<PAGE>


               SECURITIES AND EXCHANGE COMMISSION
                   WASHINGTON, D.C.  20549

                        FORM 10-K

                      ANNUAL REPORT
             PURSUANT TO SECTION 13 or 15(d) OF
            THE SECURITIES EXCHANGE ACT OF 1934
(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, 1996    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   0-11232  
                        ---------

                           VEREX LABORATORIES, INC.                          
 ---------------------------------------------------------------------------
         (Exact name of Registrant as specified in its charter)

              
           Colorado                                        84-0850695        
 ----------------------------                          --------------------
 (State or other jurisdiction                           (I.R.S. Employer
 of incorporation or organization)                      Identification No.)


Bldg. D, Suite 100, 14 Inverness Dr. East, Englewood, CO            80112       
--------------------------------------------------------        -------------
(Address of principal executive offices)                          (Zip Code)

Registrant's telephone number, including area code:      (303) 799-4499         
                                                    ------------------------
Securities registered pursuant to Section 12(b) of the Act:

          Title of each class               Name of each exchange on
                                            which registered

                None                                 None             
         --------------------              -------------------------

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

                     Common Stock - No Par Value                           
----------------------------------------------------------------------------    
                         (Title of class)

     Indicate by check mark whether the Registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports) and (2) has been subject to such 
filing requirements for the past 90 days.     Yes  X      No      
                                            ----------  ---------
     The aggregate market value of the voting stock held by non-affiliates of 
the Registrant at September 20, 1996 was approximately $2,890,000.

     The number of shares outstanding of the Registrant's no par value common 
stock as of September 20, 1996, was 2,183,177 shares.
                                    1
<PAGE>

                                  PART I

ITEM 1.  BUSINESS
-----------------
Background
----------
     The Company was organized under the laws of the State of Colorado on 
September 29, 1980.  The Company is in the business of acquiring, developing 
and marketing pharmaceutical and health care products.  The Company obtains 
formulae and patents when available, selects trademarks, designs product 
packages and promotes and markets, through licensing agreements, 
pharmaceutical and health care products.  During fiscal 1996 the Company had 
two subsidiaries, Bear Laboratories, Inc., incorporated in April 1991 for the 
purpose of exploiting VERIN® a drug formulation developed by the Company, 
and Colorado Nut Company, a distributor of snack items, acquired during fiscal 
1992.  The Company sold Colorado Nut Company on June 28, 1996.

Going Concern Opinion
---------------------
     The Company's auditors have issued a report on August 13, 1996 stating, 
in effect, that there is substantial doubt as to the Company's ability to 
continue as a going concern.  See Financial Statements.

Birklea, Ltd.
------------
     On January 6, 1993, the Company entered into a Stock purchase Agreement 
("Agreement") with Birklea, Ltd., 28 Hardcourt Street, Dublin 2, Republic of 
Ireland whereby Company sold 660,000 shares of its restricted common stock to 
Birklea, Ltd. for $550,000.  The $550,000 was to be expended by the Company as 
agreed by Birklea, Ltd. and the Company's President.  The newly issued shares 
represented 37% of the Company's outstanding common stock after issuance 
thereof.  Subsequent purchases of common stock have increased Birklea, Ltd.'s 
holdings to 745,106 which represents approximately 40% of the outstanding 
shares of Common Stock of the Company.

     The Agreement provided that Birklea, Ltd. had the right to designate one 
director on management's slate of directors at the next annual meeting of 
shareholders.  Mark Banister of Westerham, Kent, England was designated by 
Birklea, Ltd. and at a meeting of shareholders on May 4, 1993, was elected a 
director.

     The Agreement also provided that Birklea, Ltd. has an option through 
September 1, 1994 to acquire for $2,400,000 such additional shares of common 
stock of the Company at a price per share to be determined as will permit 
Birklea, Ltd. to hold 60% of the issued and outstanding common stock of the 
Company.  This option has been extended to January 3, 1997 and may be extended 
beyond that date.  
                                   2
<PAGE>

Birklea, Ltd. had an additional option through September 1, 1995 to purchase 
common stock of the Company at $30.00 per share in such quantity as would 
permit in Birklea, Ltd. to acquire an additional 5% of the issued and 
outstanding common stock of the Company.  This option has expired.

Credit Arrangements - Birklea, Ltd.
-----------------------------------
     Effective November 30, 1993, the Company entered into a Credit Agreement 
with Birklea, Ltd., a major shareholder of the Company, whereby Birklea, Ltd. 
agreed to use its best efforts to provide up to $10,000,000 in financing to 
the Company.  Advances under the arrangement bear interest at prime rate set 
by Morgan Guaranty Bank, New York.  The convertible promissory note thereunder 
is secured by the Company's right, title and interest in patent applications, 
patents, tradenames, know-how and trade secrets relating to existing and 
future drug formulations relating to the drug commonly known as AZT.  At June 
30, 1996, the balance on this note was $1,667,000.  Principal is payable July 
15, 1996.  Principal and interest are due upon 120 days written notice or July 
15, 1997.  Interest is accruing at bank prime rate, 8.25% at June 30, 1996.

     The convertible promissory note grants Birklea, Ltd. the option to 
convert the balance due under such note to common stock of the Company on the 
same terms that Birklea, Ltd. may purchase common stock of the Company under 
the Stock Purchase Agreement of January 6, 1993 between the Company and 
Birklea, Ltd.  See above.

Licensing Activities
--------------------
     The Company has licensing agreements with several foreign-based 
pharmaceutical companies covering the Company's patented constant-release rate 
formulation of VEREXAMIL®, as well as its proprietary once daily delivery 
system for diltiazem, drugs used in the treatment of heart disease and 
hypertension.  These agreements provide the licensee the exclusive right to 
manufacture and market the formulations in a certain geographical area for a 
specified period of time subject to the licensee maintaining high quality of 
material and workmanship for the product and require an initial licensing fee 
payable to the Company and a royalty to the Company based on product sales or 
other arrangements.

     The Company has not licensed its technology relating to other  sustained 
release prescription drugs.  Licenses provide for the Company to obtain health 
registration for the products as well as manufacturing the finished dosage 
form.
                                   3
<PAGE>
     The following table summarizes licensing agreements in existence at June 
30, 1996:

Licensee and
Year of License               Territory               Drug
----------------              ---------               ----
Sanofi GmbH                    W. Germany          Verapamil
(Formerly Labaz GmbH)
(1985)

Laevosan                       Austria             Verapamil
(1987 & 1988)
Approved 8/93

Trimel Life Sciences           Canada              Verapamil
(Formerly Galen
 Pharma, Inc.)
(1988)                                        

Trima Pharmaceutical           Israel              Verapamil,
(1993)                                             Diltiazem

Trimel Life Sciences          Canada and           Nifedipine,
(Formerly Galen               United States        Naproxen,
 Pharma, Inc.)                                     Indomethacin
(1988)

Trimel Pharmaceutical          Israel              Verapamil,
(1992)                                             Diltiazem

Productos BiotyLDA             Portugal            Verapamil
(1988)

     Royalties on the foregoing licensing agreements range from 5% to 7.5% of 
invoice sales and there is no minimum sales requirements pursuant to the 
agreements.  The Company has not received any significant royalties to date.
  
     The Company intends to continue to pursue licensing arrangements with 
respect to marketing and/or developing its drug formulations and compounds.  
No such arrangements were entered into during fiscal 1996, primarily due to 
research and clinical trials on AZTEC®.

AZT Formulation
---------------
     The Company has developed a unique controlled release rate formulation of 
zidovudine (AZT), the primary drug used in the treatment of persons diagnosed 
as having Acquired Immunodeficiency Syndrome (AIDS) or being HIV positive.  
The trademark name AZTEC® has been registered with the United States 
Patent and Trademark Offices and a patent has been filed with authorities in 
the U.S. 
                               4
<PAGE>

and Europe.  The Company's formulation has been the subject of a 
clinical study at the University of Colorado Health Science Center which 
concluded that the AZTEC® formulation had fewer adverse side effects, 
produces longer duration blood level curves, and higher intercellular 
phosphorated AZT levels than the currently used AZT drug (Retrovir®).  
Further, AZTEC® is administered twice daily compared to 5-6 a day dosages 
of Retrovir®.  During the fiscal years ended June 30, 1995 and 1996 
clinical trials of AZTEC® were conducted at fifteen sites in the United 
States at a cost of approximately $885,000.  The Company has been dependent 
upon Birklea, Ltd. and Burroughs-Wellcome (now Glaxo-Wellcome) for funding for 
such trials.  The Company has engaged in extensive discussions with 
Glaxo-Wellcome with a view to interesting that Company in licensing 
AZTEC®, however these efforts have not been successful to date.

Nanospheres
-----------
     The Company has developed (patent pending) a drug delivery system that 
will enable oral administration of many drugs of macromolecule size, 
particularly proteins, polypeptides and polysaccharides, which have low or no 
bioavailability when given orally.  This technology involves the use of 
nanospheres which are loaded with active drug.  These nanospheres are 
biodegraded over several days in the body and the active drug is released 
slowly.  So far, Verex researchers have been successful in developing heparin 
nanospheres that, when given to animals as a single dose, produced therapeutic 
levels for seven days.  An article has been published on this process, and 
patents and trademarks have been filed.

     In early 1996, the Company was contacted by the Pediatric AIDS division 
of the National Cancer Institute, a part of the National Institutes of 
Health.  The Company was asked if it could formulate a pediatric long acting 
AZT preparation.  The Company obliged the NCI and made the formulation, which 
was subsequently tested in animal models and found to have activity at more 
than two weeks following a single dose.  Scientists from the NCI are currently 
preparing studies to administer this new formulation to their primate models.

Amantex®
-----------
     This is an antiviral compound, delivered in a controlled release 
formulation, for the treatment of recurrent herpetic lesions.  The Company has 
received a trademark for this product.

Veraderm®
------------
     Veraderm is a wound dressing, made from a proprietary formulation of 
polymers that, when applied superficially to an open wound, can enhance 
healing while diminishing the chances of 
                                   5
<PAGE>

infection.  Early testing has shown it to be particularly beneficial in the 
treatment of decubitus ulcers.  A trademark has been received.

Psorex®
-----------
     The Company has discovered a treatment for psoriasis which it believes is 
safe and effective with no side effects.  Psoriasis is a chronic inflammatory 
skin disease, characterized by skin scaling and ulcerations, which affects 
about 2% of the population.  The formulation is a tablet, Psorex®, which 
contains safe ingredients and which the Company hopes to market 
over-the-counter after independent studies are completed and in compliance 
with FDA labeling requirements.  The Company's preliminary studies indicate 
that about 85% of patients show marked improvement when taking one to three 
tablets daily at bed time.  The Company has received a trademark for 
Psorex®.

Government Regulation
---------------------
     Non-prescription drug products are regulated by various federal, state, 
municipal and foreign regulatory agencies with respect to safety, 
effectiveness, advertising and labeling.  The principal regulatory agency in 
the United States is the Food and Drug Administration ("FDA") which requires 
evidence of safety and efficacy of a drug formulation before it can be 
marketed.

     Non-prescription or over-the-counter ("OTC") drugs are generally 
recognized by the FDA as safe and effective if they meet certain conditions 
set forth in FDA regulations.  These regulations relate to such items as 
ingredient quantity and quality, manufacturing practices, side effects, 
labeling, container components, dosage instructions and warnings for misuse.  
Independent advisory panels of qualified experts are appointed under FDA 
regulations to review the safety and efficacy of certain OTC drugs.

     The Company has applied its constant release technologies to certain 
drugs that are prescription items, including verapamil, diltiazem, 
pseudoephedrine, erythromycin, quinidine, hydralazine, propranolol and 
indomethacin.  Approval of the FDA is required before the Company or its 
licensees may market any of the foregoing formulations in the U.S.  FDA 
regulations can substantially affect the cost and time involved in obtaining 
and maintaining approval to market new drugs and existing drugs with new 
delivery systems.  The FDA requires scientific evidence of safety and efficacy 
before new drugs can be marketed.

     The Company's licensing agreements with foreign manufacturers provided 
that the licenses of these respective drugs comply with applicable foreign 
regulations prior to marketing such drugs.
                                   6
<PAGE>
Patents and Trademarks
----------------------
     The Company has developed proprietary technologies which relate to the 
development of its drug formulations and business.  These technologies relate 
primarily to the constant release characteristics of such formulations.  The 
Company holds several patents and has filed other patent applications relating 
to these technologies.

     The Company has obtained several U.S. Trademarks, including one for its 
name and others for capsules and formulations which have been utilized in 
products and formulations relating to constant release rate delivery systems.

Competition and Markets
-----------------------
     The Company's drug formulations face severe competition from many 
companies which have far greater financial and technical resources as well as 
an established reputation.

     The Company has sought licensing arrangement for its formulations rather 
than engage in significant marketing efforts of its own.  Its limited retail 
marketing efforts have been undertaken primarily to enhance product licensing 
opportunities.

Colorado Nut Company, Inc.
--------------------------
     For nearly five years the Company owned Colorado Nut Company, Inc., a 
Colorado corporation.  This company distributed snack items to retail 
establishments in the Denver metro area prior to  the acquisition and 
continued such distribution and mail order snack sales thereafter.  For the 
year ended June 30, 1996 this wholly owned subsidiary had a net loss of 
$(42,394).  On June 28, 1996 the Company sold this subsidiary for $45,000 and 
carried back two notes for $35,000, one which is secured by common stock of 
Colorado Nut Company, Inc.

Employees
---------
     The Company has three full-time employees, one of whom is an officer and 
director.  Further, during 1996 four persons worked for the Company's former 
subsidiary, Colorado Nut Company, Inc.

ITEM 2.  PROPERTIES
-------------------
     The Company leases office and research facilities at 14 Inverness Drive 
East, Building D, Suite 100, Englewood, Colorado, consisting of 8,926 square 
feet of space at $6,213 per month pursuant to a two-year lease through March 
31, 1997.  The Company sublets a portion of the premises at $4,100 per month 
to an officer of the Company.  For its snack distribution business, the 
Company leased approximately 4,864 square feet for processing at 730 S. 
                                   7
<PAGE>


Jason Street, Denver, Colorado pursuant to a five-year lease at $1,611.75 per
month through July 31, 1998.

ITEM 3.  LEGAL PROCEEDINGS
--------------------------
     No legal proceedings are pending.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
     No matters were submitted to the Company's shareholders for a vote during 
the Company's fiscal fourth quarter.


















                                   8
<PAGE>

                           PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
         SECURITY HOLDER MATTERS

     The Company's common stock is traded over-the-counter and its quotations 
are carried in the Electronic Bulletin Board of the National Association of 
Securities Dealers, Inc.

     The following table sets forth the range of high and low bid quotations 
for the Company's common stock for the periods indicated from sources the 
Company deems reliable, however, no review of the daily Pink Sheets for the 
periods indicated has been undertaken by the Company.
<TABLE>
<CAPTION>
__________________________________________________________________

                                                 High           Low   
<S>                                            <C>             <C>
Fourth Qtr. (Ended June 30, 1996)               $ 7.25          $2.25
Third Qtr. (Ended March 31, 1996)               $ 4.00          $2.50
Second Qtr. (Ended December 31, 1995)           $11.00          $2.50
First Qtr. (Ended September 30, 1995)           $ 9.00          $6.50
Fourth Qtr. (Ended June 30, 1995)               $ 9.00          $4.00
Third Qtr. (Ended March 31, 1995)               $10.00          $6.00
Second Qtr. (Ended December 31, 1994)           $11.25          $5.25
First Qtr. (Ended September 30, 1994)           $ 5.25          $1.75
</TABLE>
-------------------------------------------------------------------------
     The foregoing quotations reflect inter-dealer prices without retail 
mark-up, mark-down or commissions and may not necessarily represent actual 
transactions.

     As of September 20, 1996, the Company had approximately 1,400 holders of 
record of its common stock and the closing bid price on its common stock was 
$2.50.

     The Company has not paid any dividends since its inception and presently 
anticipates that all earnings will be retained for development of the 
Company's business.





                                9


<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------
     Following is a summary of selected financial data.  See the financial 
statements included herein for more complete information.
<TABLE>
<CAPTION>
               6/30/96      6/30/95      6/30/94      6/30/93      6/30/92
             and for the  and for the  and for the   and for the  and for the
             Year Ended   Year Ended   Year Ended   Year Ended   Year Ended
               6/30/96      6/30/95      6/30/94      6/30/93      6/30/92   
            -----------   -----------  ----------   ----------   ------------
<S>       <C>           <C>           <C>           <C>        <C>
Working 
Capital    $(1,881,892)  $(2,037,850)  $(1,187,055)  $111,093       $4,606
Total 
Assets         657,936       716,558       824,122    957,123      352,839
Total 
Liabi-
lities       4,519,380     3,896,283     3,258,004  1,908,720    1,165,465
Long Term 
Debt         2,207,823     1,368,357     1,473,437  1,223,129    1,007,379
Share-
holders'
Equity      (3,861,444)   (3,179,725)   (2,433,882)  (951,597)    (812,626)
Revenues        32,242     1,561,099      827,038     902,974      458,127
Net Income 
(Loss)      (1,847,440)   (1,281,345)   (1,872,285)  (888,971)    (653,516)
Net Income
(Loss) Per 
Share             (.89)         (.65)         (.99)      (.60)       (.60)

</TABLE>







                                  10
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
         CONDITION AND RESULTS OF OPERATIONS
         ------------------------------------
Results of Operations
---------------------
     1996 Compared to 1995
     ---------------------
     Revenues were down $1,181,428 from 1995 during which the Company had 
licensing income of $1,200,000 from one source, Burroughs-Wellcome for 
clinical trials on AZTEC®.  See page 4 above.  Without this source of 
funds to pay for research and clinical trials the Company relied on capital 
infusions from the sale of its common stock to cover those and other operating 
expenses of the Company.  For those reasons the Company's net loss for the 
year was 44% higher than the net loss for 1995.  Included in the loss is a 
$42,394 loss from the Company's snack food subsidiary which was slightly lower 
than its loss for fiscal 1995.

     Costs and expenses for fiscal 1996 were 25% lower than last years 
primarily due to a $603,810 reduction in research and development costs.  This 
is largely as a result of the ATZ clinical trials expenses being higher in 
fiscal 1995 than in fiscal 1996 when the trials were completed.  Marketing 
expenses were up $25,146 or 161% as the Company was more involved in marketing 
efforts, including licensing arrangements, for its drug formulations.

     1995 Compared to 1994
     ---------------------
     Revenues were up 89% from fiscal 1994 primarily due to the revenues 
generated from the Wellcome Agreement on AZTEC®.  Sales at the Company's 
snack food subsidiary were down 56%.

     Costs and expenses increased for fiscal 1995 $146,121 due primarily to 
the costs experienced relating to the clinical trials on the Company's 
AZTEC® formulation.  See "BUSINESS - AZT Formulation."  These costs are 
included in research and development which expense is approximately $178,000 
higher for 1995.  This item contributes the most to the Company's operating 
loss for 1995.  AZTEC® generates no revenues for the Company since it is 
still in the clinical trial stage.  There is no assurance this formulation 
will become a revenue generating product.

     The Company's pharmaceutical segment accounts for 96% of the Company's 
$1,281,345 loss for 1995.  This percentage is comparative to the 1994 loss 
percentage for this segment on $1,872,285 in total losses.  Because of the 
relatively high costs of clinical trials and related activities for new 
prescription drug formulations such as for AZT and the lack of corresponding 
revenues pending action on regulatory application, it can be expected that 
significant losses for this segment will continue until there is corresponding 
revenue from these new potential products, of which there is no assurance.
                                 11
<PAGE>


     1994 as Compared to 1993
     ------------------------
     Revenues were down 8% from fiscal 1993 primarily due to lower sales at 
the Company's snack food subsidiary.  During the year this subsidiary moved 
its packaging and sales facility from Wheat Ridge to Denver, which in part may 
have affected sales.  The Company's contract and other income of $211,192 
increased substantially compared to 1993 when the Company only had $921 from 
these sources.

     Costs and expenses increased for fiscal 1994 $907,400 due primarily to 
the costs experienced relating to the clinical trials on the Company's 
AZTEC® formulation.  See "BUSINESS - AZT Formulation."  These costs are 
included in research and development which expense is nearly $1,000,000 higher 
for 1994.  This item contributes the most to the Company's operating loss for 
1994.  AZTEC® generates no revenues for the Company since it is still in 
the clinical trial stage.  There is no assurance this formulation will become a 
revenue generating product.

     The Company's pharmaceutical segment accounts for 96% of the Company's 
$1,872,285 loss for 1994.  This percentage is comparative to the 1993 loss 
percentage for this segment on $888,971 in total losses.  Because of the 
relatively high costs of clinical trials and related activities for new 
prescription drug formulations such as for AZT and the lack of corresponding 
revenues pending regulatory application and action if the clinical trials are 
positive, it can be expected that significant losses for this segment will 
continue until there is corresponding revenue from these new potential 
products, of which there is no assurance.

Liquidity and Capital Resources
-------------------------------
     At August 13, 1996 the Company's auditors express concern as to the 
ability of the Company to continue in light of losses and net capital 
deficiency.  See Financial Statements.

     At June 30, 1996 the Company had a working capital deficiency of 
$1,881,892 compared to negative working capital of $2,037,850 at
June 30, 1995.  The principal items contributing to the deficiency is the loss 
of $1,847,440 for fiscal 1996 and in excess of $1,600,00 in note payable and 
accrued interest to the Company's principal shareholder.

     The Company has no capital commitments other than salaries of the 
president and two other employees and the payment of rent on its facilities 
lease.  Such commitments are not satisfiable from current revenues.  Further, 
the Company has very limited cash resources to operate the Company at its 
current level of expense through December 31, 1996 without liquidity 
problems.  In the past the Company has been dependent for funding on Birklea, 
Ltd. which holds options to purchase common stock through January 3, 1997.  
During fiscal 1996 the Company it has been able to fund its 
                               12
<PAGE>

research, clinical trials and administrative costs from funds obtained from 
Burroughs-Wellcome (now Glaxo-Wellcome) and the sale of newly issued common 
stock to several private foreign purchasers.  There is no assurance that 
additional funding will be forthcoming.

     During the year ended June 30, 1996 the Company made sales of 175,639 
shares of common stock to foreign purchasers pursuant to Regulation S under 
the Securities Act of 1933 raising approximately $840,721 in total.  
Subsequent to fiscal year-end and additional 26,000 shares of common stock 
were sold for $65,000.  The Company may continue to raise capital to fund 
operations through this means in fiscal 1997.

Industry Trends
---------------
     There is substantial competition with respect to delayed release drug 
delivery products from major, highly recognized, manufacturers with large 
advertising budgets.  In addition, major drug manufacturers currently market 
recognized prescription formulations for verapamil, naproxen, indomethacin and 
AZT.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
     Attached hereto are financial statements responsive to this Item.

ITEM 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
-------------------------------------------------------------
     None.














                                 13
<PAGE>

                                PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS
------------------------------------------ 
     The By-laws of the Company provide that the affairs of the Company shall 
be managed by its Board of Directors consisting of at least three persons.  
There is a family relationship between the directors.  The following table 
sets forth information about each director of the Company.
<TABLE>
<CAPTION>
               
Name                          Age           Occupation
<S>                         <C>
James M. Dunn, M.D. (1)      59       President and a Director of the Company 
                                      (1980-Present); Treasurer of the Company
                                      (1981-Present); Chairman of the Board 
                                      of Directors and Chief Executive Officer 
                                      of the Company (1982-Present); Assistant 
                                      Professor, School of Medicine, Louisiana 
                                      State University (1979-1981); Vice-
                                      President-Medical Affairs, Boots 
                                      Pharmaceutical, Inc. (1979-1980); 
                                      Director of Clinical Pharmacology and 
                                      Research, Wallace Laboratories (1976-
                                      1979).

Jerry R. Dunn (1)            60       Director of the Company (1980-Present);
                                      Vice President of the Company (5/89-
                                      Present); Vice President of Business 
                                      Operations (1992-Present); Secretary of
                                      the Company (1981-5/89); Self-employed 
                                      Attorney (1965-Present); officer and 
                                      director of several closely-held 
                                      corporations and partner in various 
                                      partnerships involved in real estate and
                                      real estate related enterprises (1971-
                                      Present).

James B. Petre               43       Director of the Company January, 1993-
                                      Present).  Owner of Foremost Properties,
                                      Englewood, Colorado a real estate 
                                      development and brokerage firm (1989-
                                      present).  Vice President and a director 
                                      of Previews, Inc., Denver, Colorado, a 
                                      real estate brokerage firm (1984-1989).
                                      Mr. Petre is licensed as a real estate 
                                      broker with the Colorado Real Estate 
                                      Commission.

Mark Banister               33        Private Investor (1991-Present).  
                                      United States Equities Trader with 
                                      Morgan Stanley International, London, 
                                      England (1987-1991).  Senior Dealer, 
                                      United States Equities for County 
                                      Securities Ltd., London, England (1982-
                                      1986).
</TABLE>
------------------------------
(1)     Dr. James M. Dunn and Mr. Jerry R. Dunn are brothers and comprise all 
        of the executive officers of the Company.

     The Board of Directors does not have Audit, Compensation or Nominating 
Committees.  During the period from July 1, 1995 to June 30, 1996, the Board 
of Directors met 13 times, and all directors attended the meetings, either in 
person or by telephone.
                                  14
<PAGE>
ITEM 11.  EXECUTIVE COMPENSATION
-------------------------------- 
     The following tabular information includes all plan and non-plan 
compensation paid to the Company's President and to all other executive 
officers whose total annual salary and bonus is $100,000 or more.

Summary Compensation
--------------------
               Annual Compensation                  Long-Term Compensation   
              ---------------------                ------------------------
<TABLE>
<CAPTION>
                                                   Awards          Payouts   
                                  Other
Name                              Annual   Restricted                All Other
and                               Compen-   Stock              LTIP    Compen-
Principal     Salary     Bonus    sation   Award(s)   Options/ Payouts sation
Position Year  ($)        ($)      ($)       ($)      SARs(#)    ($)    ($)     
-------- ---- --------  --------  ------   --------   -------  ------- -------
<S>     <C>  <C>        <C>     <C>         <C>        <C>      <C>    <C>
James M. 1996 456,8901   -0-     54,6542     -0-        -0-      -0-    -0-
Dunn, 
M.D.     1995 403,9701   -0-     45,5302     -0-        -0-      -0-    -0-
(Pres-
ident    1994 360,0451   -0-     39,2682     -0-        -0-      -0-    -0-
and 
Chair-
man
of the 
Board
</TABLE>
_________________________

1  Dr. Dunn was actually paid $125,000, $125,000 and $125,000 as salary for 
the years ended June 30, 1996, 1995, and 1994, respectively.  The annual 
salaries set forth above are pursuant to Dr. Dunn's employment contract 
discussed below.  Certain amounts due to Dr. Dunn in excess of the amount paid 
in the respective periods have been deferred through January 1, 1997 pursuant 
to an agreement with Dr. Dunn.  At June 30, 1996, the total deferred salary and 
benefits payable was $2,207,823.

2  Dr. Dunn actually received $34,902 in fiscal 1996, $27,957 in fiscal 1995, 
and $25,774 in fiscal 1994 in other forms of compensation comprised of 
premiums paid on life insurance and automobile lease and maintenance expense.  
He earned $19,752, $17,573, and $13,494 in vacation allowance for fiscal 1996, 
1995 and 1994, respectively and $3,000, $3,000 and $14,000, respectively in 
product minimum royalties for fiscal 1996, 1995 and 1994, all of which he has 
agreed to defer along with accumulated amounts through January 1, 1998.  
Deferred accumulated royalty payments were $200,250 and $197,000, at June 30, 
1996 and 1995, respectively.  Accumulated vacation allowance is included in 
the deferred accumulated salary amount set forth in Note (1) above.
                                
                                15
<PAGE>
            AGGREGATED OPTION/SAR EXERCISES IN LAST
       FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
                                                                Value of
                                            Number of          Unexercised
                                           Unexercised        In-the-Average
                                           Options/SARs        Options/SARs
                                           at FY-End            at FY-End    
                                           -----------        -------------
              Shares Acquired    Value     Exercisable/        Exercisable/
Name           on Exercise      Realized  Unexercisable       Unexercisable
------        ---------------  --------- ---------------     ---------------
<S>              <C>           <C>             <C>               <C>
James M.          0             0               (1)               (3)
Dunn, M.D.

Jerry R. 
Dunn              0             0               (2)               (3)

</TABLE>
-------------------
     (1)  For such number of shares, to be determined, at $.80 per share, as 
will permit holder to acquire up to 25% of the outstanding common stock of the 
Company.

     (2)  For such number of shares, to be determined, at $.80 per share, as 
will permit holder to acquire up to 3% of the outstanding common stock of the 
Company.

     (3)  At fiscal year end, the average closing bid price of the Company's 
common stock was $2.50 per share as reported by the Electronic Bulletin 
Board.  Thus, the value of such options are $1.70 per share which is the 
difference between exercise price and market price and which assumes that such 
shares could be sold on exercise which is not possible.

Employment Contract - James M. Dunn, M.D.
-----------------------------------------
     On November 30, 1993, the Company entered into a new employment agreement 
with its President, James M. Dunn, M.D. whereby Dr. Dunn agreed to serve as 
President of the Company until he reaches the age of 65 (2003) and agreed to 
assign to the Company all his right, title and interest in his inventions, 
discoveries, innovations, concepts and know-how during the period of the 
Agreement.  Dr. Dunn is entitled to receive an annual salary of $338,000, 
subject to annual adjustments, a $3,000,000 life insurance policy, disability 
insurance equal to 80% of his gross income, and health insurance.  In 
addition, he is entitled to a 2% royalty on the first $5,000,000 in net sale 
price of any Verex patented product, a 1% royalty on net sales in excess of 
$5,000,000 and a 2% royalty on Verex licensed technology.
                            16
<PAGE>


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
----------------------------------------------------------
     AND MANAGEMENT
     --------------
     Based on certain reports filed with the Securities and Exchange 
Commission, the table on the following page reflects certain information as of 
September 20, 1996 as to beneficial holders of more than 5% of the outstanding 
shares of Common Stock of the Company and as to Common Stock beneficially 
owned by all executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
                        Amount and Nature            Percent of Shares
Name of                   of Beneficial               of Common Stock
Beneficial Owner          Ownership (1)                Outstanding   
<S>                   <C>                               <C>
James M. Dunn, M.D.         360,560                      16.5%

Jerry R. Dunn                50,650                       2.3%

Birklea Ltd.(2)(3)          745,106                      34.1%

James Petre                   -0-                           0%

Mark Banister(3)              -0-                           0%

Officers and 
Directors
as a Group 
(4 persons)            1,156,316(4)                      53.0%
</TABLE>
____________________

(1)This table is based on 2,183,177 shares outstanding and does not include 
presently exercisable options to purchase shares of the Company's Common Stock 
held by each of the foregoing.  See "Certain Relationships and Related 
Transactions" below for details.  Beneficial ownership by any person includes 
direct or indirect voting power and investment power with respect to such 
shares of common stock of the Company.

(2)The Company is informed that the owner of all the voting and investment 
power of Birklea, Ltd. is Peter Josse, c/o Birklea, Ltd., P.O. Box 303, St. 
Helier, Jersey, Channel Islands, U.K..

(3)Mr. Banister holds a power of authority to vote the shares held by Birklea, 
Ltd.

(4)Includes shares held by Birklea, Ltd.

                                 17
<PAGE>
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------- 
     The Company leases facilities at a monthly rate of $6,213 plus a pro rata 
share of maintenance costs.  A portion of the space is subleased to Jerry R. 
Dunn, an officer of the Company at $4,100 per month.  Management believes the 
terms of the foregoing facilities sharing are as fair to the Company as could 
be arranged with an independent party.

     Jerry R. Dunn, a non-salaried officer and director of the Company, from 
time to time provides legal services to the Company.  For the year ended June 
30, 1996 the Company paid a total of $22,780 in fees for legal services to 
Jerry R. Dunn.  Management believes the terms on which these services are 
performed and charged are as fair to the Company as could be obtained from an 
independent lawyer.















                                   18

<PAGE>

                              PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------------------
(a)   (1)  The following consolidated financial statements are included in 
           Part II, Item 8 of this Report:

          Report of Independent Certified Public Accountants

          Balance Sheets at June 30, 1996 and 1995

          For the years ended June 30, 1996, 1995 and 1994

          Statements of Operations
          Statements of Shareholders' Equity
          Statements of Cash Flows

       Notes to Financial Statements

    (2)  All schedules are omitted because they are not required, are 
         inapplicable, or the information is otherwise shown in the financial 
         statements or notes thereto.

    (3) The following Exhibits were included as Exhibits to the Form S-18, SEC 
        File No. 2-82403-D filed March 11, 1983 and are incorporated herein by 
        reference:

           3.1 - Restated Articles of Incorporation

           3.2 - Restated By-laws

     The following Exhibits were included as Exhibits to the Form 10-K, SEC 
     File No. 0-011232 filed September 30, 1988:

          10.13 - Licensing Agreement with Galen Pharma, Inc.
               (Trimel)

          10.14 - Licensing Agreement #2 with Galen Pharma, Inc.
               (Trimel)

     The following Exhibits were included as Exhibits to the Form 8-K, SEC 
     File No. o-11232, filed January 14, 1993:

          10.26 - Stock Purchase Agreement - Birklea, Ltd.
          10.27 - Stock Option - James M. Dunn, M.D.
          10.28 - Stock Option - Jerry R. Dunn
                           
                            19
<PAGE>


     The following Exhibits were included as Exhibits to the Form 10-K, SEC 
     File No. 0-11232, filed October 13, 1994.

          10.29 - Credit Agreement - Birklea, Ltd.
          10.30 - Convertible Promissory Note - Birklea, Ltd.
          10.31 - Security Agreement - Birklea, Ltd.
          10.32 - Employment Agreement - James M. Dunn, M.D.

The following Exhibit was included as an Exhibit to the Form 8-K, SEC File No. 
0-11232, filed December 13, 1994.

         10.33 - Option Agreement - Burroughs Wellcome Co.

The following Exhibit is attached hereto:

         10.21 - Letter of James M. Dunn, M.D. re deferral of
               certain compensation.

(b)No reports on Form 8-K were filed by the Company during the quarter ended 
June 30, 1996.















                                 20
<PAGE>    

             VEREX LABORATORIES,INC. AND SUBSIDIARIES

                  


                     Table of Contents
                     -----------------                                 
                                                                        Page
                                                                        ----
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . .F - 2

Financial Statements

    Consolidated Balance  Sheets - June 30, 1996 and 1995. . . . . . . .F - 3

    Consolidated Statements of Operations -
     For the Years Ended June 30, 1996, 1995 and 1994
     and Cumulative from September 29, 1980 (inception)
     to June 30, 1996 . . . . .  .  .  .  .  .  .  .  .  .  .  .  .  .  F - 4

    Consolidated Statements of Stockholders' Deficit -
     For the Years Ended June 30, 1996, 1995 and 1994
     and Cumulative from September 29, 1980 (inception) to
     June 30, 1996 . . . . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  F - 5

    Consolidated Statements of Cash Flows -
     For the Years Ended June 30, 1996, 1995 and 1994
     and Cumulative from September 29, 1980 (inception) 
     to June 30, 1996 . . . . . .  .  .  .  .  .  .  .  .  .  .  .  .   F - 6

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . .F - 7
                            
                                F-1
<PAGE>

                      INDEPENDENT AUDITORS' REPORT
                      
To the Board of Directors and Stockholders
Verex Laboratories, Inc. and Subsidiaries
Denver, Colorado

We have audited the accompanying consolidated balance sheets of Verex 
Laboratories, Inc. (a development stage enterprise) and Subsidiaries as of 
June 30, 1996 and 1995 and the related consolidated statements of operations, 
stockholders' deficit and cash flows for each of the three years in the period 
ended June 30, 1996 and the amounts for the years ended June 30, 1996, 1995 
and 1994 included in the cumulative period from inception (September 29, 1980) 
to June 30,1996.  These consolidated financial statements are the 
responsibility of the Company's management.  Our responsibility is to express 
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free of 
material misstatement.  An audit includes examining, on a test basis, evidence 
supporting the amounts and disclosures in the consolidated 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 Verex 
Laboratories, Inc. and Subsidiaries at June 30, 1996 and 1995, and the results 
of their operations and their cash flows for each of the three years in the 
period ended June 30, 1996, and the amounts for the years ended June 30, 1996, 
1995 and 1994 included in the cumulative period from inception (September 29, 
1980) to June 30, 1996 in conformity with generally accepted accounting 
principles.

The accompanying consolidated financial statements have been prepared assuming 
that Verex Laboratories and Subsidiary (the Company) will continue as a going 
concern.  As discussed in Note 1 to the consolidated financial statements, the 
Company has suffered recurring losses from operations and has a net capital 
deficiency that raise substantial doubt about the entity's 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 this uncertainty.




                                         Ehrhardt Keefe Steiner & Hottman PC

August 13, 1996
Denver, Colorado


                                 F-2
<PAGE>

              VEREX LABORATORIES, INC. AND SUBSIDIARIES
                  (a development stage enterprise)
          
                    Consolidated Balance Sheets




                                                      June 30,             
                                          ----------------------------------
                                               1996               1995         
                                             -------             ------

                              Assets

<TABLE>
<CAPTION>
Current assets
 <S>                                     <C>                 <C>
  Cash and cash equivalents                  $155,229            $140,766
  Receivables
      Trade - (net of allowance for 
      doubtful accounts of $2,000
      (1995))                                  10,146              17,465
  Note receivable - current (Note 2)           18,877                - 
  Inventory                                      -                 19,337
  Prepaid expenses                             16,376              15,959
  Patented drug products                      229,037             296,549
                                             ---------           ---------    
                                              429,665             490,076
                                             ---------           ---------
Property and equipment, at cost
  Furniture and equipment                     489,900             470,285
  Leasehold improvements                        1,317              11,358
  Automobiles                                    -                  2,932
                                             --------            ---------
                                              491,217             484,575
  Less accumulated depreciation and 
  amortization                               (440,242)           (430,066)
                                             ---------           ---------
  Property and equipment - net                 50,975              54,509
                                             ---------           ---------

Other assets
 Notes receivable - long-term (Note 2)         16,123                - 
  Goodwill - net of accumulated 
  amortization $26,188 (1995)                    -                 48,668
  Patents and trademarks, net of 
  accumulated amortization of
  $232,581 (1996) and $211,155 
  (1995) (Note 3)                             161,173             123,305
                                             ---------           ---------
                                              177,296             171,973
                                             ---------           ---------

Total                                        $657,936            $716,558
                                             ========            ========
                                    
 Liabilities and Stockholders' Deficit


Current liabilities
  Checks written in excess of 
  bank balance                               $59,543             $   - 
  Accounts payable and other accruals        225,744              157,876
  Accrued interest                           359,270              215,765
  Notes payable - stockholder (Note 3)     1,667,000            1,667,000
  Current portion of long-term debt 
  (Note 3)                                      -                  40,998
  Accrued salary and benefits payable - 
  current portion (Note 7)                      -                 446,287
                                          -----------           ----------
                                           2,311,557            2,527,926
                                          -----------           ----------
Long-term liabilities
  Accrued salary and benefits payable, 
  net of current portion (Note 7)          2,207,823            1,367,296
  Long-term debt, net of current       
  portion (Note 3)                              -                   1,061
                                          -----------           ----------
                                           2,207,823            1,368,357
                                          -----------           ----------
                               
Commitments and contingencies   
  (Notes 7 and 8)

Stockholders' deficit
  Common stock, no par value, 
100,000,000 shares authorized,
2,301,359 (1996) and 2,007,538 
(1995) shares issued and
outstanding                                2,285,331            1,942,923

  Additional paid-in capital               5,495,017            4,671,704

  Deficit accumulated during the 
  development stage                      (11,641,792)          (9,794,352)
                                         ------------          -----------
                                          (3,861,444)          (3,179,725)
                                         ------------          -----------

Total                                       $657,936             $716,558
                                         ============          ===========
</TABLE>

                    See notes to consolidated financial statements.

                             F-3
<PAGE>
       
           VEREX LABORATORIES, INC. AND SUBSIDIARIES
               (a development stage enterprise)


             Consolidated Statements of Operations
<TABLE>
<CAPTION>

                                                                  Cumulative
                                                                     from
                                                                 September 29,
                                                                     1980
                                                                (inception) to
                    For the Years Ended June 30,                    June 30,
            -------------------------------------------------  ---------------
                  1996             1995             1994            1996
              ------------     ------------     -------------    ------------ 
<S>        <C>              <C>               <C>           <C>
Revenues
 Net sales  $      -         $       -         $      -      $     233,523
 Licensing 
income             -             1,200,000            -          1,606,686
Contract 
income            27,658             -              150,000      1,527,668
Interest 
income             3,933            13,264            -            918,199
Gain on 
sale of 
investment         -                -                 -            334,881
Other                651               406           58,006        122,623
              -----------      -------------    -------------    -----------  
                  32,242         1,213,670          208,006      4,743,580
              -----------      -------------    -------------    ---------- 

Costs and 
expenses 
Cost of 
sales              -                 3,211            2,781        144,919
Write down 
of inventory       -                -                 -            306,250
General and 
administr-
ative            888,402           918,625          711,518      8,703,807
Research and 
development      749,740         1,353,550        1,175,875      5,730,440
Operating          5,048             5,245            5,317         20,880
Marketing         40,762            15,616           39,735        759,565
Interest         144,383           143,123           65,350        374,293
Loss on 
disposal 
of assets          -               -                  -             33,425
              -----------      ------------      ------------   ------------
               1,828,335         2,439,370        2,000,576     16,073,579
             ------------      ------------      ------------   ------------ 
                                                                   
                                                                   
                                                                   
Net loss 
from 
continuing 
operations    (1,796,093)       (1,225,700)      (1,792,570)   (11,329,999)
Discontinued 
operations 
(Note 6)
Loss from 
operations 
of discon-
tinued
subsidiary       (42,394)          (55,645)         (79,715)      (302,840)
Loss on 
disposal of 
subsidiary        (8,953)            -                 -            (8,953)
            -------------      -------------     ------------   -------------
Net loss     $(1,847,440)      $(1,281,345)     $(1,872,285)  $(11,641,792)
            =============      =============     ============   =============
Net loss 
per common 
share from 
continuing
operations 
(Note 4)     $      (.87)     $       (.63)    $       (.94)   $     (5.44)
             ============      =============    =============  =============
Net loss 
per common 
share from
discontinued 
operations 
(Note 4)     $      (.02)      $      (.02)    $      (.05)   $       (.15)
            ============       ============     ============   =============  
Net loss 
per common 
share 
(Note 4)     $      (.89)      $      (.65)    $      (.99)   $      (5.59)
            ============      ============     ============   =============
</TABLE>


              
                    See notes to consolidated financial statements.
                                   F-4
        
<PAGE>


             VEREX LABORATORIES, INC. AND SUBSIDIARIES
                (a development stage enterprise)


          Consolidated Statements of Stockholders' Deficit
   For the Period September 29, 1980 (inception) to June 30, 1996

<TABLE>
<CAPTION>


                                                                  Deficit
                                                                Accumulated
                                              Additional         During the 
                         Common Stock          Paid-in          Development
                     Shares        Amount       Capital            Stage
                   -----------  -----------  ------------     ---------------
                    (Note 2)
<S>              <C>         <C>          <C>             <C>
Shares issued 
to officers 
and directors 
in exchange for 
cash on July 10, 
1981               4,650,000   $     100    $      -         $        - 

Sales of general 
and limited 
partnership 
units in Novarex
Systems, Ltd., 
including 
accrued interest 
on notes           1,499,900     612,683           -                  - 

Shares issued 
to an officer 
in exchange for 
cash on
February 8, 1983      25,100         251           -                  - 

Shares issued 
($.83, $1.00 and 
$2.35 per share), 
net of offering 
costs of $690,952 
(Note 2)           5,745,121   1,038,534       4,018,057              - 

Shares issued 
in exchange 
for services          30,000      19,500           -                  - 

Reverse stock 
split 1:10       (10,084,500)        -             -                  -

Net loss for 
the period 
September 29, 
1980 (inception) 
to June 30, 1993      -              -             -            (6,640,722)
                 ------------  -------------  -------------   --------------

Balances - 
June 30, 1993     1,865,621    1,671,068       4,018,057        (6,640,722)

Stock issuance 
($2.35 per share)    48,750      114,563         275,437              - 

Net loss for the 
year ended June 
30, 1994              -              -             -            (1,872,285)
                ------------  --------------  -------------   --------------

Balances - 
June 30, 1994     1,914,371    1,785,631       4,293,494        (8,513,007)

Stock issuance 
($4.00 per share)    11,750       13,805          33,195              - 

Stock issuance 
($6.00 per share)    81,417      143,487         345,015              - 

Net loss for the 
year ended June 
30, 1995               -            -              -            (1,281,345)
                ------------  --------------  --------------   -------------

Balances - 
June 30, 1995    2,007,538     1,942,923       4,671,704        (9,794,352)  

Stock issuance 
($2.75 per
 share)             81,819        66,089         158,912              - 

Stock issuance 
($6.00 per 
share)              34,000        59,921         144,079              - 

Stock issuance 
($7.00 per 
share)              52,800       108,563         261,037              - 

Stock issued 
for services 
($6.00 
per share)           7,020        12,372          29,748              - 

Stock issuance 
($2.75 per 
share)             118,182        95,463         229,537              - 

Net loss for 
the year 
ended June 
30, 1996             -             -               -            (1,847,440)  
                -------------  ------------  -------------   ---------------
Balances - 
June 30, 1996    2,301,359    $2,285,331      $5,495,017      $(11,641,792)
                ============  =============  =============   ===============
</TABLE>                                     

                See notes to consolideted financial statements
                               F-5
<PAGE>

           VEREX LABORATORIES, INC. AND SUBSIDIARIES
               (a development stage enterprise)
        

            Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>

                                                              Cumulative
                                                                 from
                                                              September 29,
                      For the Years Ended June 30,           1980 (inception
                      ----------------------------             to June 30,
                    1996          1995           1994              1996
                   ------        ------         ------     ------------------
Cash flows 
from operating 
activities
<S>            <C>            <C>            <C>               <C>
  Net loss      $(1,847,440)   $(1,281,345)   $(1,872,285)      $(11,641,792)
Adjustments 
to reconcile 
net loss to 
net cash
used by 
operating 
activities
Amortization         28,913         26,699         25,235            315,484
Depreciation         33,916         29,891         30,302            710,564
Gain (loss) 
on sale of 
assets                8,953           -              (140)            37,571
Non-cash loss 
on sale of 
investments         (35,000)          -              -              (369,881)
Other                  -              -              -                38,932
Common stock 
issued for 
services             42,120           -              -                61,620
Change in 
certain assets 
and liabilities
Research and 
development            -              -              -              (490,000)
Patented drug 
products             67,512        150,828         42,623            260,963
Receivables           7,319         38,695         19,285             10,464
Inventory            19,337         11,263         12,135              8,448
Prepaid 
expenses               (417)        (9,071)        10,328                840
Other assets          -               -               498            (16,321)
Accounts 
payable 
and other 
accruals            127,411         62,666         (5,523)           259,639
Accrued interest    143,505        143,687         72,078            359,270
Accrued salary 
and benefits 
payable             394,240        350,356        240,098          2,207,823
                  -----------   -----------    ------------     -------------
                    837,809        805,014        446,919          3,395,416
                  -----------   -----------    ------------     -------------
Net cash used 
by operating
activities       (1,009,631)      (476,331)    (1,425,366)        (8,246,376)
                 -----------     ----------   ------------       ------------
Cash flows
from investing 
activities
Proceeds from 
sale of common 
stock             1,123,601        535,502       390,000           2,799,103
Proceeds from 
sale of 
securities             -              -             -                404,588
Acquisition 
of subsidiary          -              -             -                (21,898)
Proceeds from 
sale of 
equipment              -              -             -                 40,200
Additions to 
property and 
equipment           (30,382)       (14,360)      (37,014)           (838,359)
Additions to 
goodwill, 
patents and
trademarks          (27,066)       (42,102)      (62,098)           (425,833)
                  -----------    ----------    -----------       ------------
Investment in 
securities             -              -             -                (69,707)
Net cash 
provided by 
investing
activities        1,066,153        479,040       290,888           1,888,094
                 -----------      ---------    ----------        ------------

Cash flows 
from financing 
activities
Sale of 
general 
and limited 
partnership 
units                  -             -              -                326,000
Proceeds from 
note payable           -          123,000      1,098,000           1,808,000
Payments on 
note payable        (42,059)      (41,430)       (55,369)           (214,114)
Payment of 
note 
receivable             -             -              -                286,663
Net proceeds 
from insurance 
of common
stock                  -             -              -              4,306,962
Long-term 
borrowings             -             -              -                 49,470
Decrease in 
long-term 
borrowings             -             -              -                (49,470)
                 -------------  ------------  --------------   --------------

Net cash 
provided by 
financing
activities          (42,059)       81,570      1,042,631           6,513,511
                -------------   -----------   -------------   ---------------
Net increase 
(decrease) 
in cash 
and cash
equivalents          14,463        84,279        (91,847)            155,229

Cash and cash 
equivalents - 
beginning of 
year                140,766        56,487        148,334                - 
                 ------------   -----------   -----------    ----------------
Cash and cash 
equivalents - 
end of year        $155,229      $140,766        $56,487            $155,229
                 ===========    ==========    ============   ================
</TABLE>
Supplemental 
cash flow 
information:
  Cash paid for interest was $5,072 (1996), $5,438 (1995), and $5,850 (1994).


               See notes to consolideted financial statements.

                                F-6
<PAGE>


         VEREX LABORATORIES, INC. AND SUBSIDIARIES

                 Notes to financial statements


Note 1 - Summary of Significant Accounting Policies
---------------------------------------------------
Development Activities
----------------------
Verex Laboratories, Inc. (the "Company") was incorporated in Colorado on 
September 29, 1980 and began developmental activities in July 1981.  The 
Company was primarily engaged in the business of developing and marketing 
non-prescription and prescription drug products utilizing constant
release rate drug delivery systems.  The Company had limited sales and 
marketing operations until October 3, 1991, when it acquired 100% of the 
outstanding stock of the Colorado Nut Company, Inc.  The Colorado Nut 
Company assembles and sells snack food items.  The Colorado Nut Company was 
sold in June 1996.  Bear Laboratories, Inc., a wholly-owned subsidiary of the
Company, was incorporated and began operations in April 1991.  Bear 
Laboratories, Inc. was formed to market one of the Company's products through 
a national advertising campaign. 

Going Concern
-------------
The Company and its subsidiaries incurred a loss of $1,847,440 for the year 
ended June 30, 1996 and continues to experience a net capital deficiency.  
The Company has entered into a credit agreement with a Stockholder where the 
Stockholder will advance the Company up to $10,000,000 at the Stockholder's 
discretion.  There is no assurance these plans will be sufficient to sustain
operations.

Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of its wholly-owned 
subsidiaries Bear Laboratories, Inc. and the Colorado Nut Company.  All 
intercompany accounts and transactions have been eliminated in consolidation.

Inventory
---------
Inventory consists of snack food products and are recorded at the lower of 
cost or market on a first-in, first-out basis (FIFO) basis.

Patented Drug Products
----------------------
Patented drug products include costs incurred to produce products to be used 
in clinical tests and are carried at the lower of cost or market on a specific 
identification basis.

Property and Equipment
----------------------
Property and equipment is depreciated over the estimated useful lives (three 
to seven years) of the asset using various methods.  Leasehold improvements 
are amortized on a straight-line basis over the remaining term of the office 
lease.  


                              F-7
<PAGE>

              VEREX LABORATORIES, INC. AND SUBSIDIARIES

                     Notes to financial Statements

Note 1 - Summary of Significant Accounting Policies (continued)
---------------------------------------------------------------
Goodwill, Patents and Trademarks
--------------------------------
Goodwill, patents and trademarks are stated at cost and are amortized on a 
straight-line basis over a period of ten years.

License Income
--------------
The Company has entered into licensing agreements with several pharmaceutical 
companies to manufacture and exclusively market two of the Company's patented 
drug products, a constant-release rate formulation of Verapamil and Aztec 
products in an established geographic area..  The agreements generally 
require an initial non-refundable licensing fee to be paid to the Company and
future royalty payments based on subsequent product sales.  Licensing income 
is recognized when earned.

Research and Development Costs
------------------------------
The Company expenses all research and product development costs as incurred.

Cash Equivalents
----------------
The Company considers investments that are purchased within three months of 
their date of maturity to be cash equivalents.  Cash equivalents consist of 
certificates of deposit.  At June 30, 1996, the Company had approximately 
$55,000 in excess of federally insured amounts.

Income Taxes
------------
Deferred tax liabilities and assets are determined based on the difference 
between the financial statements and tax basis of assets and liabilities 
using the enacted tax rates in effect for the year in which the differences 
are expected to occur.  The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on available 
evidence, are not expected to be realized.

Reclassification
----------------
Certain amounts in the 1995 and 1994 financial statements have been 
reclassified to conform with the 1996 presentation.

Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect the 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.

                                 F-8
<PAGE>

           VEREX LABORATORIES, INC. AND SUBSIDIARIES
                Notes to financial statements  


Note 2 - Notes Receivables
--------------------------
<TABLE>
<CAPTION>
                                                          June 30,
                                                   ----------------------
                                                    1996            1995
                                                   -------         -------
<S>                                            <C>              <C>
Note receivable - non interest bearing 
due July 28, 1996 secured by common stock 
in Colorado Nut Company, Inc.                    $  12,500        $    - 

Note receivable - 8% interest due December 
30, 1997 payable in monthly principal and 
interest payments of $2,000.  Secured by 
common stock in Colorado Nut Company, Inc.          22,500             - 
                                                  ---------        ---------
                                                    35,000             - 
Less current portion                               (18,877)            - 
                                                  ---------        ---------
                                                 $  16,123        $    - 
                                                  =========        =========

</TABLE>
Note 3 - Notes Payable and Long-Term Debt
-----------------------------------------


                                                          June 30,            
                                                -----------------------------
<TABLE>
<CAPTION>
Note Payable Stockholder
------------------------                           1996               1995     
                                                 --------           --------
<S>                                           <C>                <C>
$10,000,000 credit agreement with a 
stockholder; interest accrues at bank 
prime, 8.25% at June 30, 1996; principal
and interest are due upon 120 day written 
notice or July 15,1997.  Convertible into 
common stock under the same terms as the 
Stockholder (Birklea, Ltd.) may purchase 
common stock as described in Note 2.  
Collateralized by patents, tradenames, 
know-how and trade secrets relating to 
certain drug formulations.                      $1,667,000         $1,667,000
                                                ==========         ==========

</TABLE>
<TABLE>
<CAPTION>
                                                          June 30,            
                                                -----------------------------
Long-Term Debt                                     1996               1995      
                                                 --------           --------
<S>                                            <C>                <C>
Note payable to bank, paid in full.             $    -             $   10,059

Note payable to a bank, paid in full.                -                 32,000
                                                 --------            --------
                                                     -                 42,059
Less current maturities                              -                (40,998)
                                                 --------            --------
                                                $    -              $   1,061
                                                 ========            ========
</TABLE>

                           F-9
<PAGE>

            VEREX LABORATORIES, INC. AND SUBSIDIARIES
                  Notes to financial statements


Note 4 - Common Stock
---------------------
Stock Purchase Agreement
------------------------
On January 6, 1993, the Company entered into a Stock Purchase Agreement 
("Agreement") with Birklea, Ltd., whereby the Company sold 660,000 shares of 
its restricted common stock to Birklea, Ltd. for $550,000.  The newly issued 
shares represented 37% of the Company's outstanding common stock after 
issuance thereof.  Subsequent purchases of common stock have increased
Birklea, Ltd.'s holdings to 745,106 shares which represents approximately 40% 
of the outstanding shares of Common Stock of the Company.

The Agreement also provided that Birklea, Ltd. has an option through January 
3, 1997 to acquire for $2,400,000 such additional shares of restricted common
stock of the Company at a price per share to be determined as will permit 
Birklea, Ltd. to hold 60% of the issued and outstanding common stock of the 
Company.  Birklea, Ltd. had an additional option through September 1, 1995 to
purchase common stock of the Company at $30 per share in such quantity as will 
permit in Birklea, Ltd. to acquire an additional 5% of the issued and 
outstanding common stock of the Company.  This option has expired.

Stock Options
-------------
The President of the Company has the right through October 1, 1996 to acquire 
such number of shares of common stock of the Company at $.80 per share to 
permit him to hold 25% of the outstanding common stock of the Company.

Net Loss Per Common Share
-------------------------
Net loss per common share for the years ended June 30, 1996, 1995, and 1994 
has been computed on the basis of the weighted average number of common shares 
outstanding of 2,082,825, 1,949,122, and 1,890,847.


Note 5 - Income Taxes
---------------------
The Company has long-term deferred tax assets as a result of its net operating 
losses and deferred salary (assumed a tax rate of 38%) that is fully impaired 
due to uncertainty as to their utilization.  Accordingly, there is no net 
deferred tax asset reflected in the accompanying financial statements.

                             F-10


<PAGE>


                VEREX LABORATORIES, INC. AND SUBSIDIARIES
                     Notes to financial statements



Note 5 - Income Taxes (continued)
---------------------------------
<TABLE>
<CAPTION>
                                                      June 30,
                                            ------------------------------
                                              1996               1995
                                            ---------          ---------
<S>                                       <C>                <C>               
Long-term deferred tax assets:
Operating losses                           $(2,441,937)       $(2,274,622)
Deferred salary                               (837,833)          (189,449)
Other                                         (138,276)              - 
                                            ------------       ------------
Total long-term deferred assets             (3,418,046)        (2,464,071)
Valuation allowance                          3,418,046          2,464,071
                                            -----------        ------------  
Net deferred tax                           $      -           $      - 
                                            ===========        ============  
</TABLE>                                          
At June 30, 1996, the Company has approximately $6,500,000 of net operating 
loss carryforwards for income tax purposes that expire between June 30, 1999
and June 30, 2009 and approximately $24,000 of investment tax credit 
carryforwards that expire between June 30, 1997 and June 30, 2001.


Note 6 - Discontinued Operations
--------------------------------
On June 28, 1996, the Company sold its investment in its wholly owned 
subsidiary Colorado Nut Company, Inc. for $45,000.  The Company retained the 
accounts receivable, accounts payable and accrued expenses.  Included in the 
sale was inventory and net property and equipment.  Operating results of the 
Colorado Nut Company are recorded at discontinued operations for the year 
ended June 30, 1996.  Operating results for June 30, 1995 and 1994 have been 
reclassified as discontinued operations.

Sales from the Colorado Nut Company were $241,346, $347,429, and $615,846 for 
the years ended June 30, 1996, and 1995, and 1994, respectively.  All expenses
related to the Colorado Nut Company have been allocated to discontinued 
operations including interest of $5,072, $5,438 and $5,850 for the years ended 
June 30, 1996, 1995 and 1994, respectively.

The sale of Colorado Nut Company, Inc. resulted of a loss of approximately 
$9,000.  Any tax benefit or expense resulting from the sale has been fully 
allowed for due to the continued net operating losses of the Company.
 
                             F-11

<PAGE>

         VEREX LABORATORIES, INC. AND SUBSIDIARIES
             Notes to financial statements

Note 7 - Related Party Transactions
-----------------------------------

Employment and Royalty Agreements
---------------------------------
On November 30, 1993, the Company entered into a new 8-year employment 
contract with its President.  The contract may be extended by the President. 
Under the terms of the contract, the President receives an annual base salary
of $338,000 and an annual cost of living adjustment plus 8%.

The contract also provides for certain insurance and employee benefits and 
entitles the President to participate in retirement and  management incentive 
plans that the Company is required to establish.  Such plans have not yet been
established.  As of June 30, 1996 and 1995, the Company owes approximately 
$2,008,000 and $1,616,000, respectively, of vacation pay and salary increases 
to its President under terms of the employment contract.

In addition, the President receives certain royalties on the net sales from 
the Company's products, and minimum annual royalties of $10,000 per product 
through November 30, 1993 and $1,000 thereafter. Such royalties amounted to 
$3,000, $3,000, and $14,000 for the years ended June 30, 1996, 1995 and
1994.  The amount owed to the President for such royalties was approximately 
$200,000 and $197,000, at June 30, 1996 and 1995, respectively.  In return 
for this compensation, the President is obligated to assign all title and 
ownership of his inventions, formulations and products to the Company.

In the event that the Company terminates the President's employment prior to 
expiration of the contract, the Company is obligated to provide the President
the specified annual salary for the remaining term of the agreement, and pay 
certain insurance benefits for a period of three years.  The President would 
continue to be entitled to royalties on net sales of the Company's products.

The Company entered into an agreement with its President deferring payment of 
vacation pay, salary increases and royalties accrued as of June 30, 1996 until
January 1, 1997.  As of June 30, 1996 and 1995, approximately $2,208,000 and 
$1,367,000, respectively, were accrued as a long-term liability.

Legal Fees
----------
Legal fees were incurred by the Company for legal services provided by an 
officer of the Company.  Such fees were $22,780, $53,251, and $19,028, for 
1996, 1995 and 1994, respectively.

See Notes 3, 4 and 8 for additional discussion of related party transactions.

                               F-12

<PAGE>


                  VEREX LABORATORIES, INC. AND SUBSIDIARIES
                         Notes to financial statements


Note 8 - Leases and Commitments
-------------------------------
Office
------
Currently, the Company occupies space under various lease agreements requiring 
monthly payments of $4,610.  The lease commitment expired July 31, 1998, with 
options to renew.   The Company sub-lets a portion of its office space to the 
officer described in Note 7 (under legal fees) for $2,500 per month.  The 
Company sub-lets to an unrelated third party for $1,000 per month.

Rent expense, net of sublease income was $53,677, $45,333, and $45,930, for 
the years ended June 30, 1996, 1995 and 1994, respectively.

Vehicle
-------
The Company has two operating leases for Company vehicles.  The two and three 
year leases require monthly lease payments of $500 and $474, respectively.  
Lease expense is $11,688 and $3,896 for the years ended June 30, 1996 and 
1995, respectively.

The minimum annual lease payments through expiration of office and vehicle 
leases are as follows:

<TABLE>
<CAPTION>   
            <S>                              <C>            
             1997                             $  65,106
             1998                                 3,318
             1999                                  - 
                                               ---------
                                              $  68,424
                                               =========
</TABLE>
The Company has contracted with the University of Colorado Health Sciences 
Center for various studies relating to drug products.  The commitment by the 
Company for future periods approximates $233,000.


Note 9 - Fair Value of Financial Instruments
--------------------------------------------
The following methods and assumptions were used to estimate the fair value of 
each class of financial instruments for which it is practicable to estimate 
that value.  Fair value estimates are made at a specific point in time for 
the Chapter's financial instruments; they are subjective in nature and 
involve uncertainties, matters of significant judgment and, therefor, cannot 
be determined with precision.  Fair value estimates do not reflect the total 
value of the Chapter as a going concern.

Cash, Receivables, Patented Drug Products and Accounts Payable
--------------------------------------------------------------
The carrying value approximates fair value to its liquid or short-term nature.

                             F-13

<PAGE>


               VEREX LABORATORIES, INC. AND SUBSIDIARIES

Note 9 - Fair Value of Financial Instruments (continued)
-------------------------------------------------------
Note Receivable and Notes Payables - Stockholders
-------------------------------------------------
Rates currently available to the Company for debt and capital lease 
obligations with similar terms and remaining maturities are used to estimate 
the fair value of existing debt.

The estimated fair values of the Company's financial instruments at June 30, 
1996 were as follows:

<TABLE>
<CAPTION>

                                       Carrying                 Fair
                                        Amount                  Value
                      Assets           ---------              ---------
   <S>                               <C>                     <C>               
    Cash                              $155,229                $155,229
    Accounts receivable                 10,146                  10,146
    Notes receivable                    35,000                  35,000
                                       --------                --------     
                                      $200,375                $200,375
                                      =========               =========      
</TABLE>                                                                   














                           F-14

<PAGE>
                            SIGNATURES

     Pursuant to the requirements of Section 13 of the Securities Exchange Act 
of 1934, the Company has duly caused this report to be signed on its behalf by 
the undersigned, thereunto duly authorized.

                                   VEREX LABORATORIES, INC.
                                   Registrant

Date: September 27, 1996               By: /s/ James M. Dunn           
                                       -------------------------
                                           James M. Dunn, M.D.,
                                           President

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


Date: September 27, 1996               By: /s/ James M. Dunn           
                                       ----------------------------
                                        James M. Dunn, M.D., Chief
                                        Executive Officer, Chief
                                        Financial Officer and
                                        Director


Date: September 27, 1996               By: /s/ Jerry R. Dunn           
                                       -------------------------
                                        Jerry R. Dunn, Director


Date: September 27, 1996               By: /s/ James Petre             
                                       -----------------------
                                        James Petre, Director

Date:                               By:_____________________________
                                        Mark Banister, Director








                                                               
                                21