<PAGE>



                SECURITIES AND EXCHANGE COMMISSION
                       WASHINGTON, D.C.  20549
                                 
                             FORM 10-K

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

[X]  Annual report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

     For the fiscal year ended   June 30, 1997   or
                                ----------------
[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

     For the transition period from ___________  to __________

Commission file number  0-11232
                       ---------

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

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

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

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

      Title of each class            Name of each exchange on
                                         which registered

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

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

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

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

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant at September 20, 1997 was approximately $859,000.

     The number of shares outstanding of the Registrant's no par value common
stock as of September 20, 1997, was 2,327,359 shares.
<PAGE>

                               INDEX
                                                              PAGE
PART I
  ITEM 1.   Bussiness                                           2
  ITEM 2.   Properties                                          6
  ITEM 3.   Legal Proceedings                                   6
  ITEM 4.   Submission of Matters to a Vote of Security
              Holders                                           6

PART II
  ITEM 5.   Market for the Registrant's Common Stock
              And Related Security Holder Matters               6
  ITEM 6.   Selected Financial Data                             7
  ITEM 7.   Management's Discussion and Analysis of
              Financial Condition and Results of 
              Operations                                        8
  ITEM 8.   Financial Statements and Supplementary Data         10
  ITEM 9.   Disagreements on Accounting and Financial
              Disclosure                                        10

PART III
  ITEM 10.  Directors and Executive Officers                    10
  ITEM 11.  Executive Compensation                              11
  ITEM 12.  Security Ownership of Certain Beneficial 
               Owners and Management                            12
  ITEM 13.  Certain Relationships and Related Transactions      13

PART IV
  ITEM 14.  Exhibits, Financial Statement Schedules, and
               Reports on Form 8-K                              14
            Signatures                                          15
            Financial Statements                              F1-F14
  EX-27     Financial Data Schedule                             30  







<PAGE>
                                      PART I

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

Background
----------

     The Company was organized under the laws of the State of Colorado on
September 29, 1980.  The Company is in the business of acquiring, developing
and marketing pharmaceutical and health care products.  The Company obtains
formulas and patents when available, selects trademarks, designs product
packages and promotes and markets, through licensing agreements,
pharmaceutical and health care products.  During fiscal 1997 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.

Going Concern Opinion
---------------------

     The Company's auditors have issued a report on August 29, 1997 stating,
in effect, that there is substantial doubt as to the Company's ability to
continue as a going concern.  See Financial Statements.

Birklea, Ltd.
-------------

     On January 6, 1993, the Company entered into a Stock purchase Agreement
("Agreement") with Birklea, Ltd., 28 Hardcourt Street, Dublin 2, Republic of
Ireland whereby Company sold 660,000 shares of its restricted common stock to
Birklea, Ltd. for $550,000.  Subsequent purchases of common stock have
increased Birklea, Ltd.'s holdings to 771,106 which represents approximately
33% of the outstanding shares of Common Stock of the Company.

     The Agreement also provided that Birklea, Ltd. had an option through
September 1, 1994 to acquire for $2,400,000 such additional shares of common
stock of the Company at a price per share to be determined as will permit
Birklea, Ltd. to hold 60% of the issued and outstanding common stock of the
Company.  This option has since expired.

Debt Forgiveness - 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, tradenames, 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  $2,185,984.  In
addition, the  agreed to assign to Birklea, Ltd. the AZTEC  formulation in the
event it has not licensed it prior to December, 1998.

Debt Forgiveness - 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

                                   2
<PAGE>

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.

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

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

     The Company has not licensed its technology relating to other  sustained
release prescription drugs.  Licenses provide for the Company to obtain health
registration for the products as well as manufacturing the finished dosage
form.

     The following table summarizes licensing agreements in existence at
June 30, 1997:

Licensee and
Year of License               Territory                     Drug
---------------               ---------                     ----

Sanofi GmbH                   W. Germany                    Verapamil
(Formerly Labaz GmbH)
(1985)

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

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

Trima Pharmaceutical          Israel                        Verapamil,
(1993)                                                      Diltiazem

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

Trimel Pharmaceutical         Israel                        Verapamil,
(1992)                                                      Diltiazem

Productos BiotyLDA            Portugal                      Verapamil
(1988)

     Royalties on the foregoing licensing agreements range from 5% to 7.5% of
invoice sales and there is no minimum sales requirements pursuant to the
agreements.  The Company has not received any significant royalties to date.

                                   3
<PAGE>
  
     The Company intends to continue to pursue licensing arrangements with
respect to marketing and/or developing its drug formulations and compounds. 
No such arrangements were entered into during fiscal 1997.

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

     The Company has developed a unique controlled release rate formulation of
zidovudine (AZT), the primary drug used in the treatment of persons diagnosed
as having Acquired Immunodeficiency Syndrome (AIDS) or being HIV positive. 
The trademark name AZTEC  has been registered with the United States Patent
and Trademark Offices and a patent has been filed with authorities in the U.S.
and Europe.  The Company's formulation has been the subject of a clinical
study at the University of Colorado Health Science Center which concluded that
the AZTEC  formulation had fewer adverse side effects, produces longer
duration blood level curves, and higher intercellular phosphorated AZT levels
than the currently used AZT drug (Retrovir ).  Further, AZTEC  is administered
twice daily compared to 5-6 a day dosages of Retrovir .  During the fiscal
years ended June 30, 1995, 1996 and 1997 clinical trials of AZTEC  were
conducted at 15 sites in the United States at a cost of approximately
$1,100,000.  The Company has been dependent upon Birklea, Ltd., Burroughs-
Wellcome (now Glaxo-Wellcome) and sale of its common stock for funding for
such trials.

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

Nanospheres
-----------

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

Amantex 
--------

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

Veraderm 
---------

     Veraderm  is a wound dressing, made from a proprietary formulation of
polymers that, when applied superficially to an open wound, can enhance
healing while diminishing the chances of infection.  Early testing has shown
it to be particularly beneficial in the treatment of decubitus ulcers.  A
trademark has been received.

                                  4
<PAGE>

Psorex 
-------

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

Government Regulation
---------------------

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

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

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

     The Company's licensing agreements with foreign manufacturers provided
that the licenses of these respective drugs comply with applicable foreign
regulations prior to marketing such drugs.

Patents and Trademarks
----------------------

     The Company has developed proprietary technologies which relate to the
development of its drug formulations and business.  These technologies relate
primarily to the constant release characteristics of such formulations.  The
Company holds several patents and has filed other patent applications relating
to these technologies.

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

                                  5
<PAGE>

Competition and Markets
-----------------------

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

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

Employees
---------

     The Company has three full-time employees, one of whom is an officer and
director.


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

     The Company leases office and research facilities at 14 Inverness Drive
East, Building D, Suite 100, Englewood, Colorado, consisting of 8,926 square
feet of space at $6,213 per month pursuant to a two-year lease through March
31, 1997.  The Company sublets a portion of the premises at $4,100 per month
to an officer of the Company.


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

     No legal proceedings are pending.


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

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


                                     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.







                                   6
<PAGE>
     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, 1997)               $ 1.25           $0.75
Third Qtr. (Ended March 31, 1997)               $ 2.00           $0.87
Second Qtr. (Ended December 31, 1996)           $ 2.37           $1.44
First Qtr. (Ended September 30, 1996)           $ 2.50           $2.25
Fourth Qtr. (Ended June 30, 1996)               $ 7.25           $2.25
Third Qtr. (Ended March 31, 1996)               $ 4.00           $2.50
Second Qtr. (Ended December 31, 1995)           $11.00           $2.50
First Qtr. (Ended September 30, 1995)           $ 9.00           $6.50
-----------------------------------------------------------------------

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

     As of September 20, 1997, the Company had approximately 1,400 holders of
record of its common stock and the closing bid price on its common stock was
$0.75.

     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.
<TABLE>
<CAPTION>
               6/30/97      6/30/96       6/30/95      6/30/94        6/30/93
             and for the  and for the   and for the   and for the   and for the
             Year Ended   Year Ended    Year Ended    Year Ended     Year Ended
               6/30/97      6/30/96       6/30/95       6/30/94       6/30/93  
             -----------  -----------   -----------   -----------   -----------
<S>         <C>         <C>           <C>           <C>           <C>
Working 
Capital
 (Deficit)   $(348,112)  $(1,881,892)  $(2,037,850)  $(1,187,055)  $  111,093
Total Assets   206,464       657,936       716,558       824,122      957,123
Total  
 Liabilities   488,558     4,519,380     3,896,283     3,258,004    1,908,720
Long Term 
 Debt          117,406     2,207,823     1,368,357     1,473,437    1,223,129
Shareholders'
  (Deficit)   (282,034)   (3,861,444)   (3,179,725)   (2,433,882)    (951,597)
Revenues        14,710        32,242     1,213,670       827,038      902,974
Net (Loss)  (1,276,778)   (1,847,440)   (1,281,345)   (1,872,285)    (888,971)
Net (Loss)
 Per Share        (.55)         (.89)         (.65)         (.99)        (.60)

</TABLE>
                                   7
<PAGE>

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

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

     1997 Compared to 1996
     ---------------------

     Revenues for 1997 were $14,710 and expenses were $1,291,488 resulting in
a net loss of $1,276,778, however, $189,000 was a non-cash loss consisting of
a write down of patented drug products.  Losses for fiscal 1997 were $519,315
less than fiscal 1996.  The principal item of reduced expenditure was research
and development as the Company completed its clinical trials on AZTEC .  In
addition, fiscal 1996 operations included $51,347 in losses from a business
which was sold in fiscal 1996.  General and administrative expenses remained
relatively the same as fiscal 1996.  Interest expense was slightly lower from
fiscal 1996 and should be nominal in fiscal 1998 as the Company should be
essentially debt fee.  However, the Company needs to develop a source of
funding in order to continue.

     1996 Compared to 1995
     ---------------------

     Revenues were down $1,181,428 from 1995 during which the Company had
licensing income of $1,200,000 from one source, Burroughs-Wellcome for
clinical trials on AZTEC .  See page 4 above.  Without this source of funds to
pay for research and clinical trials the Company relied on capital infusions
from the sale of its common stock to cover those and other operating expenses
of the Company.  For those reasons the Company's net loss for the year was 44%
higher than the net loss for 1995.  Included in the loss is a $51,347 loss
from the Company's snack food subsidiary which was slightly lower than its
loss for fiscal 1995.

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

Liquidity and Capital Resources
-------------------------------

     At August 29, 1997 the Company's auditors express concern as to the
ability of the Company to continue in light of recurring losses from
operations and net capital deficiency.  See Financial Statements.

     At June 30, 1997 the Company had a working capital deficiency of $348,112
compared to negative working capital of $1,881,892 at June 30, 1996.  The
principal items contributing to the deficiency is the loss of $1,276,778 for
fiscal 1997.

     The Company has no capital commitments other than salaries of the
president and two other employees, the payment of rent on its facilities lease
and a contract for approximately $233,000 for studies at the University of
Colorado Health Sciences Center.  Such commitments are not satisfiable from
current revenues.  Further, the Company has very limited cash resources to
operate the Company at its current level of expense through December 31, 1997
without liquidity problems.  In the past the Company has been dependent for
funding on Birklea, Ltd. and  Glaxo Wellcome and the sale of newly issued

                                  8
<PAGE>

common stock to private foreign purchasers.  There is little expectation that
additional funding will be forthcoming from those sources in the future.

     Subsequent to fiscal year-end the Company entered into a contract with a
Latin American corporation for the right to distribute AZTEC  in two Latin 
American countries.  This company agreed to pay an advance royalty of $115,000
and the company will purchase all AZTEC  product from Verex, for which Verex
will receive a mark-up.

Industry Trends
---------------

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

Future Business Strategy and Subsequent Events
----------------------------------------------

     Since the beginning of fiscal year 1998, the Company has embarked on the
application of its long-established controlled release technologies on certain
nutritional supplements.  Sales of nutritional supplements exceeds $15 billion
in the U.S. alone, and management recognizes a definite niche to enter the
product formulation side of this business and apply its controlled release
pharmaceutical formulation technology to numerous nutritional products.  The
first such product the Company has undertaken is alpha-lipoic acid.  This
natural compound is a known antioxidant with free radical quenching effects. 
It has been on the market in Germany for more than 30 years and has been
introduced to the U.S. market within the past year.  Recent clinical studies
have shown alpha-lipoic acid also improves insulin-stimulated glucose-disposal
in type 2 diabetics.  Verex has reformulated the basic compound and its
delivery in the body to not only take advantage of these newfound attributes,
but preliminary testing done by San Francisco-based Medical Research Institute
has found the Verex formulation to also have appetite suppression effects. 
These new indications are being vigorously pursued, and the Company is in
negotiations with Medical Research Institute to commercialize the Verex
formulation of alpha-lipoic acid on a global scale.  The Company is hopeful
that revenues may be available from this product in early 1998.  Nutritional
products are not regulated by the FDA in the U.S.; thus no regulatory approval
would be necessary.

     In addition, the Company is currently negotiating with a private investor
for the purchase of a substantial amount of newly-issued common stock for cash
plus a right of first refusal on the marketing rights to certain Company drug
formulations.  There is no assurance that such investment will be forthcoming.

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
can give no assurance that such expectations will prove to be correct since
the 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 and nutritional products,
the very limited resources of the Company and the regulatory environment in
which the Company operates.

                                   9
<PAGE>


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

     Attached hereto are financial statements responsive to this Item.


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

     None.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS
          --------------------------------
 
     The By-laws of the Company provide that the affairs of the Company shall
be managed by its Board of Directors consisting of at least three persons. 
There is a family relationship between the directors.  The following table
sets forth information about each director of the Company.

Name                       Age      Occupation
----                       ---      ----------

James M. Dunn, M.D. (1)    60       President and a Director of the Company
                                    (1980-Present); Treasurer of the Company
                                    (1981-Present); Chairman of the Board of
                                    Directors and Chief Executive Officer of
                                    the Company (1982-Present); Assistant
                                    Professor, School of Medicine, Louisiana
                                    State University (1979-1981); Vice-
                                    President-Medical Affairs, Boots
                                    Pharmaceutical, Inc. (1979-1980);
                                    Director of Clinical Pharmacology and
                                    Research, Wallace Laboratories
                                    (1976-1979).

Jerry R. Dunn (1)          61       Director of the Company (1980-Present);
                                    Vice President of the Company (5/89-
                                    Present); Vice President of Business
                                    Operations (1992-Present); Secretary
                                    of the Company (1981-5/89); Self-employed
                                    Attorney (1965-Present); officer and
                                    director of several closely-held
                                    corporations and partner in various
                                    partnerships involved in real estate and
                                    real estate related enterprises
                                    (1971-Present).

James B. Petre             44       Director of the Company January, 1993-
                                    Present).  Owner of Foremost Properties,
                                    Englewood, Colorado a real estate
                                    development and brokerage firm (1989-
                                    present).  Vice President and a director
                                    of Previews, Inc., Denver, Colorado,
                                    a real estate brokerage firm (1984-1989).
                                    Mr. Petre is licensed as a real estate
                                    broker with the Colorado Real Estate
                                    Commission.

                                 10
<PAGE>
Mark Banister              34       Private Investor (1991-Present). United
                                    States Equities Trader with Morgan
                                    Stanley International, London, England
                                    (1987-1991).  Senior Dealer, United States
                                    Equities for County Securities Ltd.,
                                    London, England (1982-1986).
------------------------
     (1)  Dr. James M. Dunn and Mr. Jerry R. Dunn are brothers and comprise
all of the executive officers of the Company.


     The Board of Directors does not have Audit, Compensation or Nominating
Committees.  During the period from July 1, 1996 to June 30, 1997, the Board
of Directors met 4 times, and all directors attended the meetings, either in
person or by telephone.


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          LTIP  Other
Name and                           Compen-     Stock              Pay- Compen-
Principal          Salary   Bonus  sation      Award(s) Options/  outs  sation
Position    Year     ($)      ($)    ($)        ($)      SARs(#)  ($)    ($)   
---------   ----    ------   -----  -------   --------- -------- ------- -------

James M.    1997  143,150(3)  -0-   23,622(2)(3) -0-       -0-     -0-     -0-
Dunn, M.D.  1996  456,890(1)  -0-   54,654(2)    -0-       -0-     -0-     -0-
(President  1995  403,970(1)  -0-   45,530(2)    -0-       -0-     -0-     -0-
and Chairman
of the Board
------------------------
     (1)  Dr. Dunn was actually paid $31,251, $125,000 and $125,000 as salary
for the years ended June 30, 1997, 1996 and 1995, respectively.  The annual
salaries set forth above are pursuant to Dr. Dunn's employment contract
discussed below.

     (2)  Dr. Dunn actually received $__________ in fiscal 1997, $34,902 in
fiscal 1996, and $27,957 in fiscal 1995, in other forms of compensation
comprised of premiums paid on life insurance and automobile lease and
maintenance expense.  He earned $5,506 (3), $19,752, and $17,573, in vacation
allowance for fiscal 1997, 1996 and 1995, respectively and $0, $3,000 and
$3,000, respectively in product minimum royalties for fiscal 1997, 1996 and
1995, all of which was deferred along with accumulated amounts through January
1, 1998.  Deferred accumulated royalty payments were $200,250 and $197,000, at
June 30, 1996 and 1995, respectively.  Accumulated vacation allowance is
included in the deferred accumulated salary amount set forth in Note (1)
above.

     (3)  Excludes amounts accrued and forgiven by Dr. Dunn on march 31, 1997. 
See Note 5 to the financial statements.

                                   11
<PAGE>


Employment Contract - James M. Dunn, M.D.
-----------------------------------------

     On November 30, 1993, the Company entered into a new employment agreement
with its President, James M. Dunn, M.D. whereby Dr. Dunn agreed to serve as
President of the Company until he reaches the age of 65 (2003) and agreed to
assign to the Company all his right, title and interest in his inventions,
discoveries, innovations, concepts and know-how during the period of the
Agreement.  Dr. Dunn is entitled to receive an annual salary of $338,000,
subject to annual adjustments, a $3,000,000 life insurance policy, disability
insurance equal to 80% of his gross income, and health insurance.  In
addition, he is entitled to a 2% royalty on the first $5,000,000 in net sale
price of any Verex patented product, a 1% royalty on net sales in excess of
$5,000,000 and a 2% royalty on Verex licensed technology.  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 1998.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT
          -----------------------------------------------

     Based on certain reports filed with the Securities and Exchange
Commission, the table on the following page reflects certain information as of
September 20, 1997 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 (1)           Outstanding
----------------         -----------------      -----------------

James M. Dunn, M.D.           360,560                 15.5%

Jerry R. Dunn                  50,650                  2.2%

Birklea Ltd.(2)(3)            771,106                 33.1%

James Petre                     -0-                      0%

Mark Banister(3)                -0-                      0%

Officers and Directors
 as a Group (4 persons)     1,182,316(4)              50.8%
------------------------
     (1)  This table is based on 2,327,359 shares outstanding and does not
include presently exercisable options to purchase shares of the Company's
Common Stock held by each of the foregoing.  See "Certain Relationships and
Related Transactions" below for details.  Beneficial ownership by any person
includes direct or indirect voting power and investment power with respect to
such shares of common stock of the Company.

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

                                  12
<PAGE>
     (3)  Mr. Banister holds a power of authority to vote the shares held by
Birklea, Ltd.

     (4)  Includes shares held by Birklea, Ltd.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------
 
     The Company leases facilities through March 31, 2000 at a current monthly
rate of $6,826 plus a pro rata share of maintenance costs.  A portion of the
space is subleased to Jerry R. Dunn, an officer of the Company at $2,500 per
month and subleases another portion of the space to a non-affiliate at $1,000
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.

     Jerry R. Dunn, a non-salaried officer and director of the Company, from
time to time provides legal services to the Company.  For the year ended June
30, 1997 the Company paid a total of $9,500 in fees for legal services to
Jerry R. Dunn.  Management believes the terms on which these services are
performed and charged are as fair to the Company as could be obtained from an
independent lawyer.

                                   13
<PAGE>

                                 PART IV

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

(a)   (1)   The following consolidated financial statements are included
            in Part II, Item 8 of this Report:

            Report of Independent Certified Public Accountants

            Balance Sheets at June 30, 1997 and 1996

            For the years ended June 30, 1997, 1996 and 1995:

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

            Notes to Financial Statements

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

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

              3.1 - Restated Articles of Incorporation
              3.2 - Restated By-laws

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

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

            The following Exhibits were included as Exhibits to the
            Form 8-K, SEC File No. 0-11232, filed January 14, 1993:

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

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

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

            The following Exhibits are attached hereto:

              10.34 - Agreement with James M. Dunn, M.D.
                      and Birklea, Ltd. - March 1997

              27    - Financial Data Schedule

(b)   No reports on Form 8-K were filed by the Company during the quarter
      ended June 30, 1997.
        
                                  14
<PAGE>

                              SIGNATURES

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

(Registrant)                         VEREX LABORATORIES, INC.


BY(Signature)                        /s/James M. Dunn
(Date)                               October 3, 1997 
(Name and Title)                     James M. Dunn, M.D., President

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


BY(Signature)                         /s/James M. Dunn
(Date)                                October 3, 1997           
(Name and Title)                      James M. Dunn, M.D., Chief
                                      Executive Officer, Chief Financial
                                      Officer and Director

BY(Signature)                         /s/Jerry R. Dunn
(Date)                                October 3, 1997            
(Name and Title)                      Jerry R. Dunn, Director

BY(Signature)                         /s/James Petre
(Date)                                October 3, 1997          
(Name and Title)                      James Petre, Director

BY(Signature)                         /s/
(Date)                                October 3, 1997            
(Name and Title)                      Mark Banister, Director

         


































<PAGE>
                VEREX LABORATORIES, INC. AND SUBSIDIARIES

                            Table of Contents


                                                                   Page

Independent Auditors' Report                                       F - 2

Financial Statements

  Consolidated Balance  Sheets - June 30, 1997 and 1996            F - 3

  Consolidated Statements of Operations -
  For the Years Ended June 30, 1997, 1996 and 1995
  and Cumulative from September 29, 1980 (inception) to 
  June 30, 1997                                                    F - 4

  Consolidated Statements of Stockholders' Deficit -
  For the Years Ended June 30, 1997, 1996 and 1995
  and Cumulative from September 29, 1980 (inception) to 
  June 30, 1997                                                    F - 5

  Consolidated Statements of Cash Flows -
  For the Years Ended June 30, 1997, 1996 and 1995
  and Cumulative from September 29, 1980 (inception) to 
  June 30, 1997                                                    F - 6

  Notes to Consolidated Financial Statements                       F - 7
















                                    F-1
<PAGE>

                       INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Verex Laboratories, Inc. and Subsidiaries
Denver, Colorado

We have audited the accompanying consolidated balance sheets of Verex 
Laboratories, Inc. (a development stage enterprise) and Subsidiaries as of 
June 30, 1997 and 1996 and the related consolidated statements of operations,
stockholders' deficit and cash flows for each of the three years in the 
period ended June 30, 1997 and the amounts for the years ended June 30, 
1997, 1996 and 1995 included in the cumulative period from inception 
(September 29, 1980) to June 30,1997.  These consolidated financial 
statements are the responsibility of the Company's management.  Our 
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the 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 consolidated financial statement 
presentation.  We believe that our audits provide a reasonable basis for our 
opinion.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of Verex 
Laboratories, Inc. and Subsidiaries at June 30, 1997 and 1996, and the 
results of their operations and their cash flows for each of the three years
in the period ended June 30, 1997, and the amounts for the years ended June 
30, 1997, 1996 and 1995 included in the cumulative period from inception 
(September 29, 1980) to June 30, 1997 in conformity with generally accepted 
accounting principles.

The accompanying consolidated financial statements have been prepared 
assuming that Verex Laboratories and Subsidiary (the Company) will continue 
as a going concern.  As discussed in Note 2 to the consolidated financial 
statements, the Company has suffered recurring losses from operations and 
has a net capital deficiency that raise substantial doubt about the entity's 
ability to continue as a going concern.  Management's plans in regard to 
these matters are also described in Note 2.  The consolidated financial 
statements do not include any adjustments that might result from this 
uncertainty.




                                     Ehrhardt Keefe Steiner & Hottman PC
August 29, 1997
Denver, Colorado


                                  F-2
<PAGE>
                VEREX LABORATORIES, INC. AND SUBSIDIARIES
                     (a development stage enterprise)

                       Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                           June 30,
                                                     -------------------
                                                     1997            1996
                                                    -------        --------
                                Assets
<S>                                              <C>              <C>
Current assets
  Cash and cash equivalents                         $13,915        $155,229
  Receivables
     Trade                                                -          10,146
  Note receivable - current (Note 3)                      -          18,877
  Prepaid expenses                                    9,125          16,376
  Patented drug products                                  -         229,037
                                                     ------         -------
                                                     23,040         429,665
                                                     ------         -------
Property and equipment, at cost
  Furniture and equipment                           489,900         489,900
  Leasehold improvements                              1,317           1,317
                                                    -------         -------
                                                    491,217         491,217
Less accumulated depreciation and amortization     (464,334)       (440,242)
                                                   ---------       ---------
  Property and equipment - net                       26,883          50,975
                                                   ---------       ---------
Other assets
  Notes receivable - long-term (Note 3)                   -          16,123
  Patents and trademarks, net of
   accumulated amortization of $254,836 
   (1997) and $232,581 (1996)                       156,541          161,173
                                                  ---------        ---------
                                                    156,541          177,296
                                                  ---------        ---------
Total                                             $ 206,464        $ 657,936
                                                  =========        =========
<CAPTION>
                      Liabilities and Stockholders' Deficit

Current liabilities
  Checks written in excess of bank balance        $       -        $  59,543
  Accounts payable and other accruals               217,329          221,129
  Accrued salary and benefits payable (Note 9)      101,910            4,615
  Accrued interest                                        -          359,270
  Notes payable - stockholder (Note 4)                    -        1,667,000
  Current portion of long-term
    debt - related parties (Note 4)                  51,913                -
                                                    -------        ---------
                                                    371,152        2,311,557
Long-term liabilities
  Accrued salary and benefits payable, net of 
    current portion (Note 9)                        117,406        2,207,823
                                                    -------        ---------
         Total liabilities                          488,558        4,519,380
                                                    -------        ---------
Commitments and contingencies (Notes 2, 5, 9 
   and 10)

Stockholders' deficit (Notes 5 and 6)
  Common stock, no par value, 100,000,000 
    shares authorized, 2,327,359 (1997) and
    2,301,359 (1996) shares issued and 
    outstanding                                   2,304,422        2,285,331
  Additional paid-in capital                     10,332,114        5,495,017
  Deficit accumulated during the development 
    stage                                       (12,918,570)     (11,641,792)
                                                ------------     ------------
                                                   (282,034)      (3,861,444)
                                                ------------      -----------
Total                                           $    206,465      $  657,936
                                                ============      ==========  
</TABLE>
               See notes to consolidated financial statements.
    
                                   F-3
<PAGE>
                   VEREX LABORATORIES, INC. AND SUBSIDIARIES
                         (a development stage enterprise)

                     Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                  Cumulative 
                                                                     from 
                                                                 September 29,
                                                                     1980 
                                                                (inception) to
                        For the Years Ended June 30,                June 30,
                     1997           1996           1995               1997
                  ----------     ---------      -----------        ----------
<S>              <C>            <C>             <C>               <C>
Revenues
  Net sales       $       -      $       -       $        -        $  233,523
  Licensing income        -              -        1,200,000         1,606,686
  Contract income         -         27,658                -         1,527,668
  Interest income       391          3,933           13,264           918,590
  Gain on sale of 
    investment            -              -                -           334,881
  Other              14,319            651              406           136,942
                  ---------      ---------       ----------        ----------
                     14,710         32,242        1,213,670         4,758,290 
                  ---------      ---------       ----------        ----------
Costs and 
   expenses
 Cost of sales            -              -            3,211           144,919
 Write down of 
  patented drug 
  products          189,000              -                -           495,250
 General and 
  administrative    869,124        888,402          918,625         9,572,931
 Research and
  development        81,586        749,740        1,353,550         5,812,026
 Operating            4,931          5,048            5,245            25,811
 Marketing            7,230         40,762           15,616           766,795
 Interest           139,617        144,383          143,123           513,910
                    -------        -------          -------           -------
 Loss on 
  disposal of 
  assets                  -              -                -            33,425
                  ---------      ---------        ---------        ----------
                  1,291,488      1,828,335        2,439,370        17,365,067
                  ---------      ---------        ---------        ----------
Net loss from 
  continuing
  operations     (1,276,778)    (1,796,093)      (1,225,700)      (12,606,777)

Discontinued 
  operations 
  (Note 8)
  Loss from 
    operations
    of discon-
    tinued 
    subsidiary             -        (42,394)        (55,645)         (302,840)
  Loss on 
    disposal of 
    subsidiary             -         (8,953)              -            (8,953)
                  ------------   ------------    ------------    -------------
  Net loss        $(1,276,778)   $(1,847,440)    $(1,281,345)    $(12,918,570)
                  ============   ============    ============    =============
  Net loss per
    common share 
    from 
    continuing 
    operations 
    (Note 6)      $      (.55)    $      (.87)   $      (.63)    $      (5.43)
                  ============    ============   ============    =============
Net loss per 
  common share 
  from discon-
  tinued opera-
  tions (Note 6)  $         -     $      (.02)    $     (.02)     $      (.13)
                  ===========     ============    ===========     ============

Net loss per 
  common share 
  (Note 6)        $     (.55)     $      (.89)    $     (.65)     $     (5.56)
                  ===========     ============    ===========     ============
</TABLE>
             See notes to consolidated financial statements.
                                 F-4
<PAGE>

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

            Consolidated Statements of Stockholders' Deficit
     For the Period September 29, 1980 (inception) to June 30, 1997


<TABLE>
<CAPTION>

                                                                     Deficit 
                                                                   Accumulated
                                                       Additional   During the
                                  Common Stock           Paid-in   Development
                            Shares          Amount      Capital      Stage
                            ------          ------      -------    ---------
                           (Note 2)
<S>                      <C>        <C>              <C>          <C>
Shares issued to 
 officers and 
 directors in 
 exchange for cash 
 on July 10, 1981         4,650,000         $100        $      -    $      - 
Sales of general 
 and limited 
 partnership units 
 in Novarex Systems,
 Ltd., including 
 accrued interest on 
 notes                    1,499,900       612,683              -           - 
Shares issued to an 
 officer in exchange 
 for cash on February 8,
 1983                        25,100           251              -           - 
Shares issued ($.83, 
 $1.00 and $2.35 per 
 share), net of offering
 costs of $690,952        5,745,121     1,038,534      4,018,057           - 
Shares issued in 
 exchange for services       30,000        19,500              -           - 
Reverse stock split 
 1:10                   (10,084,500)            -              -           -
Stock issuance 
 ($2.35 per share)           48,750       114,563        275,437           - 
Net loss for the 
 period September 
 29, 1980 (inception) 
 to June 30, 1994                 -             -              -   (8,513,007)
                          ---------     ---------      ---------   -----------
Balances - June 30, 
 1994                     1,914,371     1,785,631      4,293,494   (8,513,007)
Stock issuance
 ($4.00 per share)           11,750        13,805         33,195            -
Stock issuance 
 ($6.00 per share)           81,417       143,487        345,015            -
Net loss for the 
 year ended June 30,
 1995                             -             -              -   (1,281,345)
                          ---------     ---------      ---------   -----------
Balances -
 June 30, 1995            2,007,538     1,942,923      4,671,704   (9,794,352)
Stock issuance 
 ($2.75 per share)          200,001       161,552        388,449            -
Stock issuance 
 ($6.00 per share)           34,000        59,921        144,079            -
Stock issuance 
 ($7.00 per share)           52,800       108,563        261,037            -
Stock issued for 
 services ($6.00 per 
 share)                       7,020        12,372         29,748            -
Net loss for the year 
 ended June 30, 1996              -             -              -   (1,847,440)
                          ---------     ---------      ---------  ------------
Balances - June 30, 1996  2,301,359     2,285,331      5,495,017  (11,641,792)
Stock issuance 
 ($2.50 per share)           26,000        19,091         45,909            -
Stockholder's contri-
 bution (Note 5)                  -             -      4,791,188            -
Net loss for the year 
 ended June 30, 1997              -             -              -   (1,276,778)
                          ---------    ----------    ----------- -------------
Balances - June 30, 1997  2,327,359    $2,304,422    $10,332,114 $(12,918,570)
                          =========    ==========    =========== =============
</TABLE>
               See notes to consolidated financial statements.
                                   F-5
<PAGE>
                VEREX LABORATORIES, INC. AND SUBSIDIARIES
                    (a development stage enterprise)           

                  Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                 Cumulative
                                                               from September
                                                                   29, 1980
                                                                (inception to
                              For the Years Ended June 30,         June 30,
                           1996          1996          1995          1996
                          ------        ------        ------        ------
<S>                   <C>           <C>           <C>           <C>
Cash flows from
 operating activities
Net loss               $(1,276,778)  $(1,847,440)  $(1,281,345)  $(12,918,570)
                       ------------  ------------  ------------  -------------
Adjustments to 
 reconcile net loss 
 to net cash used by 
 operating activities
Amortization                22,255        28,913        26,699        337,739
Depreciation                24,092        33,916        29,891        734,656
Impairment of patented 
 drug product              189,000             -             -        189,000
Non-cash stockholder 
 contributions                   -         8,953             -         37,571
Non-cash loss on sale 
 of investments                  -       (35,000)            -       (369,881)
Other                            -             -             -         38,932
Common stock issued
 for services                    -        42,120             -         61,620

Change in certain assets 
  and liabilities
Research and development         -             -             -       (490,000)
Patented drug
 products                   40,037        67,512       150,828        301,000
Receivables                 10,146         7,319        38,695         20,610
Inventory                        -        19,337        11,263          8,448
Prepaid expenses 
 and other                   7,251          (417)       (9,071)        (8,230)
Accounts payable and 
 other accruals            (63,403)      127,411        62,666        196,236
Accrued interest           139,714       143,505       143,687        498,984
Accrued salary and 
 benefits payable          612,082       394,240       350,356      2,819,905
                           -------       -------       -------      ---------
                           981,174       837,809       805,014      4,376,590
                           -------       -------       -------      ---------
Net cash used by 
 operating activities     (295,604)   (1,009,631)     (476,331)    (8,541,980)
                          ---------   -----------     ---------    -----------
Cash flows from
 investing activities
Proceeds from sale of 
 common stock                    -     1,123,601       535,502      2,799,103
Proceeds from sale of
 securities                      -             -             -        404,588
Payment of note 
 receivable                 35,000             -             -        321,663
Acquisition of subsidiary        -             -             -        (21,898)
Proceeds from sale of 
 equipment                       -             -             -         40,200
Additions to property 
 and equipment                   -       (30,382)      (14,360)      (838,359)
Additions to patents and
 trademarks                (17,623)      (27,066)      (42,102)      (443,456)
Investment in securities         -             -             -        (69,707)
                           --------      --------      --------      ---------
Net cash provided by 
 investing activities       17,377     1,066,153       479,040      2,192,134
                           -------     ---------       -------      ---------
Cash flows from 
 financing activities
Sale of general and 
 limited partnership 
 units                           -             -             -        326,000
Proceeds from notes
 payable                    71,913             -       123,000      1,879,913
Payments on note payable         -       (42,059)      (41,430)      (214,114)
Net proceeds from issuance 
 of common stock            65,000             -             -      4,371,962
                           -------       -------        ------      ---------
Net cash provided by 
 financing activities      136,913       (42,059)       81,570      6,363,761
                           -------       --------       ------      ---------
Net (decrease) increase 
 in cash and cash
 equivalents              (141,314)       14,463        84,279         13,915
Cash and cash 
 equivalents - 
 beginning of year         155,229       140,766        56,487              -
                           -------       -------        ------        -------
Cash and cash
 equivalents - 
 end of year               $13,915      $155,229      $140,766        $13,915
                           =======      ========      ========        =======
</TABLE>
Supplemental cash flow information:

     Cash paid for interest was $0 (1997), $5,072 (1996) and $5,438 (1995).

Supplemental disclosure of noncash financing activities:
     During the year ended June 30, 1997, the following liabilities were 
     forgiven by related parties (Note 5):

 Note payable - stockholder                       $1,687,000
 Accrued interest                                    498,984
 Accrued salary and benefits payable               2,605,204
                                                  ----------
 Additional paid-in capital                       $4,791,188
                                                  ==========
             See notes to consolidated financial statements.
                                 F-6
<PAGE>

                VEREX LABORATORIES, INC. AND SUBSIDIARIES
             
                Notes to Consolidated Financial Statements
                     (a Development Stage Enterprise)

Note 1 - Summary of Significant Accounting Policies
---------------------------------------------------

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

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

Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of financial instruments including cash and cash 
equivalents, accounts payable, notes payable and accrued expenses 
approximated fair value as of June 30, 1997 because of the relatively short 
maturity of these instruments.

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

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

Patents and Trademarks
----------------------
Patents and trademarks are stated at cost and are amortized on a straight-line 
basis over a period of ten years.

                                  F-7
<PAGE>




                VEREX LABORATORIES, INC. AND SUBSIDIARIES
             
                Notes to Consolidated Financial Statements
                     (a Development Stage Enterprise)



Note 1 - Summary of Significant Accounting Policies (continued)
---------------------------------------------------------------

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

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

Cash Equivalents
----------------
The Company considers investments that are purchased within three months of 
their date of maturity to be cash equivalents.  


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

Reclassification
----------------
Certain amounts in the 1996 and 1995 consolidated financial statements have 
been reclassified to conform with the 1997 presentation.

Use of Estimates
----------------
The preparation of consolidated financial statements in conformity with 
generally accepted accounting principles requires management to make 
estimates and assumptions that affect the reported amounts of assets and 
liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of 
revenues and expenses during the reporting period.  Actual results could 
differ from those estimates.

                                   F-8
<PAGE>
                VEREX LABORATORIES, INC. AND SUBSIDIARIES
             
                Notes to Consolidated Financial Statements
                     (a Development Stage Enterprise)



Note 2 - Continued Operations and Realization of Assets
-------------------------------------------------------
The accompanying consolidated financial statements have been prepared on a 
going concern basis which contemplates the realization of assets and 
liquidation of liabilities in the ordinary course of business.  The Company 
has suffered a significant loss from continuing operations of $1,278,139 in 
1997 resulting in an accumulated deficit of $12,919,931 at June 30, 1997.

Management plans?

The accompanying consolidated financial statements do not include any 
adjustments relating to the recoverability and classification of recorded 
asset amounts or amounts and classification of liabilities that might be 
necessary should the Company be unable to continue in existence. 


Note 3 - Notes Receivables
--------------------------
                                                                June 30,
                                                           -----------------
                                                           1997         1996
                                                         --------    --------

Note receivable - paid in full during fiscal year 1997.  $      -    $ 12,500
Note receivable - paid in full during fiscal year 1997.         -      22,500
                                                         --------    --------
                                                                -      35,000
Less current portion                                            -     (18,877)
                                                         --------    ---------
                                                         $      -    $ 16,123
                                                         ========    ========
Note 4 - Notes Payable and Long-Term Debt
-----------------------------------------
                                                                June 30,
Note Payable Stockholder                                   1997        1996
------------------------                                 --------    -------

$10,000,000 credit agreement with a stockholder; debt 
 forgiven in fiscal year 1997, as discussed more fully 
 in Note 5.                                              $      -  $1,667,000
                                                         ========  ==========

                                                                June 30,
Long-Term Debt                                             1997        1996
--------------                                           --------    -------
Notes payable to officer of the Company; non interest 
bearing and maturing from July 1997 to April
1998.  The notes are not collateralized.                  $17,500     $    - 

                                  F-9
<PAGE>
                VEREX LABORATORIES, INC. AND SUBSIDIARIES
             
                Notes to Consolidated Financial Statements
                     (a Development Stage Enterprise)


Note 4 - Notes Payable and Long-Term Debt (continued)
-----------------------------------------------------
                                                           June 30,
                                                     1997           1996
                                                    ------         ------
Notes payable to the president of the Company; 
non interest bearing and maturing from July 1997 
to May 1998.  The notes are not collateralized.     34,413              -
                                                    ------         ------
                                                    51,913              -
Less current portion                               (51,913)             -
                                                   --------        ------
                                                   $     -         $    -
                                                   ========        ======
Note 5 - Stockholder Contributions

In March, 1997, the Company entered into an agreement with the Company's 
president and another Stockholder whereby the two stockholders forgave the 
Company's indebtedness of $2,605,204 and $2,185,984, respectively.  The 
total debt forgiven of $4,791,188, included $1,687,000 of note payable to 
the stockholder, $498,984 of accrued interest on the note and $2,605,204 of 
accrued salary and benefits to the president.  As consideration for the debt
forgiveness, the Company agreed to assign each individual the right to 
receive 25% of all licensing fees, royalties and all other sources of income 
from the Company's Aztec formulation and 5% of the income derived from other 
specified formulations up to the respective indebtedness from the Company 
which was forgiven.   In addition, the Company has agreed to assign the 
patent for the Aztec formulation to the Stockholder in the event that the 
Company is unsuccessful in securing any licensing or royalty agreements 
prior to December 1998.  The Stockholder would then be responsible for 
marketing the rights and would distribute all earnings in accordance with 
the terms of the original agreement.  As discussed more fully in Note 11, 
the Company entered into a licensing agreement for the Aztec formulation 
subsequent to year end.  The total amount of debt forgiven is reflected as 
additional paid-in-capital for the year ended June 30, 1997 in the 
accompanying consolidated financial statements.


Note 6 - Common Stock
---------------------
Stock Purchase Agreement
------------------------
On January 6, 1993, the Company entered into a Stock Purchase Agreement 
("Agreement") with Birklea, Ltd., whereby the Company sold 660,000 shares 
of its restricted common stock to Birklea, Ltd. for $550,000.  The newly 
issued shares represented 37% of the Company's outstanding common stock 
after issuance thereof.  Subsequent purchases of common stock have increased 
Birklea, Ltd.'s holdings to 771,106 shares which represents approximately 
33% of the outstanding shares of Common Stock of the Company as of June 30, 
1997.

                                   F-10
<PAGE>
                VEREX LABORATORIES, INC. AND SUBSIDIARIES
             
                Notes to Consolidated Financial Statements
                     (a Development Stage Enterprise)

Note 6 - Common Stock (continued)
---------------------------------
Net Loss Per Common Share
-------------------------
Net loss per common share for the years ended June 30, 1997, 1996, and 1995 
has been computed on the basis of the weighted average number of common 
shares outstanding of 2,323,956, 2,082,825 and 1,949,122, respectively.


Note 7 - Income Taxes
---------------------
The Company has long-term deferred tax assets as a result of its net operating
losses and deferred salary (assumed a tax rate of 38%) that is fully impaired 
due to uncertainty as to their utilization.  Accordingly, there is no net 
deferred tax asset reflected in the accompanying consolidated financial 
statements.

                                                           June 30,
                                                     1997           1996
                                                    ------         ------
Long-term deferred tax assets:
  Operating losses                               $(3,941,926)   $(2,441,937)
  Deferred salary                                    (83,340)      (837,833)
  Other                                                    -       (138,276)
                                                  -----------    -----------
      Total long-term deferred assets              4,025,266     (3,418,046)
Valuation allowance                               (4,025,266)     3,418,046
                                                  -----------    -----------
Net deferred tax                                  $        -     $        -
                                                  ===========    ===========

At June 30, 1997, the Company has approximately $10,400,000 of net operating 
loss carryforwards for income tax purposes that expire between June 30, 1999 
and June 30, 2012.


Note 8 - Discontinued Operations
--------------------------------
On June 28, 1996, the Company sold its investment in its wholly owned 
subsidiary Colorado Nut Company, Inc. for $45,000.  The Company retained 
the accounts receivable, accounts payable and accrued expenses.  Included in 
the sale was inventory and net property and equipment.  Operating results of 
the Colorado Nut Company are recorded at discontinued operations for the
year ended June 30, 1996.  Operating results for June 30, 1995 have been 
reclassified as discontinued operations.

                                   F-11
<PAGE>

                VEREX LABORATORIES, INC. AND SUBSIDIARIES
             
                Notes to Consolidated Financial Statements
                     (a Development Stage Enterprise)


Note 8 - Discontinued Operations (continued)

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

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


Note 9 - Related Party Transactions
-----------------------------------
Employment and Royalty Agreements
---------------------------------
On November 30, 1993, the Company entered into a new 8-year employment 
contract with its President.  The contract may be extended by the President. 
Under the terms of the contract, the President receives an annual base 
salary of $338,000 and an annual cost of living adjustment plus 8%.

The contract also provides for certain insurance and employee benefits and 
entitles the President to participate in retirement and  management 
incentive plans that the Company is required to establish. Such plans have 
not yet been established.  As of June 30, 1997 and 1996, the Company owes 
approximately $149,000 and $2,008,000, respectively, of vacation pay and
salary to its President under terms of the employment contract.

In addition, the President receives certain royalties on the net sales from 
the Company's products, and minimum annual royalties of $10,000 per product 
through November 30, 1993 and $1,000 thereafter.  Such royalties amounted to 
$3,000 for the years ended June 30, 1997, 1996 and 1995.  The amount owed to 
the President for such royalties was approximately $0 and $200,000, at 
June 30, 1997 and 1996, respectively.  In return for this compensation, the
President is obligated to assign all title and ownership of his inventions, 
formulations and products to the Company.

As discussed more fully in Note 5, the president forgave the Company's 
indebtedness of $2,605,204 for accrued salary, vacation and royalties as of 
March 31, 1997 and treated the forgiven debt as a contribution to capital.

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

                                  F-12
<PAGE>
                VEREX LABORATORIES, INC. AND SUBSIDIARIES
             
                Notes to Consolidated Financial Statements
                     (a Development Stage Enterprise)

Note 9 - Related Party Transactions (continued)
-----------------------------------------------
Employment and Royalty Agreements (continued)
---------------------------------------------
The Company entered into an agreement with its President deferring a portion 
of the payment of vacation pay, salary and royalties accrued as of June 30, 
1997 until January 1, 1999.  As of June 30, 1997 and 1996, approximately 
$117,000 and $2,208,000, respectively, were accrued as a long-term liability.

Legal Fees
----------
Legal fees were incurred by the Company for legal services provided by an 
officer of the Company.  Such fees were $12,500, $22,780, and $53,251, for 
1997, 1996 and 1995, respectively.

See Notes 4, 5, 6 and 10 for additional discussion of related party 
transactions.


Note 10 - Leases and Commitments
--------------------------------
Office
------
Currently, the Company occupies space under a lease agreement requiring 
monthly payments of $6,826.  The lease commitment expires March 31, 2000.  
The Company sub-lets a portion of its office space to the officer described 
in Note 9 (under legal fees) for $2,500 per month.  The Company sub-lets to 
an unrelated third party for $1,000 per month.

Rent expense, net of sublease income was $37,471, $53,677, and $45,333, for 
the years ended June 30, 1997, 1996 and 1995, respectively.

Vehicle
-------
The Company has two operating leases for Company vehicles.  The leases 
require monthly lease payments of $530 and $474 and expire January 1999 and 
1998, respectively.  Lease expense is $12,369 and $11,688 for the years 
ended June 30, 1997 and 1996, respectively.

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

         1998                                     $91,590
         1999                                      85,622
         2000                                      61,434
                                                 --------
                                                 $238,646
                                                 ========
                                  F-13
<PAGE>
                VEREX LABORATORIES, INC. AND SUBSIDIARIES
             
                Notes to Consolidated Financial Statements
                     (a Development Stage Enterprise)

Note 10 - Leases and Commitments (continued)
--------------------------------------------
Vehicle (continued)
-------------------
The Company has contracted with the University of Colorado Health Sciences 
Center for various studies relating to drug products.  The commitment by the 
Company for future periods approximates $233,000.


Note 11 - Subsequent Event
--------------------------
In August 1997, the Company entered into a licensing arrangement with an 
Argentine Corporation (the Corporation).  Per the terms of the agreement, 
the Corporation has the right to use, sell and distribute the Aztec 
formulation within the confines of Argentina and Paraguay for a period of 
ten years.  In consideration for these rights, the Corporation has agreed to 
pay the Company $115,000 plus royalties equal to three percent of net sales. 
In addition, the Company will develop, manufacture and package the product 
for sale for fees specified in the agreement.  The Agreement may be 
terminated by the Company if quarterly minimum quantities are not sold.






















                                    F-14