SECURITIES AND EXCHANGE COMMISSION
                         WASHINGTON, D.C.  20549

                               FORM 10-KSB

                             ANNUAL REPORT
                  PURSUANT TO SECTION 13 or 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934
  (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, 2001 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.)

  Building 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)

                                1
<PAGE>
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 _______   No _____

       The aggregate market value of the voting stock held by non-
  affiliates of the Registrant at October 4, 2001 was approximately
  $417,000.

       The number of shares outstanding of the Registrant's no par value
  common stock as of June 30, 2001, was  2,387,907 shares.


                                PART I

  ITEM 1.  BUSINESS
           --------

  Background
  -------------

  The Company was organized under the laws of the State of Colorado on
  September 29, 1980.  The objective of the Company is to acquire, develop
  and market pharmaceutical and health care products.  The Company obtains
  formulas and patents when available, selects trademarks, designs product
  packages and promotes and markets, through licensing agreements,
  pharmaceutical and health care products.  During fiscal 1998 the Company
  had one subsidiary, Bear Laboratories, Inc., incorporated in April 1991
  for the purpose of exploiting VERIN, a drug formulation developed by the
  Company. Bear Laboratories, Inc., was disbanded on or about December 1999.

       On or about March 31, 2000, PR Pharmaceuticals, Inc. ("PRP") , a
  privately held pharmaceuticals company focused on developing drug
  delivery systems, acquired 52.95% of the outstanding common stock of the
  Company from certain of the shareholders and directors of the Company.
  The selling shareholders received one share of PRP common stock for each
  15 shares' of Verex common stock.  In the purchase agreement, PRP agreed
  to make a tender offer to purchase the remaining shares of outstanding Verex
  common stock on a similar exchange basis or, at PRP's option for a cash
  purchase price.  This agreement was based on the condition that audited
  financials of the Company would be issued on or before November 30,
  2000, which condition was not met.

  Credit Facility
  ---------------

  On March 20, 2000 the Company obtained a $1 million credit facility with
  PRP, Inc.  Without the credit facility, the Company would have been
  unable to continue to operate for any significant period. The Credit
  facility was also negotiated to provide payment of the accrued
  management compensation. On March 22, 2001 this credit facility became
  due and payable.  PRP, Inc. did not extend this credit facility and the
  Company is currently in default.  At June 30, 2001, the Company owed
  $615,000 in principal and $56,000 in interest on this credit facility.
  In order for the Company to maintain its commitment to provide payment
  of accrued management compensation the Company has negotiated a series
  of 90-day notes with PRP, Inc.  At June 30, 2001, the Company had
  borrowed $45,000 under two notes.  In addition, PRP, Inc. has advanced
  $49,192 on account to enable the Company to pay operating expenses such
  as rent and utilities.  PRP, Inc. has made no commitments to continue to

                                 2
<PAGE>
  provide funds and there is no assurance that funds will be available to
  support operations or research and development.  See Management's
  Discussion - Liquidity & Capital Resources, below.

  Assignment of Certain Future Revenues - 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.  The note was secured by the
  Company's right, title and interest in patent applications, patents,
  trade names, know-how and trade secrets relating to existing and future
  drug formulations relating to the drug commonly known as AZT.  In March
  1997, the balance (principal and interest) on this note was $2,185,984,
  when the Company and Birklea agreed that the  debt was forgiven in
  consideration for the assignment of 25% of all future sources of revenue
  from the Company's AZTEC formulation, and 5% of all future revenues from
  other specified Company drug formulations up to $4,650,000 and $2,325,000
  respectively.  In addition, the Company agreed to assign to Birklea, Ltd.
  the AZTEC formulation in the event it has not licensed it prior to December
  31, 1998. This assignment was not effectuated and on or about, January 27,
  2000, the Company amended this royalty agreement with Birklea, Ltd., to
  change the AZTEC royalty to equal 7.5% of license royalty or on gross
  profit received by the Company on sales or licensing from the Aztec
  product only and to change all other future royalties to equal 3%
  of license royalty or on gross profit received by the Company on other
  specified drug formulations.  The Company further modified the aggregate
  royalty payment to be limited to $2,325,000 for all products including
  AZTEC formulations.

  Assignment of Certain Future Revenues - Dr. James M. Dunn
  ---------------------------------------------------------

       In March, 1997 the Company's president forfeited his right to
  receive $2,605,204 in accrued salary and other benefits in consideration
  for the Company's assignment to him of 25% of all future sources of revenue
  from its  AZTEC formulation and 5% of the income derived from other
  specified Company drug formulations up to $2,605,204. The Company amended
  this royalty agreement with Dr. Dunn and changed the AZTEC royalty to
  equal 7.5% of license royalty or on gross profit received by the Company
  on sales or licensing from the Aztec product only and to change all other
  future royalties to equal 3% of license royalty or on gross profit received
  by the Company on other specified drug formulations.  The Company further
  modified the aggregate royalty payment to equal $2,517,339 for all products
  including AZTEC formulations.

  Licensing Activities
  ---------------------

  The Company has licensing agreements with several foreign-based
  pharmaceutical companies covering the Company's patented constant- release

                                  3
<PAGE>
  rate formulation of AZTEC, 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 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. None of those agreements has produced significant revenue
  for the Company to date and there is no assurance that these agreements
  will produce any significant revenue in the future.

  The Company has not licensed its technology relating to other sustained
  release prescription drugs.  Most licenses generally provide for the
  Licensee to obtain registration for the products.

  The following table summarizes licensing agreements in existence at June
  30, 2001:

  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)


  PR Pharmaceuticals
  Agreement regarding patent
  prosecution, research and                                   Nanosphere
  development)                 Not Applicable                 Technology


                                   4
<PAGE>
     Royalties on the foregoing licensing agreements range from 5% to 7.5% of
  invoice sales and there are no minimum sales requirements pursuant to the
  agreements.  The Company is not entitled to any royalties under the agreement
  with Sanofi. The Company has been notified that Laevosan does not intend to
  sell Verapamil in Austria, and the Company intends to determine if
  other distributors may be interested in selling this product. The Company
  received no revenues from licensing fees and royalties during the
  fiscal years ending June 30, 2001 and 2000. The Company does
  not foresee receiving any significant revenue from those licensing
  agreements.

       The Company does not have the resources to continue to pursue
  licensing arrangements.

  AZT Formulation
  -------------------

       The Company has developed a controlled release rate formulation
  of zidovudine (AZT), an important 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 covering this formulation
  of AZT was issued in the United States on Oct. 28, 1997. However, the use of
  the compound AZT for the treatment of HIV is protected by patents held by
  GlaxoSmithKline plc, which do not expire in the U.S. until 2005. During
  the fiscal years ended June 30, 1995, 1996, 1997 and 1998 clinical trials
  of AZTEC were conducted at 15 sites in the United States at a cost of
  approximately $2,400,000. Clinical work and product registration activities
  were halted by the Company because of lack of financial resources. In
  the mean time the AIDS treatment market is evolving rapidly, with many
  new drugs and combination treatments introduced in recent years. In this
  framework, the Company is currently assessing possible options with
  respect to continuing to develop the AZTEC product.

  Future Drug Delivery System
  -------------------------------

        The Company has been in early stage development of a sustained drug
  delivery system that has shown potential for oral administration of drugs of
  macromolecule size, particularly proteins, polypeptides and polysaccharides,
  which have low or no bioavailability when given orally.  After the
  previous management abandoned a patent application with respect to this
  approach, a new provisional patent application was filed with the
  assistance of PR Pharmaceuticals with respect to this approach in
  November 2000. PR Pharmaceuticals, Inc. and Verex have agreed that PR
  Pharmaceuticals, Inc. will pay for certain intellectual property and
  research costs of this technology, and that the two companies will share
  equitably in any proceeds from the development of this technology.
  However the Company has been unsuccessful in reproducing earlier work
  with this approach. The Company is evaluating additional experiments in
  this area.  There can be no assurance that a patent will be issued and
  if it does, whether the claims will be commercially significant.

                                    5
<PAGE>
  Veraderm
  ------------

  This 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 infection.  Early testing has shown that
  it might be beneficial in the treatment of decubitus ulcers.  However,
  no controlled clinical field trials have been carried out. A trademark
  has been received. Licensing opportunities are currently being explored,
  along with the associated regulatory requirements and costs.

  Psorex
  ----------

       The Company has discovered a treatment for alleviating the symptoms of
  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,  which contains safe ingredients. Further
  development and/or licensing opportunities are currently being explored,
  along with the associated regulatory requirements and costs.

  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.

       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 arrangements for its formulations rather
  than engage in significant marketing efforts of its own.

  Employees
  ------------

                                    6
<PAGE>
       The Company had one full-time employee at June 30,2000, who is also
  a director of the Company.  The employee resigned his employment with
  the Company in April of 2001 and became an employee of PR
  Pharmaceuticals; He  remains a director of the Company.


  ITEM 2.  PROPERTIES
           ----------

       The Company leases office and research facilities at 14 Inverness Drive
  East, Building D, Suite 100, Englewood, Colorado, consisting of 6,486 square
  feet of space at $4,594 per month pursuant to a lease through March 31,
  2002. The Company sublets a portion of the premises at $2,700 per month
  to another unaffiliated company.


  ITEM 3.  LEGAL PROCEEDINGS
           -----------------

       No legal proceedings are pending.



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

      There were no matters  submitted to the Company's shareholders
   for a vote during the Company's fiscal fourth quarter.


                                       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.

                                                High               Low
  -----------------------------------------------------------------------
  Fourth Qtr. (Ended June 30, 2001)             $.50               $.38
  Third Qtr.  (Ended March 31, 2001)            $.43               $.43
  Second Qtr. (Ended December 31,2000)          $.43               $.43
  First Qtr.  (Ended September 30,2000)         $.43               $.43

                                  7
<PAGE>
  Fourth Qtr. (Ended June 30, 2000)             $.56               $.35
  Third Qtr.  (Ended March 31, 2000)            $.56               $.42
  Second Qtr. (Ended December 31,1999)          $.66               $.35
  First Qtr.  (Ended September 30,1999)         $.44               $.35

  The foregoing quotations reflect inter-dealer prices without retail
  mark-up, mark-down or commissions and may not necessarily represent actual
  transactions.

       As of June 30, 2001, the Company had approximately 1,236 holders of
  record of its common stock and the closing bid price on its common stock
  on Thursday, October 4, 2001 was $.40 per share

       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.

  ITEM 6.  SELECTED FINANCIAL DATA
           ------------------------

       Following is a summary of selected financial data.  See the financial
  statements included herein for more complete information.

                      Year Ended    Year Ended    Year Ended    Year Ended
                        6/30/01       6/30/00        6/30/99       6/30/98
                                   (as restated)  (as restated)
                      -----------    -----------   -----------   -----------

  Working Capital
  (Deficit)         $(1,605,042)    $ (781,385)    $ (783,256)   $ (254,923)

  Total
  Assets                 53,294        100,237         81,281       170,514

  Total
  Liabilities         1,635,706      1,349,269      2,008,727     1,201,564

  Long
  Term Debt                   0        489,325      1,167,141       933,970

  Shareholders'
  (Deficit)          (1,582,412)    (1,249,032)    (1,927,446)   (1,031,050)

  Revenues                    0         31,546        104,200       301,093

                                      8
<PAGE>
  Net(Loss)            (359,415)      (638,742)      (955,765)     (748,957)

  Net(Loss)
  Per Share              (.14)          (.25)           (.41)          (.32)


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

  Results of Operations
  ------------------------

  2001 Compared to 2000, as restated
  -----------------------------------
  Revenues for 2001 were $ -0- compared to $31,546 in 2000.  Revenue in
  2000 related to a special project for contract pharmaceutical
  extraction.  The contract was of limited scope and was fully completed
  prior to June 30, 2000.  The Company recognized income once the project
  had been completed and accepted by the Company's client. The Company has
  no expectation of future contract projects in pharmaceutical
  development, but will analyze the value of such projects if new
  opportunities are presented.  The net loss for 2001 was $359,415 or
  $279,327 less than the restated net loss reported for fiscal 2000.  This
  is principally attributed to the decrease in general and administrative
  expenses of $397,531 that was the result of decreased employment related
  expenses.  This was offset by an increase in interest expense of $96,949
  which was the result of an increase in borrowing activity and the
  accrual of interest on an agreement to settle the Company's accrued
  salaries liability.

  2000 Compared to 1999, as restated
  -----------------------------------

  Revenues for 2000 were $31,546 compared to $104,200 in 1999.  The
  principle difference in revenue between reporting periods is a non-
  recurring one time license fee of $85,000 that the Company received in
  1999.  The Company's licensing and sales revenue is based on the
  Company's ability to develop, protect, and market the Company's
  intellectual property.  It is difficult to predict the Company's future
  recognition of licensing and sales revenue.

  The net loss for 2000 was $638,742 or $317,023 less than the net loss
  reported for fiscal 1999.  This is principally attributed to the
  decrease in general and administrative expenses of $ 249,010 during the
  year ended June 30, 2000. The principal item contributing to reduced
  expenses was the reduction of executive compensation of approximately
  $210,000 as the result of the resignation of the Company's president
  during the year.  In addition, expenditures were reduced as a result of
  the limitation financial resources that occurred throughout the year.

                                 9
<PAGE>
  Liquidity and Capital Resources
  ----------------------------------

       At June 30, 2001 the Company had a working capital deficiency of
  $1,605,042 compared to negative working capital of $781,385 at June 30,
  2000. The principal items contributing to the deficiency is working
  capital expenditures supporting operations for fiscal 2001, and the
  movement of liabilities for accrued salaries from long-term to current
  status.

       The Company has no capital commitments other than the payment of
  deferred salaries to its former employees, aged accounts payable and the
  payment of rent on its facilities lease.  Such commitments cannot be
  satisfied from current or projected revenues. Further, the Company has
  very limited cash resources to operate the Company at its current level
  of expense without experiencing liquidity problems.

  On March 31, 2000, PR Pharmaceuticals, Inc. (PRP) purchased
  approximately 53% of the outstanding stock from the majority
  shareholders. As part of the purchase agreement the employment
  agreement, royalty agreement and option agreement between the Company
  and its president and other company employees were either amended or
  terminated.

       On or about March 22, 2000, the Company arranged a credit facility with
  PRP, Inc. to borrow up to $1,000,000, which matured March 21, 2001.  All
  advances under this arrangement are secured by all of the Company's assets,
  including its technology, patents,  trademarks and proprietary information
  and all updates, modifications, continuations and improvements thereto. The
  Company was able to request advances under this line of credit from time
  to time as long as it is in compliance with the "Conditions of Lending"
  under the Master Loan Agreement.

       On March 22, 2001 this credit facility became due and payable.
  PRP, Inc. did not extend this credit facility and the Company is
  currently in default.  At June 30, 2001 the Company owed $615,000 in
  principal and $56,000 in interest on this line of credit.  In order for
  the Company to maintain its commitment to provide payment of the accrued
  management compensation the Company has negotiated a series of 90 day
  notes with PRP, Inc.  At June 30, 2001 the Company had borrowed $45,000
  under two notes.  In addition, PRP, Inc. has advanced $49,192 on account
  to enable the Company to pay operating expenses such as rent and
  utilities.  PRP, Inc. has made no commitments to continue to provide
  funds and there is no assurance that funds will be available to support
  operations or research and development.  There remains $521,513 of
  accrued management compensation and aged payables of approximately
  $267,000. The Company does not have adequate resources to fund any
  operations, including research or development projects.

  Recently issued or Proposed Accounting Standards and Pronouncements
  -------------------------------------------------------------------

  In July 2001, the Financial Accounting Standards Board issued SFAS No.
  141, "Business Combinations," and SFAS No 142, "Goodwill and Other
  intangible Assets" and approved for issuance SFAS No. 143 "Accounting
  for Asset Retirement Allocations." SFAS No. 141 requires that the
  purchase method business combination must meet to be recognized and
  reported apart from goodwill. The adoption of SFAS No. 141 will have no
  impact on our fiscal 2001 financial statements.

                                 10
<PAGE>
       SFAS No. 142 requires that goodwill no longer be amortized, but
  instead tested for impairment at least annual in accordance with the
  provisions of SFAS No. 142. Any goodwill and any intangible asset
  determined to have an indefinite useful life that are acquired in a
  purchase business combination completed after June 30, 2001 will not be
  amortized, but will be evaluated for impairment in accordance with the
  appropriate existing accounting literature. The adoption will have no
  impact on our fiscal 2001 financial statements.

       SFAS No. 143 requires entities to record the fair value of a
  liability for an asset retirement obligation in the period in which it
  is incurred and a corresponding increase in the carrying amount of the
  related long-lived asset and is effective for fiscal years beginning
  after June 15, 2002. Management is currently assessing the impact SFAS
  No. 143 will have on our financial condition and results of operations.

  Subsequent Events
  ------------------

  Subsequent to June 30, 2001 the Company received a notice of claim from
  the State of Colorado Health Science Center relating to a debt of
  approximately $117,219 plus $5,780 of interest through August 23, 2001
  allegedly owed by the Company from 1995.  The Company maintained no
  record of this alleged liability and the alleged liability was not
  recorded as of June 30, 2001.  Further, the Company is subject to many
  claims in the normal course of its business operations.  The outcome of
  the $117,219 aforementioned claim and those in the normal course of its
  business cannot be accurately predicted.

  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, Indomethicin
  and AZT.

  Future Business Strategy and Subsequent Events
  -----------------------------------------------
  The Company is reviewing the current business liquidity problem and
  is considering its options.


  Forward-Looking Statements
  -----------------------------

       Included under this Item 7 are "forward-looking statements" within the
  meaning of Section 27 of the Securities Act of 1933 and Section 21E of the
  Securities Exchange Act of 1934.  Although the Company believes that the
  expectations reflected in such forward-looking statements are reasonable,
  it an give no assurance that such expectations will prove to be correct
  since he Company is not able to accurately predict if it will obtain
  adequate funding to continue in business or license or market its products.
  Important factors affecting its ability to do so include the extreme
  competitiveness of the industry, the cost involved to market new drug
  products, the very limited resources of the Company and the regulatory
  environment in which the Company operates.

  ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
           -------------------------------------------

       Attached hereto are financial statements responsive to this Item.

  ITEM 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
           ----------------------------------------------------

        On October 9, 2001, Registrant replaced Balukoff Lindstrom & Co.,
  P.A. ("BL&Co.") as Registrant's principal accountant and engaged the
  services of KPMG LLP.  BL&Co. was Registrant's auditor for the year
  ended June 30, 2000.

       The decision to replace BL&Co. was approved by unanimous consent of
  the Board of Directors of the Registrant on September 18, 2001.

       There have been no disagreements between BL&Co. and the Registrant
  on any matter of accounting principles or practices, financial statement
  disclosure, or auditing scope or procedure.  The term "disagreement" is
  utilized in accordance with Item 304 of Regulation S-K.

                                   11
<PAGE>
       Registrant provided BL&Co. with a copy of this Current Report on
  Form 8-K prior to its filing with the SEC and requested that BL&Co.
  furnish it with a letter, addressed to the Securities and Exchange
  Commission, indicating that it agrees with the statements contained in
  the Current Report on Form 8-K and, if it does not agree, indicating the
  statements with which it does not agree.  BL&Co. provided such letter
  dated October 9, 2001, stating that they agreed with the statements made
  in the disclosure set out in Item 4 of Form 8-K.

                                 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.
  The controlling shareholders of the Company elected a new slate of Directors
  and Executive Officers as indicated below.  On April 1, 2000, Carolyn Dunn
  and Mark Banister resigned from the Board of Directors. These vacancies were
  filled by Dr. Patrick Bols and Steve Howe. During the reporting period the
  following Directors and Executive Officers were in office.

  Name                         Age             Occupation
  James M. Dunn M.D.           64          President of the Company (1980 -
                                           March 2000); Director of the
                                           Company (1980 - Present);
                                           Treasurer of the Company (1980 -
                                           March 2000); Chairman of the
                                           Board of Directors and Chief
                                           Executive Officer of the Company
                                           (1982 - March of 2000); Assistant
                                           Professor, School of Medicine,
                                           Louisiana State University (1979 -
                                           1980); Vice President-Medical
                                           Affairs, Boots Pharmaceutical,
                                           Inc. (1979-1980); Director of
                                           Clinical Pharmacology and
                                           Research, Wallace Laboratories
                                           (1976-1979)


  James B. Petre                48         Director of the Company
                                           (January 1993 - Present);
                                           Independent business consultant
                                           and advisor (1989 - Present);
                                           Senior Vice President and
                                           Director of Previews, Inc.
                                           Denver, Colorado; a worldwide
                                           real estate brokerage firm
                                           (1984-1989); Member of the Drug

                                   12
<PAGE>
                                           Information Association. BS in
                                           Business Administration,
                                           University of Denver.

  Steve Howe <FN1>              49         Chairman of the Board of
                                           Directors (March 2000 -
                                           Present); Chief Executive
                                           Officer (March 2000 - Present);
                                           Secretary (March 2000-
                                           Present) Chairman of the Board
                                           of Directors and Chief
                                           Executive Officer, PR
                                           Pharmaceuticals Inc.; 37%
  Shareholder of PR Pharmaceuticals
                                           Inc.; BA in Business
                                           Administration - University of
                                           Wyoming.

  Patrick Bols, Ph.D.          51          Director (March 2000 -
  <FN1>                                    Present); President (March 2000
                                           - Present); President and Director PR
                                           Pharmaceuticals Inc.; 16%
                                           Shareholder of PR Pharmaceuticals
                                           Inc.; Director of Worldwide
                                           Business Development - Johnson
                                           & Johnson; Ph.D in
                                           Agricultrual Sciences -
                                           University of Gent, Belgium.

  Edward C. Gruben             55          Treasurer (March 2000 -
                                           Present); Managing Partner -
                                           Cambridge Consulting Group LLP;
                                           Managing Partner - Cambridge
                                           Management Associates LLP;
                                           Member of the American
                                           Institute of Certified Public
                                           Accountants and the Colorado
                                           Society of CPA's; BSBA in
                                           Physical Sciences and
                                           Accounting - University of
                                           Colorado.

  <FN1> Mr Howe is a major shareholder in PR Pharmaceuticals Inc.
  which owns 52.95% of the Company's issued and outstanding common stock.

       The Board of Directors does not have Audit, Compensation or Nominating
  Committees.  During the period from July 1, 2000 to June 30, 2001, the
  Board of Directors met two times, and all directors attended the
  meetings, either in person or by telephone.

                                  13
<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
             -----------------------------     -------------------------------
                                                   Awards         Payouts
                                              ----------------   ----------
                                    Other                               All
                                    Annual   Restricted                 Other
Name and                            Compen-   Stock             LTIP   Compen-
Principal          Salary   Bonus   sation   Award(s) Options/ Payouts sation
Position    Year    ($)      ($)     ($)        ($)    SARs(#)   ($)     ($)
----------  ----   ------   -----  -------   --------  -----   ------- -------
James M.    2001     -0-     -0-      -0-       -0-     -0-      -0-     -0-
Dunn, M.D.  2000  125,000    -0-      -0-       -0-     -0-      -0-     -0-
 (Former    1999  125,000    -0-    9,063       -0-     -0-      -0-     -0-
President and
Chairman of
the Board)

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

  (1)  Dr. Dunn was actually paid -0-, $31,250, and $0 as salary for the years
  ended June 30, 2001, 2000 and 1999, respectively.  The annual salaries set
  forth above are pursuant to Dr. Dunn's employment contract discussed
  below.

    (2)  Dr. Dunn actually received $0 in fiscal 2001 and 2000, in other
  forms of compensation comprised of premiums paid on life insurance and
  automobile lease and maintenance expense. He earned $ -0-, $5,506 and
  $5,506 in vacation allowance for fiscal 2001, 2000 and 1999,
  respectively and $0, $0 and $0 respectively in product minimum royalties
  for each fiscal year: 2001, 2000 and 1999, all of which was deferred
  along with accumulated amounts through January 1, 2000.

    (3)  Excludes amounts accrued and forgiven by Dr. Dunn on March 31,
  1997.

  Employment Contract - James M. Dunn, M.D.
  -------------------------------------------
       On November 30, 1993, the Company entered into an employment agreement
  with its now former 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 was entitled to receive an
  annual salary of $338,000, subject to annual adjustments, a $3,000,000

                                   14
<PAGE>
  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.  At March, 1997, a total of $2,605,204 was
  accrued in compensation pursuant to the agreement, and Dr. Dunn waived
  his claims thereunder in exchange for 25% in future revenues from AZTEC
  and 5% in future revenues from certain other Company drug formulations up
  to $2,605,204 and certain assignment rights to AZTEC in the event the
  Company has not licensed AZTEC prior to December 31, 1998. On March 31,
  2000, Dr. Dunn resigned from the Company as an employee, its President and
  Chairman. He is currently an employee of PRP.

  Employment and Royalty Agreements
  -------------------------------------

  On March 31, 2000 the Company and its prior President terminated all prior
  employment agreements and amended the royalty agreement.  The prior President
  had a balance of accrued salaries of $395,833 owed for past services.  The
  Company agreed to pay $9,146 for 24 months with a balloon payment of $176,321
  plus any accrued interest on February 1, 2002.  If during the twenty-four
  months the Company is able to commercialize any of its products, 30.49% of
  the net profit will be used to accelerate the payment of the accrued
  salary.
  The acceleration payments will be made to the balloon balance first, and
  then applied to the remaining monthly installments.

  The prior President continues to act as a Director of the Company.  On March
  31, 2000 the prior President and PRP agreed to an employment agreement for
  five years.  The prior President is paid $125,000 for the first year and
  increases in subsequent years based on contributions to PRP.

  On March 31, 2000 the Company and one of its Employee/Directors agreed
  to an employment contract. The employee was to be  paid a base salary of
  $80,000 per year. This employee had a balance of accrued salaries of
  $253,333.  The Company agreed to pay $5,854 for 24 months with a balloon
  payment of $112,845 plus any accrued interest on February 1, 2002. If
  during the twenty-four months the Company is able to commercialize any
  of its products, 19.51% of the net profit will be used to accelerate the
  payment of the accrued salary.  The acceleration payments will be made
  to the balloon balance first, and then applied to the remaining monthly
  installments.  In April of 2001, this employee resigned his position
  with the Company and agreed to an employment agreement with PRP, Inc. on
  similar terms as he had with the Company.

  The Company amended the royalty agreement to pay its prior President 7.5%
  of license royalty or on gross profit received by the Company on sales or
  licensing from the Aztec product only.  The amount to be paid to the prior
  President is not to exceed an accumulative total of approximately $2.5
  million.

  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

                                  15
<PAGE>
  of September 30, 2001 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:

                            Amount and Nature      Percent of Shares
       Name of               of Beneficial         of Common Stock
  Beneficial Owner           Ownership <FN1>         Outstanding
  ------------------         -----------------      -----------------

  PR Pharmaceuticals, Inc.     1,345,517               52.95%

  Steve R. Howe <FN2>

  Patrick Bols <FN2>

  James M. Dunn, M.D.             -0-                      0%

  James B. Petre                  -0-                      0%

  Officers and Directors
  as a Group (2 persons)       1,345,517               52.95%
  ------------------------

  <FN1>  This table is based on 2,540,987 shares outstanding and
  contingently issuable, 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.

  <FN2>  Includes shares held by PR Pharmaceuticals, Inc.


  ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
            ----------------------------------------------

       The Company leases facilities through March 31, 2002 at a current monthly
  rate of $4,594 plus a pro rata share of maintenance costs.  A portion of the
  space is subleased to Jerry R. Dunn, a former officer of the Company at
  $2,700 per month.  Management believes the terms of the facilities sharing
  with Jerry R. Dunn are as fair to the Company as could be arranged with an
  independent party.

  Business Service Agreement
  - -----------------------------

  On April 12, 2000 the Company signed a business services agreement with PRP.
  PRP is to provide administrative functions necessary in the management of
  the Company.  Fees to be paid to PRP are not to exceed $5,000 per month,

                                   16
<PAGE>
  without the prior written consent of the Board of Directors of Verex.  The
  business service agreement can be cancelled by either party with 60
  days prior written notice.  As of June 30, 2001 the Company owes $30,000
  in fees under this agreement which is accruing finance charges for late
  payment at 10% per annum.  The Company has accrued $660 in finance
  charges to June 30, 2001.

  Agreement Regarding Patent Prosecution, Research and Development

  On November 16, 2000, the Company signed an agreement concerning the
  development of the Company's sustained release approach for oral
  delivery of macromolecules with PR Pharmaceuticals. This agreement
  provides that PRP will make certain payments for the research,
  development and intellectual property expenses incurred in connection
  with this approach. Pursuant to this agreement, a provisional patent
  application was filed, and additional studies have been conducted. To
  date, the Company had not been able to replicate earlier favorable data.
  The Company and PRP are evaluating -experiments with respect to this
  approach.


  PART IV

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

  (a)   (1)   The following financial statements are included in
  Part II, Item 8 of this Report:  The financial statements have been
  restated for the year ended June 30, 2000 to reflect information
  discovered in the current year audit.  These adjustments have some
  effect on the all 10-Q's filed for the years ended June 30, 2001 and
  2000.  These 10-Q's have not been amended to reflect these adjustments,
  as of the date of this filing.  The amendment of these quarterly reports
  would require a considerable additional expense and may be unwarranted
  in light of the current financial position of the Company. The financial
  statements should be read with this in mind.
              Report of Independent Certified Public Accountants

              Balance Sheets at June 30, 2001 and 2000

  For the years ended June 30, 2001 and 2000,:

                Statements of Operations
                Statements of Shareholders' Deficit
                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:

                                  17
<PAGE>
                3.1 - Restated Articles of Incorporation
                3.2 - Restated By-laws
              10.34 - Credit Facility Agreement - PR Pharmaceuticals
              10.35 - Agreement James M. Dunn, M.D. and registrant
                      regarding accrued salary at registrant
              10.36 - Agreement James B. Petre regarding employment at
                      Registrant and payment of accrued salary at
                      Registrant.
              10.37 - Royalty Agreement James M. Dunn, M.D. amended
                      March 2000
              10.38 - Business Service Agreement - PR Pharmaceuticals
              10.39 - Agreement regarding Patent Prosecution, Research and
                      Development dated November 16, 2001 [not attached
                      pending confidentiality request]


  (b)   No Form 8-K's were filed by the Company during the quarter
  ended June 30, 2001.









                                     18
<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.


  (Registrant)                       VEREX LABORATORIES, INC.
  (Date)
  By:(Signature)                     /s/ Patrick Bols
  (Name and Title)                   Patrick Bols, President and Director


       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.


  (Registrant)                       VEREX LABORATORIES, INC.
  (Date)
  By:(Signature)                     /s/ Patrick Bols
  (Name and Title)                   Patrick Bols, President and Director




  (Date)                             By:(Signature)
  /s/ Steve R. Howe
  (Name and Title)                   Steve R. Howe, Chairman of the
                                     Board, Secretary and Director



  (Date)
                                Mr. Gruben was not available for signature
  By:(Signature)                     /s/ Edward C. Gruben
  (Name and Title)                   Edward C. Gruben, Treasurer



  (Date)

  By:(Signature)                     /s/ James M. Dunn, M.D.
  (Name and Title)                   James M. Dunn, M.D., Vice
                                     President of Medical Affairs and
                                     Director


  (Date)
  By:(Signature)                     /s/ James B. Petre
  (Name and Title)                   James B. Petre, Director






                                  19
<PAGE>
                       VEREX LABORATORIES, INC.


                          Table of Contents


  Financial Statements

       Independent Auditors' Report For The Year 2000         F - 2

       Independent Auditors' Report For The Year 2001         F - 3

  Balance Sheets - June 30, 2001 and 2000                     F - 4

       Statements of Operations
       For the Years Ended June 30, 2001 and 2000             F - 5

  Statements of Stockholders' Deficit

       For the Years Ended June 30, 2001 and 2000             F - 6

       Statements of Cash Flows
       For the Years Ended June 30, 2001 and 2000             F - 7

       Notes to Financial Statements                          F - 8





                                  F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT



To the Shareholders and Board of Directors
Verex Laboratories, Inc.

We have audited the accompanying consolidated balance sheets of Verex
Laboratories, Inc. as of June 30, 2000, and the related statements of
operations, shareholders' deficit 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
consolidated financial statements based on our audit.

We conducted our audits in accordance with U.S. generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated 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 audit 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. as of June 30, 2000, and the results of their
operations and their cash flows for the year then ended in conformity with
U.S. generally accepted accounting principles.


Balukoff Lindstrom & Co.
Boise, Idaho
July 28, 2000



                                 F-2
<PAGE>

Independent Auditors' Report
The Board of Directors
Verex Laboratories, Inc.:

  We have audited the accompanying balance sheet of Verex Laboratories, Inc.
(the   Company) as of June 30, 2001, and the related statement of operations,
shareholders' deficit, 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.

  We conducted our audit in accordance with auditing standards generally
accepted in the United States of America.  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 Verex Laboratories, Inc.
as of June 30, 2001, 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 of America.

  The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern.  The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

  Denver, Colorado
  October 15, 2001


                                  F-3
<PAGE>
                        VEREX LABORATORIES, INC.
                             BALANCE SHEETS
                         June 30, 2001 and 2000
                             "as restated"
<TABLE>
<CAPTION>
                 Assets                      2001           2000
                                            ------         ------
<S>                                    <C>            <C>
  Current assets:

       Cash                                   $209         $33,967
       Note receivable                      25,300          25,300
       Other Receivable                        555               -
       Prepaid expenses and deposits         4,600          19,292
                                        ----------     -----------
            Total current assets            30,664          78,559

  Property and equipment:

       Furniture and equipment             496,874         496,874
       Leasehold improvements                1,317           1,317

       Accumulated depreciation and
         amortization                     (495,108)       (493,561)
                                        -----------     -----------
       Net property and equipment            3,083           4,630

  Intangible assets -
       Patents, net of accumulated
         amortization of $4,698 and
         $2,651, respectively               19,547          17,048
                                        ----------     -----------
            Total assets                   $53,294        $100,237
                                        ==========     ===========
Liabilities and Shareholders' Deficit

  Current liabilities:

       Accounts payable                   $266,815        $313,020
       Accrued expenses                    113,960          18,621
       Current portion of salary
          and benefits payable             521,513         180,000
        Accrued royalties                   32,500          32,500
  Notes payable, in default related
    party                                  660,000         280,000
       Notes payable, in default
         related party                      40,918          35,803
                                        ----------     -----------
           Total current liabilities     1,635,706         859,944

  Salary and benefits payable,
   net of current portion                        -         489,325
                                        ----------     -----------
            Total liabilities            1,635,706       1,349,269

  Shareholders' deficit

     Common stock, no par value,
       100,000,000 shares authorized
       2,387,907 and 2,327,359 shares
       issued and outstanding at
       June 30, 2001 and 2000,
       respectively                     14,038,977      14,012,942
       Accumulated deficit             (15,621,389)    (15,261,974)
                                       ------------    ------------
     Total shareholders' deficit        (1,582,412)     (1,249,032)
                                       ------------    ------------
       Commitments and contingencies

   Total liabilities
     and shareholders' deficit             $53,294        $100,237
                                       ===========     ===========
</TABLE>
  See accompanying notes to financial statements



                                  F-4
<PAGE>
                       VEREX LABORATORIES, INC.
                       STATEMENTS OF OPERATIONS
                 Years Ended June 30, 2001 and 2000
<TABLE>
<CAPTION>
                                                  2001            2000
                                                 ------          ------
<S>                                          <C>              <C>
  Revenues

       Sales                                  $       -                $70
        Special projects                              -             31,476
                                              ---------        -----------
            Total operating revenues                  -             31,546

  Expenses
       Selling, general and
         administrative expenses                265,578            663,109
       Research and development                  11,039             17,042
                                              ---------         ----------
            Total operating expenses            276,617            680,151
                                              ----------        -----------
            Loss from operations               (276,617)          (648,605)
                                              ----------        -----------
  Other income(expense)
       Other income                              43,743             39,451
       Interest income                                -                  4
       Interest expense                        (126,541)           (29,592)
                                              ----------        -----------
            Total other income
               (expense), net                   (82,798)             9,863
                                              ----------        -----------

  Loss before income taxes                     (359,415)          (638,742)
                                              ----------        -----------
  Income taxes                                        -                  -

                   Net loss                   $(359,415)         $(638,742)
                                              ----------         ----------
  Net loss per common share
    basic and diluted                            $(0.14)            $(0.25)

  Weighted average shares
    outstanding basic and diluted             2,540,987          2,513,118


</TABLE>
  See accompanying financial statements

                                     F-5
<PAGE>
                          VEREX LABORATORIES, INC.
                   STATEMENTS OF SHAREHOLDERS' DEFICIT
                   Years Ended June 30, 2001 and 2000
<TABLE>
<CAPTION>

                                                                    Total
                                   Common        Accumulated     shareholders'
                                   stock           deficit          deficit
                                  -------        -----------     ------------
<S>                            <C>             <C>              <C>
  Balances at June 30, 1999,
    as restated                 $12,695,786     $(14,623,232)    $(1,927,446)
                                -----------     -------------    ------------
       Net loss                           -         (638,742)       (638,742)
       Accrued compensation
         converted to equity      1,317,156                -       1,317,156

  Balances at June 30, 2000,
    as restated                  14,012,942      (15,261,974)     (1,249,032)
        Net loss                          -         (359,415)       (359,415)


       Issuance of common stock      26,035                -          26,035


  Balances at June 30, 2001     $14,038,977     $(15,621,389)    $(1,582,412)

</TABLE>
  See accompanying financial statements










                                 F-6
<PAGE>
                       VEREX LABORATORIES, INC.
                       STATEMENTS OF CASH FLOWS
                Years Ended June 30, 2001 and 2000
<TABLE>
<CAPTION>
                                                    2001           2000
                                                   ------         ------
<S>                                            <C>           <C>
  Cash flows from operating activities:

    Net loss                                      $(359,415)    $(638,742)
    Adjustments to reconcile net loss to
      net cash used by operating activities:
      Depreciation and amortization                   3,594         6,648
  Changes in operating assets and liabilities:
       Note receivable                                    -        (6,000)
       Other receivable                                (555)            -
       Prepaid expenses                              14,692       (11,633)
       Accounts payable                             (20,170)       62,278
       Accrued expenses                              95,339         3,528
       Note payable - related party                   5,115         5,051
       Salary and benefits payable                 (147,812)      306,841
                                                  ----------   -----------
   Net cash used by operating activities           (409,212)     (272,029)

  Cash flows used by investing activities:
    Acquisition of property and equipment                 -        (2,325)
    Investment in intangibles                        (4,546)       (3,050)
                                                  ----------   -----------
    Net cash used by investing activities            (4,546)       (5,375)
                                                  ----------   -----------
  Cash flows from financing activities -
    Proceeds from issuance of notes payable          380,000      280,000

           Net cash provided by
              financing activities                   380,000      280,000

              Net increase (decrease) in cash        (33,758)       2,596
  Cash at beginning of year                           33,967       31,371
                                                   ----------  ----------
                 Cash at end of year                    $209      $33,967
                                                   ----------  ----------
  SUPPLEMENTAL CASH FLOW DISCLOSURES:

       Cash paid for interest                        $32,877   $   21,828

       Non-cash financing activity -
         Deferred compensation converted
          to paid in capital                        $      -   $1,317,156
         Exchange of payable to common stock        $  6,035   $        -




</TABLE>
  See accompanying financial statements

                                    F-7
<PAGE>

                         VEREX LABORATORIES, INC.
                     Notes to Financial Statements
                         June 30, 2001 and 2000


  (1) Summary of Significant Accounting Policies
  ----------------------------------------------
  (a)  Company Operations and Basis of Presentation
  -------------------------------------------------
  Verex Laboratories, Inc. (the "Company") was incorporated in Colorado on
  September 29, 1980 and began developmental activities in July 1981.  The
  Company is primarily engaged in the business of developing and marketing
  non-prescription and prescription drug products utilizing constant
  release rate drug delivery systems.

  Prior to 1999 the Company had a wholly owned subsidiary, Bear
  Laboratories, Inc., in December of 1999 Bear Laboratories was disbanded
  and is no longer in existence.  There was no activity for Bear
  Laboratories in 1999 and consequently no information for Bear
  Laboratories, Inc. is consolidated in the Company's financial statements
  for the fiscal years ended June 30, 2000 and 2001. On March 31, 2000 PR
  Pharmaceuticals, Inc. (PRP) purchased approximately 53% of the
  outstanding common stock from the majority stockholders.  As part of the
  purchase agreement the employment agreement, royalty agreement and
  option agreement between the Company and its president and other company
  employees were either amended or terminated.

  The accompanying financial statements have been prepared assuming the
  Company will continue as a going concern.  As shown in the accompanying
  financial statements, the Company has a working capital deficit of
  $1,605,042 as of June 30, 2001, and has a shareholders' deficit of
  $1,582,412, which factors raise substantial doubt about the Company's
  ability to continue as a going concern.  The accompanying financial
  statements do not include any adjustments relating to the outcome of
  this uncertainty.

  (b)  Property and Equipment
  ---------------------------
  Property and equipment are recorded at cost.  Depreciation, which
  totaled $1,547 and $4,830 for the years ended June 30, 2001 and 2000
  respectively, is calculated using the straight-line method over the
  estimated useful lives of the assets, which range from five to ten
  years.  Leasehold improvements are amortized on a straight-line basis
  over the term of the related lease.

                                  F-8
<PAGE>
  (c)  Intangible assets
  ----------------------
  Intangible assets consist of patent costs associated with the
  development of patent rights in developed and purchased technology.
  Intangibles are amortized using the straight-line method over the
  estimated useful life of ten years.

  (d) Long-Lived Assets
  ---------------------
  The Company reviews long-lived assets (including intangible assets) for
  impairment whenever events or changes in circumstances indicate that the
  carrying amount of an asset may not be recoverable.  Recoverability of
  assets to be held and used is
  measured by a comparison of the carrying amount of an asset to future
  undiscounted net cash flows (without interest costs) expected to be
  generated by the asset.  If such assets are considered to be impaired,
  the impairment to be recognized is measured by the amount by which the
  carrying amount of the assets exceed the fair value of the assets.
  Assets to be disposed of are reported at the lower of the carrying
  amount or fair value less costs to sell.  See Joes comments

  (e) Revenue Recognition
  -----------------------
  The Company previously recognized nonrefundable technology access fees
  and milestone payments as revenue when received and when the Company
  fulfilled all contractual obligations relating to the fees and milestone
  payments.  Effective in the fourth quarter of 2000, the Company changed
  its method of accounting for nonrefundable technology access fees and
  milestone payments to recognize such payments over the term of the
  related agreements in accordance with the Securities and Exchange
  Commission's Staff Accounting Bulletin No. 101 - Revenue Recognition in
  Financial Statements.  The Company recognized $31,476 in 2000 related to
  a special project for contract pharmaceutical extraction.  The contract
  was of limited scope and was fully completed prior to June 30, 2000.
  The Company recognized income once the project had been completed and
  accepted by the Company's client.

  (f) Research and Development Costs

  The Company expenses research and product development costs as incurred.

  (g)  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 tax credit carryforwards.  Deferred tax
  assets and liabilities are measured using enacted tax 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.  A
  valuation allowance is established to reduce deferred income tax assets
  to the amounts expected to be realized.

                                  F-9
<PAGE>
  (h) Stock Based Compensation
  ----------------------------
  The Company accounts for its stock plans in accordance with the
  provisions of Accounting Principles Board (APB) Opinion No. 25,
  Accounting for Stock Issued to Employees, and related interpretations.
  As such, compensation expense is recorded on the date of grant only if
  the current market price of the underlying stock exceeds the exercise
  price.  The Company has adopted Statement of Financial Accounting
  Standards   No.  123  (SFAS No. 123), Accounting   for   Stock-Based
  Compensation, which permits entities to recognize as expense over the
  vesting period the fair value of all stock-based awards on the date of
  grant.  Alternatively, SFAS No. 123 also allows entities to continue to
  apply the provisions of APB Opinion No. 25 and provide pro forma net
  income (loss) disclosures for employee stock option grants made in 1995
  and thereafter as if the fair-value-based method defined in SFAS No. 123
  had been applied.  The Company has elected to continue to apply the
  provisions of APB Opinion No. 25 and provide the pro forma disclosures
  required by SFAS No. 123.

  (i)  Use of Estimates
  ---------------------
  The preparation of financial statements in conformity with accounting
  principles generally accepted in the United States of America 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 revenue and expense during the reporting period.  The Company
  used significant estimates in the accompanying financial statements
  related to estimated life of the patents.  Actual results could differ
  significantly from those estimates.

  (j)  Fair Value of Financial Instruments
  ----------------------------------------
  The carrying amounts of financial instruments including cash, accounts
  payable, notes payable and accrued expenses approximated fair value as
  of June 30, 2001 and 2000 because of the relatively short maturity of
  these instrument.

  (k) Reclassifications
  ---------------------
  Certain prior year amounts have been reclassified to conform with the
  current year presentation.

  (2) Intangible Assets
  ---------------------
  Intangible assets consist of the following as of June 30:

                                                    2001             2000
                                                   ------           ------
  Patent costs for developing patent rights    $   24,245           19,699

  Less accumulated amortization                    (4,698)          (2,651)
                                               -----------       ----------

                 Total                         $   19,547           17,048
                                               ===========       ==========

                                  F-10
<PAGE>
  (3) Notes, Salary and Benefits Payable
  --------------------------------------
  Notes, salary and benefits payable as of June 30, consist of the
  following:
                                                      2001        2000
                                                   ----------  ----------
  Salaries and vacation owed to the prior
  President and Officer/Director for past
  services with an interest rate of 7%,
  Principal payments in monthly installments
  of $15,000 for twenty-four months with
  the remaining balance and interest due on
  February 1, 2002.                                 $ 521,513   $669,325

  Notes payable to PRP currently in default           615,000    280,000

  Unsecured notes payable to PRP with an
  interest rate of 15.40%, interest paid
  at maturity with principal balances of
  $30,000 due August 3, 2001 and $15,000
  due August 29, 2001.                                 45,000         -

  A series of 90 day notes payable to the
  former president of the Company currently
  in default; non interest bearing and
  maturing from July 1997 to June 2001 with
  a default rate of interest of 18%; the
  notes are not collateralized and
  include interest accrued at default rate            40,918      35,803
                                                  -----------   ---------
                                                   1,222,431     985,128
                                                  -----------   ---------
               Less current portion               (1,222,431)   (495,803)
                                                  -----------   ---------
                                                  $        -    $489,325
                                                  -----------   ---------
  On March 22, 2000, the Company arranged a credit facility with PRP to
  borrow up to $1,000,000 to help fund approximately $704,000 of the
  Company's deferred employee compensation, and other working capital.
  All advances under this arrangement are secured by all of the Company's
  assets.  The Company could request advances under this line of credit

                                   F-11
<PAGE>
 from time to time as long as it was in compliance with the "Conditions
  of Lending" under the Master Loan Agreement.  Generally, PRP would make
  advances pursuant to the "Conditions Of Lending" as long as the Company
  was complying with the material terms of the Master Loan Agreement and
  there were no material adverse changes in its financial condition.
  Interest was accrued quarterly at an interest rate of 15.78% with all
  outstanding principal and accrued interest due on March 22, 2001.   As
  of June 30, 2001 the Company has borrowed $615,000 on the line of credit
  and is in default.  Accrued interest for the period from January 1, 2001
  to March 22, 2001 has not been paid and interest is now accruing at the
  default rate of 19.78%.  As of June 30, 2001 the Company has accrued a
  total of $56,017 in interest that remains unpaid.

  As of September 30, 2001 the Company has borrowed an additional $45,000
  with a Series of 90 day unsecured notes payable to PRP with an interest
  rate of 15.40% and interest due at maturity.  In addition $45,000 of
  unsecured notes payable to PRP outstanding at June 30, 2001 are in
  default as of this date.

  In addition to these formal notes, PRP has advanced to the company
  $65,870 on open account as of September 30, 2001 to assist the Company
  in funding normal operations.

  (4)  Stockholder contributions
  ------------------------------
  On March 31, 2000 the Company's former President and Officer/Director
  forgave the Company a total of $1,317,156 of deferred compensation.  The
  amount forgiven is reflected in common stock as additional paid-in-
  capital during the year ended June 30, 2000.

  (5) Common Stock
  ----------------
  Net Loss Per Common Share
  -------------------------
  Basic earnings (loss) per share is computed by dividing income (loss)
  by the weighted average number of common shares and contractually
  obiligated shares outstanding.  Diluted earnings per share is computed
  by dividing income (loss) available to common stockholders by the
  weighted average number of common shares and contingently obligated
  shares outstanding increased for potentially dilutive common shares
  outstanding during the period unless the impact is anti-dilutive.  Basic
  and diluted earning (loss) per share for June 30, 2001 and 2000 are as
  follows:

                                                        2001          2000
                                                     -----------   ---------
  Net income (loss)                                  $ (359,415)   (638,742)

  Common and common equivalent shares outstanding:
    Historical common shares outstanding at
    beginning of year                                 2,327,359   2,327,359

  Weighted average contractually obligated shares *     175,640     185,759

  Weighted average common equivalent shares
    issued during year                                   37,988      - 0 -

                                  F-12
<PAGE>
   Weighted average common shares - basic            2,540,987    2,513,118

   Weighted average common equivalent shares issued
          during the year                              - 0 -         - 0 -

   Weighted average common shares - diluted          2,540,987    2,513,118

   Net loss per basic share                         $     (.14)        (.25)

   Net loss per diluted share                             (.14)        (.25)

  * includes 22,560 of weighted average of 60,548 shares contingently
    available at June 30, 2000 which were issued in November 2000.


  Stock Options
  -------------
  The following is a summary of options at June 30, 2001 and 2000:

                                                                  Weighted
                                                                   average
                                              Exercise            exercise
                                              price per           price per
                            Options             share               share
                            -------           ---------           ---------

Balance at June 30, 1999    980,000        $   .75 - 2.50         $    .85
      Granted                - 0 -                    .00              .00
      Cancelled            (980,000)       $   .75 - 2.50              .85
                           ---------       --------------        ---------
Balance at June 30, 2000     - 0 -                    .00              .00
      Granted                - 0 -                    .00              .00
                           ---------       --------------        ---------
Balance at June 30, 2001     - 0 -                    .00              .00

  On March 31, 2000 the stock option plan was terminated.  There were no
  options granted or exercised prior to the termination

  (6) Income Taxes
  ----------------
  Income tax expense differed from the amounts computed by applying the
  U.S. federal income tax rate of 34% to pretax loss as a result of the
  following:

                                                         June 30,
                                                   2001           2000
                                                ---------       --------
Computed expected tax expense (benefit):      $( 150,962)      (138,163)
   Reduction (increase) in income taxes
     resulting from:
   State and local taxes, net of federal
     benefit                                           -              -
   Depreciation and Amortization               (     209)      (    732)
   Accrued salaries and benefits payable       ( 177,314)      (227,571)

                                  F-13
<PAGE>
   Meals & entertainment                       (      97)     (     46)
   Change in valuation allowance                 328,583       366,511

   Income tax (expense) benefit               $        -     $       -


  At June 30, 2001, the Company has a net operating loss carryforward for
  income tax purposes of approximately  $8,450,000  expiring during the
  period from  2002 to  2021.  Research and  experimental  tax  credit
  carryforwards approximate   $24,000.   The future utilization of the
  operating loss carryforwards or the time period in which the
  carryforwards may be utilized could be limited.

  As of June 30, 2001, the Company had a gross deferred tax asset of
  appoximately $3,050,000 relating primarily to the Company's net
  operating loss carryforward.  A valuation allowance for asset has been
  recorded due to management's determination that it is not more likely
  than not that the tax assets will be utilized.

  (7) Related Party Transactions
  -------------------------------
  Employment and Royalty Agreements
  ---------------------------------
  On March 31, 2000 the Company and its prior President terminated all
  prior employment agreements and amended the royalty agreement.  The
  prior President had a balance of accrued salaries of $395,833 owed for
  past services.  The Company agreed to pay $9,146 for 24 months with a
  balloon payment of $176,321 plus any accrued interest on February 1,
  2002.  If during the twenty-four months the Company is able to
  commercialize any of its products, 30.49% of the net profit will be used
  to accelerate the payment of the accrued salary.  The acceleration
  payments will be made to the balloon balance first, and then applied to
  the remaining monthly installments.

  The prior President continues to act as a Director of the Company.  On
  March 31, 2000 the prior President and PRP agreed to an employment
  agreement for five years.  The prior President is paid $125,000 for the
  first year and increases in subsequent years based on contributions to
  PRP.

  On March 31, 2000 the Company and one of its Officer/Director agreed to
  a new employment contract for five years.  The employee was paid a base
  salary of $80,000 per year.  On March 19, 2001, the Company transferred
  its future rights to the employment of this employee, consistent with
  his employment contract with the Company, to PRP.  PRP assumed none of
  the prior obligation of the Company for the employee. The prior
  Officer/Director had a balance of accrued salaries of $253,333.  The
  Company agreed to pay $5,854 for 24 months with a balloon payment of
  $112,845 plus any accrued interest on February 1, 2002.  If during the
  twenty-four months the Company is able to commercialize any of its
  products, 19.51% of the net profit will be used to accelerate the
  payment of the accrued salary.  The acceleration payments will be made
  to the balloon balance first, and then applied to the remaining monthly
  installments.

  The Company amended the royalty agreement to pay its prior President
  7.5% of license royalty or on gross profit received by the Company on
  sales or licensing from the Aztec product only.  The amount to be paid
  to the prior President is not to exceed an accumulative approximately
  $2.5 million. The Company has paid $0 on this royalty agreement for the
  years ended June 30, 2001 and 2000.

                                    F-14
<PAGE>
  Business Service Agreement
  --------------------------
  On April 12, 2000 the Company signed a business services agreement with
  PRP.  PRP is to provide administrative functions necessary in the
  management of the Company.   Fees to be paid to PRP are not to exceed
  $5,000 per month, without the prior written consent of the Board of
  Directors of Verex.  The business service agreement can be cancelled by
  either party with a 60 days prior written notice. As of June 30, 2001
  the Company owes $30,000 in fees under this business services agreement
  and is accruing finance charges for late payment at 10% per annum.   The
  Company has accrued $660 in finance charges to date under this
  agreement.  As of  September 30, 2001 the Company has incurred an
  additional $15,000 in fees which along with the balance of June 30, 2001
  has not been paid.

  Agreement Regarding Patent Prosecution, Research and Development
  ----------------------------------------------------------------
  On November 16, 2000, the Company signed an agreement concerning the
  development of the Company's sustained release approach for oral
  delivery of macromolecules with PR Pharmaceuticals. This agreement
  provides that PRP will make certain payments for the research,
  development and intellectual property expenses incurred in connection
  with this approach. Pursuant to this agreement, a provisional patent
  application was filed, and additional studies have been conducted. To
  date, the Company had not been able to replicate earlier favorable data.
  The Company and PRP are evaluating experiments with respect to this
  approach.

  Officer and Employee Lending
  ----------------------------
  In prior fiscal years, the Company entered into a series of lending
  transactions with its then President/Director and with an
  Officer/Director of the Company.   The lending activity was in the form
  of periodic advances made to and from the Company with related parties.
  Notes made to the Company were non-interest bearing 90-day notes with a
  default rate of 18%.  No action was taken by the Board of Directors of
  the Company relative to these lending activities.   A liability to the
  past President/Director in the amount of $40,918, which includes accrued
  interest, remains outstanding at June 30, 2001.  A receivable from the
  Officer/Director in the amount of $25,300, also remains outstanding at
  June 30, 2001.

  (8)  Commitments and Contingencies
  ----------------------------------
  Office
  ------
  Currently, the Company occupies space under a lease agreement requiring
  monthly payments of $4,594.  The lease commitment expires March 31,
  2002.   The Company subleased a portion of the leased space from April
  1, 2000 through March 31, 2001 for $2,500 per month and from June 1
  through June 30 2001 for $2,700 per month.

  Rent expense (which includes a pro rata share of certain maintenance
  costs), net of sublease income was $43,551 and $45,269 for the years
  ended June 30, 2001 and 2000, respectively.

                                   F-15
<PAGE>
  Vehicle
  -------
  The Company had an operating leases for a vehicle. The lease required a
  monthly lease payment of $582 expired in January 2000.  Lease expense
  was $4,074 for the year ended June 30, 2000.

  The future minimum annual lease payments through expiration of the
  office lease are as follows:

            July 1 to December 31, 2001       $    27,564
            January 1 to March 31, 2002            13,782
                                              -----------
                                              $    41,346


  The Company has commitments to issue approximately 153,000 shares of
  common stock in exchange for cash previously given and forgiveness of
  accounts payable of approximately $42,000.

  On March 31, 2000 the Company amended its royalty agreement with
  Birklea.  In accordance with the terms of the amended agreement the
  Company will pay Birklea 7.5% of licensing royalty or on gross profit
  received by the Company on sales or licensing from the Aztec product and
  3% of license royalty or on gross profit received by the Company on
  sales or licensing of other technologies.  Royalty payments are not to
  exceed approximately $2.3 million dollars.  The Company has paid $ - 0 -
  and $ - 0 - on this royalty agreement for the years ended June 30, 2001
  and 2000, respectively.

(9)  Restatement

The Company has restated its June 30, 2000 and June 30, 1999 financial
statements to properly reflect certain information discovered in the current
financial audit.  Below is a summary of the transactions that caused
restatement followed by a table of quarterly balance sheet and statements of
operations comparing the financial information as originally reported in the
10-Q and as restated.

  - Net intangible assets were reduced by $96,925 as of June 30, 2000 as a
result of a re-evaluation of the support for their carrying value.  The
adjustment was carried back to the fiscal year ended June 30, 1999.  Net
loss was reduced by $22,301 for the period ended June 30, 2000 as a
result of the adjustment of amortization expense recognized for the year.
Intangible assets consist of the accumulation of capitalized legal costs
associated with certain filings for patent rights on the Company's
intellectual property.  The Company could not detail.


                                   F-16
<PAGE>
  -  A transaction recorded in March of 2000 involving the settlement of
accrued salaries was re-evaluated resulting in recording $81,934 of
additional liability for vacation accruals that were inappropriately
written down in the transaction.  In addition $360,000 of salaries which had
been accrued during that fiscal year and $71,012 of current salaries paid
were inappropriately reversed out in the settlement transaction resulting
in an under reporting of expense and under reporting of the contribution to
capital.  The financial statements have been restated to reflect the more
appropriate recording of this accrued salary settlement transaction.  The
effect is to increase the Company's net loss at June 30, 2000 by $440,476,
and to increase the contribution to capital recognized on this transaction
to $1,317,156.

  -  Current liabilities and net loss were restated to reflect the adjustment
of several transactions involving the accrual of interest, property, and the
settlement of certain payables with the agreement to issue stock. Interest
on a judgment recognized against the Company was accrued and the value of the
stock issued was recalculated using the closing price of the Company's stock
on the date the transaction occurred rather than the average price on that
day.  The net result was a decrease in expense and decrease in liabilities
of $223 for the year ended June 30, 2000.

Below is a table showing the balance sheets and statement of operations for
the previous quarter showing a comparison of the balances as originally filed
against the balances as restated for the transactions explained above.
















                                   F-17
<PAGE>
                       VEREX LABORATORIES, INC.
                             BALANCE SHEETS
<TABLE>
<CAPTION>
                    As Reported    As Restated     As Reported    As Restated
                  Period Ending   Period Ending   Period Ending  Period Ending
                  Sept. 30, 1999  Sept. 30, 1999  Dec. 31, 1999  Dec. 31, 1999
                  --------------  --------------  -------------  -------------
<S>              <C>             <C>             <C>            <C>
Assets
 Current assets:
  Cash and cash
    equivalents            3,080           3,080         13,332        13,332
  Note receivable         19,800          19,800         22,300        22,300
  Other receivables            -               -              -             -
  Prepaid expenses         7,659           7,659          7,367         7,367
                   -------------- -------------- -------------- --------------
                          30,539          30,539         42,999        42,999
<CAPTION>
 Property and equipment, at cost
<S>
   Furniture and
     equipment           494,548         494,548        496,874       496,874
   Leasehold
     improvements          1,317           1,317          1,317         1,317
                  -------------- -------------- -------------- --------------
                         495,866         495,866        498,191       498,191

  Less accumulated
    depreciation        (489,938)       (489,938)     (491,146)      (491,146)
    and amortization
                    -------------- -------------- -------------- --------------
     Property and
       equipment
       - net               5,928           5,928          7,045         7,045
 Other assets:
   Patents and
    trademarks,
    net of
    accumulated
    amortization
    of                   127,926          15,399        138,734        14,982

                    -------------- -------------- -------------- --------------
           Total         164,393          51,865        188,778        65,026
                    ============== ============== ============== ==============
<CAPTION>
Liabilities and Stockholders' Equity
<S>                     <C>             <C>          <C>         <C>
Current Liabilities
   Accounts Payable           274,205      272,055      302,073       295,118
   Accrued Expenses            16,885       16,885       10,010        10,010
   Accrued salary and
     benifits payable         764,970      764,970      773,434       773,434
   Accrued royalties           32,500       32,500       32,500        32,500
   Notes payable                    -            -       30,000        30,000
   Notes payable -
     related parties           24,938       32,011       24,938        33,271
                         ------------   ----------    ---------     ---------
Total current liabilities   1,113,498    1,118,420    1,172,955     1,174,333

 Long-term debt
  Accrued salary and
    benefits payable,
    net of current
    portion                 1,098,362     1,098,362    1,273,822    1,274,822
                         ------------   -----------   ----------    ---------
     Total Liabilities      2,211,860     2,216,782    2,446,777    2,449,155


 Stockholders' deficit
 Common Stock, no par
   value, 100,000,000
   shares authorized
   shares issued and
   outstanding             12,695,786    12,695,786   12,695,786   12,695,786
 Accumulated deficit      (14,743,253)  (14,860,703) (14,953,785) (15,079,914)
                          ------------  ------------ ------------ ------------
                           (2,047,467)   (2,164,917)  (2,257,999)  (2,384,129)
                          ------------  ------------  -----------  -----------
                Total         164,393        51,865      188,778       65,026
                          ============  ============  ===========  ===========


</TABLE>
                                     F-18
<PAGE>
                        VEREX LABORATORIES, INC.
                         STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
                      As Reported    As Restated     As Reported    As Restated
                  Period Ending   Period Ending   Period Ending  Period Ending
                  Sept. 30, 1999  Sept. 30, 1999  Dec. 31, 1999  Dec. 31, 1999
                  --------------  --------------  -------------  -------------
<S>                   <C>          <C>            <C>            <C>
Revenues
   Sales
   Special projects        2,333          2,333        16,898          16,898
                       ----------   ------------   -----------    -----------
Total Operating Income     2,333          2,333        16,898          16,898


 Expenses
   Selling, general
    and administrative
    expenses             171,705        233,227       396,513         469,503
   Research and
    development                           9,651                        18,219
                       ----------   ------------   ------------   -----------
Total operating
  expenses               171,705        242,878       396,513         487,721
                       ----------   ------------   ------------   -----------
Loss from operations    (169,372)      (240,546)     (379,615)      (470,824)
                       ----------   ------------   ------------   ------------

 Other income
   (expense)
   Sub-lease and
     other income                         5,010                       18,415
   Interest income                            1                            2
   Interest Expense            -         (1,938)         (287)        (4,163)
                       -----------  ------------   -----------    -----------
Total other income
  (expense), net               -          3,072          (287)        14,254
                       -----------  ------------   ------------   -----------

 Loss before income
  taxes                 (169,372)      (237,473)     (379,902)      (456,570)
                       ----------   ------------   -----------    -----------
 Net Income (loss)      (169,372)      (237,473)     (379,902)      (456,570)
                       ==========   ============   ===========    ===========

 Net income (loss)
   per common share        (0.07)         (0.10)        (0.16)         (0.18)

 Weighted average
   shares outstanding  2,327,359      2,480,439     2,327,359      2,485,821









</TABLE>


                                  F-19
<PAGE>
                      VEREX LABORATORIES, INC.
                           BALANCE SHEETS
<TABLE>
<CAPTION>
                   As Reported    As Restated     As Reported    As Restated
                  Period Ending  Period Ending   Period Ending  Period Ending
                 March 31, 2000  March 31, 2000  June 30, 2000  June 30, 2000
                 --------------  --------------  -------------  -------------
<S>                <C>           <C>             <C>             <C>
Assets
 Current assets:
   Cash and cash
     equivalents       (21,790)       (21,790)         33,967         33,967
   Note receivable      25,300         25,300          25,300         25,300
   Other receivables         -              -               -              -
   Prepaid expenses      7,367          7,367          19,292         19,292
                    -----------   ------------     ----------     ----------
                        10,877         10,877          78,559         78,559

 Property and
  equipment, at cost
   Furniture and
     equipment         496,874        496,874         496,874        496,874
   Leasehold
     improvements        1,317          1,317           1,317          1,317
                    -----------   -----------      ----------     ----------
                       498,191        498,191         498,191        498,191

  Less accumulated
    depreciation      (492,353)      (492,354)       (493,561)      (493,561)
    and amortization
                    -----------   ------------     -----------    -----------
  Property and
   equipment - net       5,838          5,837           4,630          4,630
 Other assets:
  Patents and
   trademarks,
   net of
   accumulated
   amortization of     129,863         14,490         113,973         17,048
                    ----------    -----------       ---------     ----------
 Total                 146,578         31,204         197,162        100,237
                    ==========    ===========       =========     ==========
<CAPTION>
Liabilities and Stockholders' Equity
<S>                <C>          <C>             <C>              <C>
Current Liabilities
   Accounts Payable    350,498        345,219         321,633        313,020
   Accrued Expenses     24,701         24,701          14,173         18,621
   Accrued salary and
     benifits payable  180,000        180,000         180,000        180,000
   Accrued royalties    32,500         32,500          32,500         32,500
   Notes payable        80,280         80,000         280,000        280,000
   Notes payable -
    related parties     24,938         34,531          24,938         35,803
                    ----------    -----------    ------------     ----------
Total current
  liabilities          692,917        696,950         853,244        859,944

 Long-term debt
  Accrued salary
   and benefits
   payable, net of
   current portion     429,593        511,527         407,391        489,325
                    ----------    -----------    ------------     ----------
  Total Liabilities  1,122,510      1,208,477       1,260,635      1,349,269


 Stockholders'
   deficit
 Common Stock,
  no par value,
  100,000,000 shares
  authorized shares
  issued and
  outstanding       13,725,411     14,012,942      13,725,412     14,012,942
 Accumulated
  deficit          (14,701,343)   (15,190,215)    (14,788,885)   (15,261,974)
                   ------------   ------------    ------------   ------------
                      (975,932)    (1,177,273)     (1,063,473)    (1,249,032)
                   ------------   ------------    ------------   ------------
 Total                 146,578         31,204         197,162        100,237
                   ============   ============    ============   ============


</TABLE>
                                   F-20
<PAGE>
                         VEREX LABORATORIES, INC.
                         STATEMENTS OF OPERATIONS
 <TABLE>
<CAPTION>
                   As Reported    As Restated     As Reported    As Restated
                  Period Ending  Period Ending   Period Ending  Period Ending
                 March 31, 2000  March 31, 2000  June 30, 2000  June 30, 2000
                 --------------  --------------  -------------  -------------
<S>                <C>           <C>             <C>             <C>
Revenues
   Sales                                                  70              70
   Special projects     30,990         30,990         31,476          31,476
                    ----------    -----------     ----------      ----------
Total Operating
  Income                30,990         30,990         31,546          31,546

Expenses
 Selling, general
 and administrative
 expenses              152,423        591,545        207,683         663,109
   Research and
    development                        26,296         17,042          17,042
                    ----------    -----------     ----------     -----------
Total operating
 expenses              152,423        617,841        224,725         680,151
                    -----------   ------------    -----------    ------------
Loss from operations  (121,433)      (586,852)      (193,179)       (648,605)
                    -----------   ------------    -----------    ------------

Other income
  (expense)
Sub-lease and other
  income                               31,821              -          39,451
   Interest income                          3              4               4
   Interest Expense     (6,028)       (11,842)       (21,828)        (29,592)
                    -----------    -----------    -----------    ------------
Total other income
  (expense), net        (6,028)        19,982        (21,824)          9,863
                    -----------    -----------    -----------    ------------
 Loss before income
   taxes              (127,461)      (566,870)      (215,003)       (638,742)
                    -----------    -----------    -----------    ------------
 Net Income (loss)    (127,461)      (566,870)      (215,003)       (638,742)
                    ===========    ===========    ===========    ============



 Net income (loss)
  per common share       (0.05)         (0.23)        (0.09)           (0.25)

 Weighted average
  shares
  outstanding        2,327,359      2,503,985     2,327,359        2,513,118




</TABLE>




                                   F-21
<PAGE>
                        VEREX LABORATORIES, INC.
                             BALANCE SHEETS
<TABLE>
<CAPTION>
                    As Reported    As Restated    As Reported    As Restated
                   Period Ending  Period Ending  Period Ending  Period Ending
                   Sept. 30, 2000 Sept. 30, 2000 Dec. 31, 2000  Dec. 31, 2000
                   -------------- -------------- -------------  -------------
<S>                <C>             <C>            <C>           <C>
Assets
 Current assets:
  Cash and cash
   equivalents              4,402          4,402         51,985        51,985
  Note receivable          25,300         25,300         25,300        25,300
  Other receivables             -              -                            -
   Prepaid expenses         6,826          6,826          6,826         6,826
                     ------------   ------------   ------------   -----------
                           36,528         36,528         84,111        84,111

 Property and
  equipment, at cost
   Furniture and
    equipment             496,874        496,874        496,874       496,874
   Leasehold
     improvements           1,317          1,317          1,317         1,317
                     ------------   ------------   ------------   -----------
                          498,191        498,191        498,191       498,191

  Less accumulated
   depreciation         (493,947)      (493,947)       (494,334)     (494,334)
    and amortization
                     ------------   ------------   -------------  ------------
Property and
  equipment - net          4,244          4,244           3,857         3,857
 Other assets:
 Patents and
  trademarks, net of
  accumulated
  amortization of        106,992         16,556         100,011        16,064
                     -----------    -----------    ------------   -----------
 Total                   147,764         57,328         187,979       104,031
                     ===========    ===========    ============   ===========
<CAPTION>
Liabilities and Stockholders' Equity
<S>                 <C>            <C>            <C>            <C>
Current Liabilities
   Accounts Payable        324,739        313,790        233,719      234,573
   Accrued Expenses         24,200         24,200         43,184       43,184
   Accrued salary
    and benifits
    payable                180,000        180,000        180,000      180,000
   Accrued royalties        32,500         32,500         32,500       32,500
   Notes payable           360,000        360,000        558,399      540,000
   Notes payable -
    related parties         24,938         37,082         24,938       38,362
                      ------------   ------------   ------------   ----------
Total current
  liabilities              946,377        947,571      1,072,740    1,068,618

Long-term debt
 Accrued salary
 and benefits
 payable, net of
 current portion           369,778        451,712        332,404      414,338
                      ------------   ------------   ------------   ----------
  Total Liabilities      1,316,155      1,399,283      1,405,144    1,482,956


Stockholders' deficit
 Common Stock, no par
  value, 100,000,000
  shares authorized
  shares issued and
  outstanding           13,725,412     14,012,942     13,755,685   14,038,977
 Accumulated deficit   (14,893,803)   (15,354,897)   (14,972,850) (15,417,902)
                      -------------  -------------  ------------- ------------
                        (1,168,391)    (1,341,956)    (1,217,165)  (1,378,925)
                      -------------  -------------  ------------- ------------
 Total                     147,764         57,328        187,979      104,031
                      =============  =============  ============= ============
</TABLE>
                                  F-22
<PAGE>

                        VEREX LABORATORIES, INC.
                        STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
                      As Reported   As Restated    As Reported    As Restated
                    Period Ending  Period Ending  Period Ending  Period Ending
                   Sept. 30, 2000 Sept. 30, 2000 Dec. 31, 2000  Dec. 31, 2000
                   -------------- -------------- -------------  -------------
<S>                <C>            <C>            <C>            <C>
Revenues
   Sales
   Special
    projects                                  -                             -
                    ------------   ------------   ------------   ------------
Total Operating
  Income                       -              -              -              -

Expenses
 Selling, general
  and admini-
  strative expenses            -         75,382        106,782        133,466
 Research and
  development             90,914          1,540         44,897          3,933
                    ------------   ------------   ------------   ------------
Total operating
  expenses                90,914         76,921        151,679        137,399
                    -------------  -------------  -------------  -------------
Loss from
  operations             (90,914)       (76,921)      (151,679)      (137,399)
                    -------------  -------------  -------------  -------------
 Other income
  (expense)
Sub-lease and other
  income                   7,630          7,630         15,375         33,133
   Interest income                            -                             -
   Interest Expense      (21,634)       (23,635)       (47,663)       (51,665)
                    -------------   ------------   ------------  -------------
Total other income
  (expense), net         (14,004)       (16,005)       (32,288)       (18,532)
                    -------------   ------------   ------------  -------------
 Loss before income
   taxes                (104,918)       (92,926)      (183,967)      (155,931)
                    -------------   ------------   ------------  -------------
 Net Income (loss)      (104,918)       (92,926)      (183,967)      (155,931)
                    =============   ============   ============  =============



Net income (loss)
 per common share          (0.05)         (0.04)         (0.08)         (0.06)

 Weighted average
  shares outstanding   2,327,359      2,540,987      2,327,359      2,540,987












</TABLE>
                                  F-23
<PAGE>
                       VEREX LABORATORIES, INC.
                            BALANCE SHEETS
<TABLE>
<CAPTION>
                                      As Reported    As Restated
                                     Period Ending  Period Ending
                                     March 31, 2001 March 31, 2001
                                     -------------- --------------
<S>                                  <C>            <C>
Assets
 Current assets:
   Cash and cash equivalents                  1,906          1,906
   Note receivable                           25,300         25,300
   Other receivables                              -              -
   Prepaid expenses                           6,826          6,826
                                      -------------- --------------
                                             34,032         34,032

 Property and equipment, at cost
   Furniture and equipment                  496,874        496,874
   Leasehold improvements                     1,317          1,317
                                     -------------- --------------
                                            498,191        498,191

  Less accumulated depreciation            (494,721)      (494,721)
    and amortization
                                     -------------- --------------
     Property and equipment - net             3,470          3,470
 Other assets:
   Patents and trademarks, net of
     accumulated amortization of             93,030         15,572
                                     -------------- --------------
 Total                                      130,532         53,074
                                     ============== ==============

Liabilities and Stockholders' Equity
Current Liabilities
   Accounts Payable                         252,154        256,167
   Accrued Expenses                          36,144         36,144
   Accrued salary and benifits payable      180,000        556,081
   Accrued royalties                         32,500         32,500
   Notes payable                            635,836        615,000
   Notes payable - related parties           24,938         39,642
                                     -------------- --------------
       Total current liabilities          1,161,572      1,535,535

Long-term debt
 Accrued salary and benefits payable,
    net of current portion                  294,147
                                     -------------- --------------
       Total Liabilities                  1,455,719      1,535,535


 Stockholders' deficit
 Common Stock, no par value,
   100,000,000 shares authorized
  shares issued and outstanding           13,755,685     14,038,977
 Accumulated deficit                     (15,080,872)   (15,521,438)
                                       -------------- --------------
                                          (1,325,187)    (1,482,461)
                                       -------------- --------------
 Total                                       130,532         53,074
                                       ============== ==============


</TABLE>

                                  F-24
<PAGE>
                        VEREX LABORATORIES, INC.
                        STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                           As Reported    As Restated
                                          Period Ending  Period Ending
                                         March 31, 2001 March 31, 2001
                                         -------------- --------------
<S>                                      <C>            <C>
Revenues
   Sales
   Special projects                                                  -
                                         -------------- --------------
         Total Operating Income                       -              -


 Expenses
   Selling, general and administrative
      expenses                                  168,996        210,681
   Research and development                      70,951          8,498
                                         -------------- --------------
             Total operating expenses           239,947        219,179
                                         -------------- --------------
             Loss from operations             (239,947)      (219,179)
                                         -------------- --------------

 Other income (expense)
   Sub-lease and other income                    23,220         40,978
   Interest income                                                   -
   Interest Expense                            (75,263)       (81,266)

                                         -------------- --------------
Total other income (expense), net              (52,043)       (40,288)
                                         -------------- --------------

 Loss before income taxes                     (291,990)      (259,467)
                                         -------------- --------------
 Net Income (loss)                            (291,990)      (259,467)
                                         ============== ==============



 Net income (loss) per common share              (0.12)         (0.10)

 Weighted average shares outstanding          2,387,907      2,540,987


</TABLE>






                                 F-25
<PAGE>
    (10)    Subsequent Events

  Subsequent to June 30, 2001 the Company received a notice of claim from
  the State of Colorado Health Science Center directed to the Company
  relating to a debt of approximately $117,219 plus $5,780 of interest
  through August 23, 2001 allegedly owed by the Company from 1995.  The
  Company maintained no record of this liability and the liability was not
  recorded as of June 30, 2001.  Further, the Company is subject to many
  claims in the normal course of its business operations.  The outcome of
  the $117,219 aforementioned claim and those in the normal course of its
  business cannot be accurately predicted.

   1042390 shares held by other than PRP * $ .379/share closing
  price at 6/29/01 (Friday) quoted on  Big Charts













                                   F-15