by this Item
from the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   Bone Care incorporates by reference the information required by this Item
from the Proxy Statement.

                                    PART IV

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

 (a) 1 and 2. Financial statements and financial statement schedule

   Reference is made to the separate index to Bone Care's financial statements
and schedule contained on page 20 hereof.

   3. Exhibits

   Reference is made to the separate exhibit index contained on page 37 hereof.

 (b) Reports on Form 8-K

   No reports on Form 8-K were filed by Bone Care during the fourth quarter
ended June 30, 2000.

                                       36
<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.

                                          BONE CARE INTERNATIONAL, INC.


                                               /s/ Charles W. Bishop, Ph.D.
                                          By __________________________________
                                                 Charles W. Bishop, Ph.D.
                                               President and Chief Executive
                                                          Officer

Date: November 20, 2000

   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.

<TABLE>
<CAPTION>
             Signature                           Title                   Date
             ---------                           -----                   ----



<S>                                  <C>                           <C>
  /s/ Charles W. Bishop, Ph.D.       President, Chief Executive      November 20,
____________________________________ Officer and Director                2000
      Charles W. Bishop, Ph.D.       (Principal Executive
                                     Officer)



  /s/ Richard B. Mazess, Ph.D.       Chairman and Director           November 20,
____________________________________                                     2000
      Richard B. Mazess, Ph.D.



      /s/ Robert A. Beckman          Director and Acting Vice        November 20,
____________________________________ President--Finance                  2000
         Robert A. Beckman           (Principal Financial and
                                     Accounting Officer)

     /s/ Martin Barkin, M.D.         Director                        November 20,
____________________________________                                     2000
        Martin Barkin, M.D.


 /s/ Charles R. Klimkowski, CFA      Director                        November 20,
____________________________________                                     2000
     Charles R. Klimkowski, CFA
</TABLE>

                                       37
<PAGE>

                         BONE CARE INTERNATIONAL, INC.
                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
     Exhibit
     Number                         Document Description
     -------                        --------------------
     <C>     <S>
     3.1(a)  Restated Articles of Incorporation of Registrant(1) (Exhibit 3.1,
             Amendment No. 3 to Form 10/A)

     3.1(b)  Articles of Amendment of Registrant(2) (Exhibit 3.1(b))

     3.2     By-Laws of Registrant(3) (Exhibit 3.2)

     4.1     Shareholders Rights Agreement between Bone Care and Norwest Bank
             Minnesota, N.A.(1) (Exhibit 4.1, Amendment No. 3 to Form 10/A)

     4.2     First Amendment to Shareholder Rights Agreement between Bone Care
             and Norwest Bank Minnesota, N.A.(1) (Exhibit 4.2, Amendment No. 4
             to Form 10/A)

     10.1*   Incentive Stock Option Plan(1) (Exhibit 10.4)

     10.2*   1996 Stock Option Plan(2) (Exhibit 10.5)

     10.3    Amended and Restated License Agreement effective as of June 8,
             1998, by and between Bone Care and Draxis Health, Inc.(4) (Exhibit
             10.6)

     10.4    Form of Stock Option Agreement(2) (Exhibit 10.7)

     10.5    Agreement, effective as of May 1, 1987, by and between the
             Wisconsin Alumni Research Foundation and Bone Care (confidential
             material appearing in this document has been omitted and filed
             separately with the Securities and Exchange Commission in
             accordance with the Securities Act of 1933, as amended, and 17
             C.F.R. 230.406 and 200.80 promulgated thereunder. Omitted
             information has been replaced with asterisks).(2) (Exhibit 10.8)

     10.6    Stand-Alone Revolving Note dated November 17, 2000 between Bone
             Care and Firstar Bank, N.A.

     23.1    Consent of KPMG LLP

     23.2    Consent of Arthur Andersen LLP

     27      Financial Data Schedule
</TABLE>
--------
(1) Incorporated by reference to exhibits filed with Registrant's Form 10
    Registration Statement (Registration Number 02-27854) filed under the
    Securities Exchange Act of 1934. Parenthetical references to exhibit
    numbers are to the exhibit numbers in the Form 10 or, if applicable, the
    amendment to the Form 10.
(2) Incorporated by reference to exhibits filed with the Registrant's Form S-1
    Registration Statement (Registration Number 333-43923) filed under the
    Securities Act of 1933. Parenthetical reference to exhibit numbers are to
    exhibit numbers in the Form S-1.
(3) Incorporated by reference to the exhibits filed with the Registrant's
    Quarterly Report on Form 10-Q for the quarter ended December 31, 1996 (File
    No. 0-27854). Parenthetical references to exhibit numbers are to the
    exhibit numbers in the Form 10-Q.
(4) Incorporated by reference to exhibits filed with the Registrant's Form S-
    1/A Registration Statement (Registration Number 333-43923) filed under the
    Securities Act of 1933. Parenthetical reference to exhibit numbers are to
    exhibit numbers in the Form S-1/A.
*  Indicates a management contract or compensatory plan or arrangement required
   to be filed as an exhibit to this Form 10-K.

                                       38