<PAGE>   1
================================================================================
                       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

                    FOR THE FISCAL YEAR ENDED AUGUST 31, 1998

                         COMMISSION FILE NUMBER: 0-9065

                          GOLDEN PHARMACEUTICALS, INC.
                 (Name of small business issuer in its charter)

        COLORADO                                            84-0645174
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                          Identification No.)

               3000 W. WARNER STREET, SANTA ANA, CALIFORNIA 92704
                (Address of principal executive office)(Zip Code)

                                 (303) 279-9375
                            Issuer's telephone number

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:
                           Common Stock, no par value
                                (Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
   ---    ---


Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year: $ 6,443,863

Aggregate market value of the voting stock held by non-affiliates of the
registrant as of NOVEMBER 30, 1998, was $6,882,955. This calculation is based
upon the average of the bid ($.05) and asked ($.06) prices of the voting stock
on November 30, 1998.

The number of shares of common stock outstanding as of NOVEMBER 30, 1998, was
125,144,644


Transitional Small Business Disclosure Format: Yes    NO X
                                                  ---   ---

================================================================================


<PAGE>   2


PART I

ITEM 1.   DESCRIPTION OF BUSINESS

       GENERAL

       Golden Pharmaceuticals, Inc. (the "Company") was incorporated in 1973
       under the name Mini-Dose Labs. In 1979, under the name Benedict Nuclear
       Pharmaceuticals, Inc., the Company completed its initial public offering
       of common stock. On October 7, 1992, the Company's name was changed to
       North American Chemical Corporation and on March 4, 1994 it was changed
       again to Golden Pharmaceuticals, Inc. From 1979 to April 1997, the
       Company's primary business was the manufacture and distribution of Sodium
       Iodide 123 (I-123) diagnostic capsules. In August 1995, the Company
       acquired Quality Care Pharmaceuticals, Inc. ("QCP"), a repackager and
       distributor of pharmaceutical products and in April 1997, the Company
       completed the sale of its assets related to the manufacture and
       distribution of I-123 capsules. See "Business Developments - Acquisition
       of Quality Care Pharmaceuticals, Inc." and "Business Developments - Sale
       of Radiopharmaceutical Division." The Company's main business is now the
       repackaging and distribution of pharmaceuticals through its wholly owned
       subsidiary, QCP.

       BUSINESS DEVELOPMENTS

       ACQUISITION OF QUALITY CARE PHARMACEUTICALS, INC. - In August 1995, the
       Company purchased all of the issued and outstanding common stock of QCP
       for a total purchase price of $3,718,750. QCP is engaged in the
       repackaging and distribution of pharmaceutical products and related
       computerized dispensing and patient tracking systems. QCP's customers
       include physicians, hospitals, group practices, managed care programs and
       other legally constituted medical facilities throughout the United
       States.

       RXDIRECT, LLC - On February 12, 1996, QCP entered into a joint venture
       agreement with the Visiting Nurses Association of Orange County ("VNA")
       to establish RxDirect, LLC ("RxDirect"), a mail order or direct delivery
       pharmacy. QCP provides ongoing management and logistical support to the
       joint venture. RxDirect is engaged in the dispensing of medications via
       mail or courier delivery to subscribers of their services. In October
       1998, the Company and VNA signed an agreement pursuant to which VNA
       agreed to withdraw from the RxDirect joint venture upon payment of a
       withdrawal fee of $154,000, including accounts receivable of $47,761.

       ISO 9000 CERTIFICATION - On March 14, 1996, and May 13, 1996, QCP was
       certified by the International Organization for Standardization ("ISO
       9000") as having the highest quality standards. ISO 9000's purpose is to
       establish common worldwide quality standards. The certification audit was
       performed by the French International Organization called Ascert. QCP
       believes that they are one of only a few domestic pharmaceutical
       repackagers that are currently ISO 9002 certified for their manufacturing
       plant and process.

       PHARMA LABS, LLC - On June 15, 1996, the Company entered into a joint
       venture agreement with Pharma France, Inc. to form Pharma Labs, LLC
       ("Pharma Labs"), a manufacturer and distributor of nutritional health
       products both domestically and internationally. The Company contributed
       $1,000,000 for 52% of the equity in Pharma Labs, LLC. As of August 31,
       1998, the Company had loaned Pharma Labs $976,274 for inventory,
       leasehold improvements and operational support.

       On October 8, 1998, the Company and the other member of Pharma Labs
       "(Member") entered into a Unit Purchase Agreement whereby the Company
       purchased the Member's 48% interest in Pharma Labs for $35,000. On
       November 10, 1998, the Company entered into a Purchase Agreement with
       Adam Equities, Inc. "(AEI"), pursuant to which on December 3, 1998 AEI
       purchased substantially all of the assets of Pharma Labs for $150,000. In
       addition, the AEI assumed Pharma Labs' obligations under two (2)
       equipment leases and an affiliate of AEI entered into a sublease with the
       Company to sublease Pharma Labs' facility and reimbursed the Company
       $57,000 for a lease deposit on the facility. The Company also received a
       $250,000 payment from AEI pursuant to the terms of a Noncompete
       Agreement. See "Note G" to "Notes to Consolidated Financial Statements".


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<PAGE>   3

       SALE OF RADIOPHARMACEUTICAL DIVISION - On April 7, 1997, the Company
       completed the sale of the assets related to its business of manufacturing
       and distributing radiopharmaceuticals for a total purchase price of
       $6,700,000 pursuant to the terms of an Asset Purchase Agreement dated
       April 7, 1997, by and between the Company and Syncor Pharmaceuticals,
       Inc. Included in the sale was the New Drug Application (NDA) for the
       radiopharmaceuticals, the building that contains the manufacturing
       facility for this business, and all of the related equipment.

       JOINT MARKETING AGREEMENT WITH DORNOCH MEDICAL SYSTEMS, INC. - In July
       1997, the Company and Dornoch Medical Systems, Inc. ("Dornoch") entered
       into a Joint Marketing Agreement ("JMA") whereby the Company agreed to
       market Dornoch's Redaway system, a medical infectious fluid collection
       and disposal system, in return for royalties on sales. In connection with
       the JMA, the Company was granted an option to purchase 220 shares of
       Dornoch common stock at a purchase price of $2,000 per share, which
       option would vest and be exercisable upon the sale of 80 Redaway systems
       through the Company's marketing efforts. Sales and royalties from this
       agreement have been negligible. In addition, Dornoch purchased 1,000,000
       shares of the Company's common stock for $0.30 per share and was granted
       an option to purchase an additional 1,000,000 shares for $0.30 per share.
       In July 1998, the JMA was terminated by mutual consent and all stock
       purchase options were cancelled.

       PHARMACEUTICAL REPACKAGING INDUSTRY

       Pharmaceutical repackagers, such as QCP, repackage pharmaceuticals from
       bulk quantities into smaller units-of-use and dose measurements, thereby
       providing physicians, hospitals, managed care programs and group
       practices with the ability to dispense medication directly to patients at
       the point-of-care ("POC").

       Dispensing medication at the POC provides physicians, managed health care
       organizations and patients with a number of significant benefits.
       Unit-of-use medication is packaged under federal regulations which
       assures the highest level product quality, purity and safety. Unit-of-use
       medication may be significantly less expensive than comparable products
       dispensed from a retail pharmacy. Dispensing medication directly to the
       patient significantly improves drug therapy compliance, which results in
       better patient outcomes and reduces the need for additional medical
       services. This results in lower overall medical costs per patient per
       incident. In addition, POC dispensing provides greater patient census,
       patient convenience, patient retention and lower health care costs due to
       compliance.

       MANUFACTURING

       QCP is licensed by the U.S. Food and Drug Administration ("FDA") as a
       manufacturer of repackaged prescription drugs. QCP purchases bulk
       quantities of certain pharmaceuticals and repackages them into smaller
       dispensing units for sale to its customers. QCP's repackaging facility,
       located in Santa Ana, California, is licensed by the FDA, the United
       States Drug Enforcement Administration ("DEA")and the California Health
       and Services Department and maintains rigid quality control standards.

       RxDirect is licensed by the DEA and the California Board of Pharmacy, and
       operates as a retail pharmacy engaged in mail order delivery.





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<PAGE>   4

       QUALITY CONTROL

       The Company believes that QCP is the only drug repackager in the U.S.
       that maintains full compliance to:

       ISO9002 - International quality standards that currently exceed all
                 existing FDA regulations (ISO certification, March 1996).

       cGMP's - Current Good Manufacturing Practices - Title 21 Code of Federal
                Regulations (amended April, 1995).

       FDA    - Food, Drug and Cosmetic Act

       DEA    - Controlled Substances Act.

       QCP's production batch record requires over 120 specific entries. Every
       step requires a minimum of two qualified employees to complete and
       verify. Every batch requires a minimum of seven different employees to
       complete.

       Every step in the production process, every tablet, capsule, bottle, cap,
       and label is 100% traceable. QCP maintains this information no less than
       one year past the original product's expiration date. In addition to the
       batch record, QCP maintains over 25 separate logs that must be completed
       every day the plant operates. These records document and monitor facility
       temperature, humidity, air pressure differentials, facility and equipment
       maintenance, equipment cleaning procedures, equipment process validation
       systems, and many other critical production and drug storage parameters
       to assure maximum product quality, purity, safety and traceability.

       QCP packages penicillin and cephalosporin antibiotics in separate
       negative air flow packaging rooms. This process is designed to prevent
       antibiotic contamination of non-antibiotic products, and cross
       contamination between penicillin and cephalosporin products. Antibiotic
       contamination of non-antibiotic drug products is a dangerous problem with
       the potential to occur at most pharmacies in the United States.

       DISTRIBUTION

       QCP ships orders for its products via United Parcel Service or other
       types of overnight delivery services. QCP's goal is to ship orders within
       twenty-four hours of receipt of the order.

       RxDirect ships orders for its products via UPS express delivery or
       overnight courier directly to customers. RxDirect's goal is that orders
       are shipped next day from receipt of order.

       SUPPLIERS

       QCP purchases pharmaceuticals from a number of FDA licensed United States
       drug distributors and manufacturers. QCP's largest supplier is Bergen
       Brunswig Corporation located in Corona, California. QCP believes its
       relationship with its suppliers to be good.

       RxDirect purchases pharmaceuticals from a number of FDA licensed drug
       wholesalers. RxDirect's largest suppliers are Bergen Brunswig
       Corporation, Barnes Wholesaler and Wyeth Ayerst.

       BACKLOG

       The Company does not have significant backlogs but operates on a daily
       order and contract basis with its customers.

       MARKETING

       QCP markets its products directly to customers through independent sales
       representatives, corporate sales personnel, trade shows and its World
       Wide Web site.

       RxDirect markets through direct sales contact with selected potential
       customers, as well as through direct mail and magazine advertising.



                                       3
<PAGE>   5


       RESEARCH AND DEVELOPMENT

       QCP has developed a proprietary dispensing and patient tracking software,
       called QScript. This software provides enhanced capabilities to collect
       and analyze data on patient diagnosis, drug utilization, treatment plans
       and specific costs and treatment outcomes. This not only provides the
       health care provider with patient data necessary to augment the patient's
       treatment, but also gives that provider an additional revenue source or a
       major cost reduction. QCP's dispensing software assures fast and simple
       dispensing in full compliance with state pharmacy laws. Software
       development efforts continue on upgrades to its proprietary dispensing
       and patient tracking software.

       COMPETITION

       QCP competes with other repackagers of pharmaceuticals, including
       Allscrips Pharmaceuticals, Inc., PDRx, and several other small firms. QCP
       believes it compares favorably with its competitors on such factors as
       price, service and delivery, credit terms, breadth of product lines and
       customer support.

       RxDirect competes with numerous other mail order pharmacies, many of
       which have greater resources than RxDirect.

       GOVERNMENT REGULATIONS

       QCP operations are regulated by the DEA, the FDA and various state
       bureaus of pharmacy which govern the distribution of pharmaceutical
       products and controlled substances. These organizations require
       distributors of pharmaceutical products and controlled substances to
       obtain permits and to meet various security and operating standards. QCP
       has received all necessary regulatory approvals and believes it is in
       substantial compliance with all applicable requirements.

       RxDirect is monitored by the same federal and state regulatory
       organizations as QCP and is also required to obtain permits and to meet
       various security and operating standards of such federal and state
       organizations. RxDirect has received all necessary regulatory approvals
       and believes it is in substantial compliance with all applicable
       requirements.

       Any change in government regulations cannot be predicted. The Company
       also cannot predict whether any agency will adopt regulations that will
       have a material effect on the Company's operations.

       In addition, a variety of state and local permits are required under
       regulations relating to the Company's products.

       PRODUCT LIABILITY AND INSURANCE

       The Company currently maintains product liability insurance in the
       aggregate amount of $5 million per occurrence and per year with a $2,500
       deductible.

       EMPLOYEES

       As of December 1, 1998, the Company employed seventy-three (73) persons
       on a full-time basis. Additional employees are hired from time to time
       during peak production periods. None of the Company's employees are
       represented by a union or collective bargaining unit and management
       considers relations with employees to be good.

       ADDITIONAL INFORMATION

       Compliance with federal, state and local regulations regarding the
       discharge of materials into the environment or otherwise relating to the
       protection of the environment has not had, and is not expected by the
       Company to have, any adverse effect on capital expenditures, earnings or
       the competitive position of the Company. The Company is not presently a
       party to any litigation or administrative proceeding with respect to its
       compliance with such environmental standards. In addition, the Company
       does not anticipate being required to expend any funds in the near future
       for environmental protection in connection with its operations.


                                       4
<PAGE>   6


ITEM 2.   DESCRIPTION OF PROPERTIES

       QCP leases a 25,000 square foot facility in Santa Ana, California
       pursuant to a lease agreement which expires in March 2004.

       During fiscal 1998, the Company sold a 2,000 square foot office building
       in Golden, Colorado. This facility was not in use.

       The Company believes its facilities and equipment are well maintained and
       in good operating condition and will satisfy its current manufacturing
       and processing needs.


ITEM 3.   LEGAL PROCEEDINGS

       The Company is subject to various legal proceedings and claims, either
       asserted or unasserted, which arise in the ordinary course of business.
       The Company has been a named defendant in a number of diet drug related
       personal injury lawsuits. These claims have been referred to the
       Company's product liability insurance carrier. While the outcome of these
       claims cannot be predicted with certainty, management does not believe
       that the outcome of any of these legal matters will have a material
       adverse effect on the Company's consolidated results of operations or
       consolidated financial positions.


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

       None.




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<PAGE>   7


PART II

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

       The Company's common stock is traded in the over-the-counter market and
       is quoted on the "OTC Bulletin Board" under the symbol "GPHI." The
       following table sets forth the high and low closing bid prices for the
       periods indicated, as reported by the OTC Bulletin Board.

<TABLE>
<CAPTION>
             For the Year ended August 31, 1998                High          Low
             ----------------------------------                ----          ---

<S>                                                        <C>                 <C>   
             1st Quarter                                   $   0.19            0.0625
             2nd Quarter                                       0.16            0.09
             3rd Quarter                                       0.12            0.07
             4th Quarter                                       0.085           0.035
</TABLE>

<TABLE>
<CAPTION>
             For the Year ended August 31, 1997                High          Low
             ----------------------------------                ----          ---

<S>          <C>                                         <C>                   <C> 
             1st Quarter                                 $     0.23            0.12
             2nd Quarter                                       0.32            0.12
             3rd Quarter                                       0.29            0.17
             4th Quarter                                       0.23            0.15
</TABLE>

       These quotations are inter-dealer prices without retail markup, markdown
       or commissions, and may not necessarily represent actual transactions.

       As of November 30, 1998, there were approximately 2,600 shareholders of
       record of the Company's common stock.

       The Company has never paid cash dividends. The Board of Directors of the
       Company currently anticipates that it will retain all available funds for
       use in the operation of the business and does not anticipate paying any
       cash dividends in the foreseeable future. The payment of cash dividends
       is restricted by the Company's loan agreements with the Bank.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

       The following discussion should be read in conjunction with the selected
       financial data and the financial statements and notes thereto filed
       herewith.

       The statements contained in this report, if not historical, are forward
       looking statements within the meaning of the Private Securities
       Litigation Reform Act of 1995, and involve risks and uncertainties that
       could cause actual results to differ materially from the financial
       results described in such forward looking statements. These risks and
       uncertainties include, among others, the level and rate of growth in the
       Company's operations, the capital requirements of the Company and the
       ability of the Company to achieve earnings per share growth through
       internal investment, strategic alliances, joint ventures and other
       methods. The success of the Company's business operations is, in turn,
       dependent on factors such as the effectiveness of the Company's marketing
       strategies to grow its customer base and improve customer response rates,
       the appeal of the Company's mix of products, the Company's success at
       entering into and collaborating with others to conduct effective
       strategic alliances and joint ventures, general competitive conditions
       within the pharmaceutical industry and general economic conditions.
       Further, any forward looking statements or statements speak only as of
       the date on which such statement was made, and the Company undertakes no
       obligation to update any forward looking statement or statements to
       reflect events or circumstances after the date on which such statement is
       made or to reflect the occurrence of unanticipated events. Therefore,
       forward-looking statements should not be relied upon as a prediction of
       actual future results.

       RECENT DEVELOPMENTS

       The Company incurred a net loss of ($10,067,760) during the fiscal year
       ended August 31, 1998 and, as of that date, the Company's current
       liabilities exceeded its current assets by $5,435,000 and its total
       liabilities exceeded its total assets by $4,595,000. Also, the Company is
       not in compliance with the covenants of its revolving credit facility and
       must obtain alternative financing by February 1, 1999. These conditions,
       as well as others, raise substantial doubt about the Company's 


                                       6
<PAGE>   8

       ability to continue as a going concern. As a result, the Company's
       auditors have included an explanatory paragraph in their report to the
       Company's consolidated financial statements at August 31, 1998 that
       expresses substantial doubt as to the Company's ability to continue as a
       going concern. See "Note C" to "Notes to Consolidated Financial
       Statements". The consolidated financial statements do not include any
       adjustments to reflect the possible future effects on the recoverability
       and classification of assets or the amounts and classification of
       liabilities that may result from the outcome of this uncertainty.

       For the last year, the Company has been operating in an increasingly
       difficult environment, and the Company expects to continue to operate in
       this environment for the foreseeable future. The Company's operations in
       fiscal 1998 and the first quarter of fiscal 1999 have consumed
       substantial amounts of cash and have generated significant net losses
       which reduced shareholder's equity to a deficit of $4,594,000 at August
       30, 1998. Also, QCP has a current period operating loss and negative cash
       flow from operations, and is expected to have continuing losses and
       negative cash flow from operations in the near term. There is substantial
       doubt about the Company's ability to continue as a going concern.

       The Company's ability to continue as a going concern is dependent upon
       its ability to obtain funding to support the Company's operating losses,
       capital requirements and to replace the revolving credit facility, as to
       which no assurance can be given.

       RESULTS OF OPERATIONS

       FISCAL YEAR ENDED AUGUST 31, 1998, COMPARED TO FISCAL YEAR ENDED AUGUST
       31, 1997 ($ ROUNDED TO NEAREST THOUSAND)

       NET SALES - Net sales for the fiscal year ended August 31, 1998, were
       $6,444,000, a decrease of $5,514,000 compared to $11,958,000 for the same
       period last year. The decrease is due to the loss of $2,370,000 in sales
       arising from the sale of the radiopharmaceutical business on April 7,
       1997 and lower sales recorded at QCP and Pharma Labs.

       QCP recorded net sales of $5,502,000 in fiscal 1998 compared to
       $8,033,000 in fiscal 1997. The lower sales level was due to the loss of a
       private label customer and substantially lower diet drug business.

       Pharma Labs sales in fiscal 1998 were $941,000 compared to $1,555,000
       last year. Last year's sales included substantial stocking orders
       primarily in the quarter ended February 28, 1997 of new product from a
       Vietnam distributor, affiliated with the Member, in anticipation of
       strong customer demand. Actual customer demand was well below
       expectations, which resulted in excess distributor inventory and
       depressed fiscal 1998 sales. Furthermore, in the last quarter of fiscal
       1998, the Pharma Labs business was winding down and production was scaled
       back.

       COST OF SALES - Cost of sales as percentage of sales was 82% in fiscal
       1998 compared to 68% for fiscal 1997. This increase in cost of sales as a
       percentage of sales from the prior year is due to the loss of higher
       margin sales from the radiopharmaceutic business in the current year due
       to the sale of that business in April 1997 and higher cost of sales at
       Pharma Labs. Pharma Labs' cost of sales increased from 76% of sales in
       the prior year to 142% of sales in the current year due primarily to
       lower selling prices, higher material costs, higher per unit overhead
       cost resulting from the lower sales volume and a $367,000 write off of
       inventory. QCP's cost of sales remained at 72% of net sales.

       SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative
       expenses (SG&A), excluding the unusual charges discussed below, were
       $6,819,000, an increase of $425,000 compared to $6,394,000 during fiscal
       1997. QCP's SG&A expense increased to $4,788,000 from $4,181,000 in the
       prior year due to increased spending on staffing and infrastructure costs
       to support QCP's long term growth program and development of new product
       initiatives, as discussed in greater detail under "Liquidity and Capital
       Resources." Golden's SG&A expense decreased $426,000 to $867,000 from
       $1,293,000 during the prior year. This decrease was due primarily to the
       elimination of SG&A expenses as a result of the sale of the
       radiopharmaceutical business. Pharma Labs' SG&A expense during fiscal
       1998 was $1,164,000 compared to $920,000 during fiscal 1997 as a result
       of bad debt expenses of $383,000 during fiscal 1998.



                                       7
<PAGE>   9

       UNUSUAL CHARGES / IMPAIRMENT LOSS - Efforts to turn around the poor
       performance of Pharma Labs did not meet expectations, and the Company
       could no longer be assured that future cash flow from Pharma Labs would
       cover the carrying value of certain assets. Accordingly, Pharma Labs
       recorded a non-cash impairment loss of $943,000 related to the write-down
       of property, plant and equipment to estimated net realizable value and
       the write-off of capitalized non-compete agreement costs, net of
       amortization.

       GOODWILL IMPAIRMENT CHARGE - Based on the current year's operating loss
       and negative cash flow from operations from operations, combined with a
       history of operating losses and negative cash flow from operations, the
       Company has determined that significant uncertainty exists regarding the
       recoverability of the carrying value of goodwill. Accordingly, a
       $3,510,000 goodwill impairment charge was recorded in the fourth quarter
       of fiscal 1998.

       INTEREST EXPENSE - Interest expense decreased to $598,000 from $1,456,000
       in fiscal 1997 primarily due to the repayment of the $3,750,000 term loan
       on April 7, 1997.

       GAIN ON DISPOSAL OF ASSETS - In fiscal 1998, the Company recorded a
       $112,000 gain on the sale of a building located in Golden, Colorado. This
       facility was no longer needed due to the consolidation of the Company's
       operations in California.

       NET INCOME (LOSS) - The Company reported a net loss of ($10,068,000) for
       fiscal 1998 as compared to a net income of $1,821,000 for fiscal 1997.
       The fiscal 1998 net loss was primarily due to operating losses of
       ($10,131,000) compared to an operating loss of ($2,583,000) in the prior
       year. Contributing to the current year operating loss was a $3,510,000
       goodwill impairment charge as discussed above, and a $943,000 unusual
       charge - impairment loss related to the revaluation of Pharma Labs
       property, plant and equipment and write-off of an intangible asset
       pertaining to a non-compete agreement. The current year operating loss
       also includes the following items related to the shut down of Pharma
       Labs; a $367,000 write-off of inventory, a $415,000 write-off of a trade
       receivable from a Vietnam based business and a $676,000 bad debt
       provision taken against working capital loans made to Pharma Labs.

       FOURTH QUARTER ADJUSTMENTS - Operating results for the fourth quarter of
       fiscal 1998 include the following adjustments: (i) A $385,000 write down
       of property held for sale to re-value Pharma Labs assets to their selling
       price as specified in a pending sale contract. (ii) A $125,000 adjustment
       to re-instate a payable due to the other member of Pharma Labs in
       accordance with a non-complete agreement. These adjustments were included
       in the category unusual charges impairment loss. And (iii), a $167,000
       write-off of Pharma Labs inventory was charged to cost of sales in the
       fourth quarter of fiscal 1998.

       As disclosed in "Note R" to "Notes to Consolidated Financial Statements",
       a $3,510,000 goodwill impairment charge was recorded in the fourth
       quarter of fiscal 1998.

       FISCAL YEAR ENDED AUGUST 31, 1997, COMPARED TO FISCAL YEAR ENDED AUGUST
       31, 1996 ($ ROUNDED TO NEAREST THOUSAND)

       NET SALES - Net sales for the fiscal year ended August 31, 1997,
       increased 18% to $11,958,000 from $10,157,000 for the fiscal year ended
       August 31, 1996. This increase is primarily due to (1) a 33% or
       $2,015,000 increase in QCP sales due to an expanded customer base and (2)
       a full year of Pharma Labs sales of $1,555,000 compared to sales of
       $249,000 in the prior start-up year. These increases were partially
       offset by a $1,517,000 decline in the Company's sales as a result of the
       sale of its radiopharmaceutical business in April 1997.

       COST OF GOODS SOLD - Cost of goods sold as a percentage of sales
       increased to 68.1% for the fiscal year ended August 31, 1997, as compared
       to 64.4% for the fiscal year ended August 31, 1996. This increase is
       primarily attributable to the loss of gross margin from the sale of the
       Company's radiopharmaceutical business.

       SELLING GENERAL AND ADMINISTRATIVE - Selling, general and administration
       expenses ("SG&A") increased to $6,394,000 in fiscal 1997 from $3,872,000
       in the prior year. QCP's SG&A spending increased to $4,181,000 from
       $2,202,000 in the prior year due to increased spending on staffing and
       infrastructure costs to support QCP's growth program. QCP's selling and
       marketing expenses increased $1,049,000 from the prior year primarily to
       support sales force expansion and addition of key management positions.
       QCP's general and administrative expenses increased $930,000 from 


                                       8
<PAGE>   10

       the prior year due primarily to (1) increases in staffing and related
       expenses, (2) higher facility and overhead costs, (3) formation of an MIS
       department, and (4) higher bad debt expense. The remainder of the
       increase in SG&A was a result of Pharma Labs' SG&A increasing to $920,000
       in the current year from $166,000 in fiscal 1996. This increase is a
       result of a full year of Pharma Labs operation in fiscal 1997 compared to
       two months in fiscal 1996. These increases were partially offset by GPI's
       SG&A expense decrease of $191,000 from the prior year level of $1,485,000
       due to the sale of the radiopharmaceutical business in April, 1997.

       NET INCOME - The Company reported net income of $1,821,000 for fiscal
       1997 as compared to a net loss of ($992,000) for fiscal 1996. The fiscal
       1997 net income level was attained primarily due to the $6,210,000 gain
       on the sale of the radiopharmaceutical business in April 1997. Losses
       from operations were ($2,583,000) in fiscal 1997, compared to an
       operating loss of ($254,000) in the prior year. The 1997 operating losses
       were due primarily to significantly increased spending on staff and
       infrastructure in support of long term growth plans. Fiscal 1997 net
       income was also negatively impacted by interest expense of $1,456,000 up
       from $807,000 in the prior year, income tax expense of $642,000 and
       benefited from a favorable minority interest allocation of $269,000.

       FOURTH QUARTER ADJUSTMENTS - Operating results for the fourth quarter of
       fiscal 1997 include the following adjustments: a $483,000 reduction to
       other income and notes receivable to eliminate revenue due under the
       terms of the June 14, 1996, Guarantee Agreement with the other member of
       Pharma Labs. Collectability of this amount is not reasonably assured.
       Accruals were made to reflect the impact of the September 1997, Pondimin
       and Redux diet drug product withdrawal. Net sales and receivables were
       decreased $238,000 for estimated returns applicable to fiscal 1997 sales,
       and cost of sales was decreased and receivables increased by $197,000 for
       the estimated cost of the returned product and estimated refund due from
       the product manufacturer.

       An additional $222,000 provision for doubtful accounts was made in the
       last quarter primarily due to adverse conditions in the diet clinic
       industry. The diet drug withdrawal and adverse publicity in the media
       have negatively impacted many of the Company's diet clinic customers.

       LIQUIDITY AND CAPITAL RESOURCES ($ ROUNDED TO NEAREST THOUSAND)

       The following table is presented to facilitate the discussion of the
       Company's current liquidity and sets forth the Company's liquidity
       position as of August 31, 1998, as compared to August 31, 1997.

<TABLE>
<CAPTION>
                                                                 August 31, 1998     August 31, 1997 
                                                                 ---------------     --------------- 
<S>                                                                <C>                <C>            
              Current assets                                       $ 2,471,000        $ 3,256,000    
              Current liabilities                                    7,906,000          3,132,000    
                                                                   -----------        -----------    
                                                                                                     
              Net working capital (deficiency)                     $(5,435,000)       $   124,000    
</TABLE>


       At August 31, 1998, current assets were $2,471,000, a decrease of
       $785,000 from the prior year end. Decreases in inventory and trade
       receivables of $447,000 and $401,000, respectively, from fiscal 1997 year
       end levels were partially offset by a reclassification of $150,000 in
       Pharma Labs assets held for sale to the current assets category. The
       decrease in inventory was due to the following: Pharma Labs' inventory
       decreased to $0 from $539,000 at last year end as a result of the
       wind-down of Pharma Labs' business. Partially offsetting the Pharma Labs'
       inventory decline was an increase in QCP inventory to accommodate an
       expanded product line. The decrease in trade receivables was primarily
       due to a $526,000 decrease in Pharma Labs' trade receivables as a result
       of the wind-down of Pharma Labs' business.

       At August 31, 1998, current liabilities were $7,906,000, an increase of
       $4,774,000 from the prior year end, primarily due to an increase in notes
       payable - related parties of $4,399,000, and an increase in accrued
       interest on these notes of $313,000.

       The Company has capitalized leases and operating leases for equipment,
       facilities and a vehicle used in its business. Minimum lease payments for
       its capitalized and operating leases are expected to be $311,000 and
       $367,000, respectively, for the fiscal year ending August 31, 1999.

       As of August 31, 1998, the Company had net operating loss carry forwards
       for federal income tax purposes of approximately $15,255,000. The net
       operating loss carry forwards will expire in the 


                                       9
<PAGE>   11

       years 1998 through 2013. The Company's ability to utilize its net
       operating loss carry forwards is subject to an annual limitation in
       future periods pursuant to the "change in ownership" rules under Section
       382 of the Internal Revenue Code of 1986. The Company has established a
       valuation allowance against 100% of the net operating loss carry forwards
       because it is uncertain whether the Company will utilize these carry
       forwards due to continuing operating losses.

       Prior to September 1997, the Company's primary source of funds for
       working capital was the Company's revolving facility with the Bank. At
       August 31, 1998, the balance outstanding was $834,000, and the interest
       rate under the Revolving Facility was 11.5%. The Revolving Facility is
       collateralized by QCP's accounts receivable and inventory, and
       availability under the Revolving Facility is determined based on eligible
       accounts receivable and inventory.

       At August 31, 1998, the Company was not in compliance with certain
       covenants of the Revolving Facility, including covenants regarding book
       net worth, debt service coverage, interest coverage, net income (loss)
       and capital expenditures. The Company re-negotiated the terms of the
       Credit Agreement with the Bank, including re-negotiation of the above
       covenants, and an Amended and Restated Credit Agreement ("Credit
       Agreement Amendment") was signed by both parties on August 7, 1998, but
       the effectiveness of the Credit Agreement Amendment was conditional upon
       the Company obtaining a $2.5 million capital investment by August 31,
       1998.

       To date the Company has not obtained the $2.5 million capital investment,
       and on October 27, 1998, the Bank informed the Company of its decision
       to; (1) implement an additional one percent (1%) default rate of interest
       provided for the Credit Agreement, retroactive back to July 31, 1998; (2)
       reduce the maximum loan commitment level to $1.0 million; and (3)
       terminate the credit agreement on February 1, 1999. In such letter, the
       Bank also reserved its right to take further action with respect to the
       defaults in the future. If the Company is unable to repay the Revolving
       Facility or obtain substitute financing, the Bank has the right to, among
       other things, (i) accelerate all unpaid principal and interest with
       respect to all debts, liabilities or obligations owed to the Bank by QCP,
       (ii) put account debtors of QCP on notice that payments due QCP should be
       made to a lockbox for the benefit of the Bank, collect such payments and
       apply such collections to payment of the obligations owed to the Bank,
       (iii) occupy all premises where QCP conducts business without payment of
       rent and (iv) foreclose its security interest in all the equipment,
       general intangibles, inventory and receivables owned by QCP. The Company
       is seeking alternative working capital financing sources, but has no
       commitment for such financing in place and there can be no assurance that
       it will be able to obtain any such financing.

       The Company has been unable to borrow sufficient amounts under the
       Revolving Facility to finance its working capital requirements. In order
       to help meet its working capital requirements, the Company has borrowed
       money from certain shareholders and directors of the Company. The loans
       are evidenced by promissory notes which provide for interest at the
       Bank's prime plus 2%. The promissory notes are unsecured obligations. The
       amounts outstanding under the promissory notes in aggregate were
       $5,014,200 ($4,544,200 payable to Charles R. Drummond; $470,000 payable
       to Arch G. Gothard, III) and $5,364,200 ($4,894,200 payable to Charles R.
       Drummond; $470,000 payable to Arch G. Gothard, III) at August 31, 1998,
       and December 1, 1998, respectively. Certain of the promissory notes
       ($1,425,000 payable to Charles R. Drummond and $470,000 payable to Arch
       G. Gothard, at August 31, 1998) were payable on demand or no later than
       April 1, 1998 and, accordingly, are past due. Pursuant to a letter dated
       October 30, 1998, Charles R. Drummond committed not to demand payment of,
       or take any action to collect, the promissory notes owed him until August
       31, 1999 or such time as the Company has the ability to repay such
       promissory notes. The promissory notes payable to Charles R. Drummond are
       fully subordinate for all purposes to the security interest of the Bank.

       The Company has suffered substantial recurring losses from operations.
       The Company has incurred a net loss of ($10,067,760) during the fiscal
       year ended August 31, 1998, and, as of that date, the Company's current
       liabilities exceeded its current assets by $5,435,000 and its total
       liabilities exceeded its total assets by $4,595,000. These factors, in
       combination with the matters discussed in the previous paragraphs raise
       substantial doubt about the Company's ability to continue as a going
       concern. Approximately $5 million may be required to support the
       Company's ongoing operations, exclusive of debt repayments, through
       August 31, 1999. To date, the Company does not have any commitments with
       respect to such financing and there can be no assurance that financing
       will be available to the Company on terms acceptable to the Company, if
       at all. The Company's ability to continue as a going concern is dependent
       upon its ability to obtain funding for the Company's capital requirements
       and to refinance the Credit Facility. The 


                                       10
<PAGE>   12

       Company's shareholder deficit, and continuing losses create serious risk
       of loss for the holders of the Company's securities.

       DISCLOSURE OF SIGNIFICANT RISK AND UNCERTAINTY

       At August 31, 1998, the Company conducted a test for asset impairment in
       accordance with financial Accounting Standard 121. It is management's
       opinion that, exclusive of the write-downs for Pharma Labs and the
       write-off of goodwill, no additional impairment loss occurred. QCP has a
       current period operating loss and negative cash flow from operations, and
       is expected to have continuing losses in the near term.

       Key assumptions in the asset impairment test include reversal of recent
       operating losses and sales declines, several years of significant sales
       growth, and product cost reduction achieved through purchasing and volume
       efficiencies. Management feels this projection is achievable considering
       the size of the retail pharmacy market ($84 billion), the growth rate of
       competitors in the industry, and based on estimates of growth potential
       made by companies participating in the industry.

       If management's assumptions prove too optimistic, an impairment charge,
       based on an undiscounted cash flow analysis, would result. The impairment
       charge would be computed based on the excess of carrying value over the
       fair value of assets. This would result in a valuation adjustment to the
       $1,293,000 in property, plant and equipment.

       Accordingly, it is reasonably possible that the results of the impairment
       test may change in the future and an impairment loss may result.

       YEAR 2000

       The Company recognizes the need to ensure its operations will not be
       adversely impacted by year 2000 software failures. The Company is
       addressing this risk to the availability and integrity of financial
       systems and the reliability of operational systems. The Company has
       established processes for evaluating and managing the risks and costs
       associated with this problem. The Company is currently planning to
       install a new business software package in 1999 to accommodate business
       growth and upgrade current systems. This package is year 2000 compliant.
       An initial assessment has been completed and the incremental cost of
       achieving Year 2000 compliance, exclusive of the upgrade cost for the new
       software previously discussed, is estimated to be not material. Timely
       implementation of the new business software package is critical to year
       2000 compliance. Cost will be expensed as incurred and are estimated to
       continue through fiscal 1999.

ITEM 7.  FINANCIAL STATEMENTS

       The financial statements of the Company are attached to this Report.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

       None.




                                       11
<PAGE>   13


                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
        REGISTRANT; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

       The following persons hold the positions indicated.

<TABLE>
<CAPTION>
                                        Principal Occupation or Employment During the Past Five Years;         Director
           Name & Age                                         Other Directorships                               Since
           ----------                 ----------------------------------------------------------------          -----
          <S>                         <C>                                                                       <C>
           Charles R. Drummond        Chairman of the Board of Directors, Chief Executive Officer and            1991 
           (55)                       Treasurer of the Company since 1992. Owner and operator of Drummond             
                                      Ranches, a cattle ranching operation in Pawhuska, Oklahoma, since               
                                      1965. Partner in Drummond and Hull Oil Company.                                 
                                                                                                                      
                                      Director. Co-owner of Drummond Land and Cattle Company since                    
           Ladd A. Drummond           January 1991; operator of risk management and investment                   1994 
           (29)                       businesses.                                                                     
                                                                                                                      
           Arch G. Gothard, III       Director. President of First Kansas, Inc. since October 1988. Mr.          1995 
           (53)                       Gothard is also serves as a director of First State Bank, Kenco                 
                                      Plastics, Inc., LDI, Inc., Pay Phone Concepts, Inc. and Collins                 
                                      Industries, Inc.                                                                
                                                                                                                      
           John H. Grant              Vice Chairman & Secretary of the Board of Directors and Chief              1990 
           (56)                       Operating Officer of QCP. Professor of Business Administration,                 
                                      University of Pittsburgh, Pennsylvania from January 1972 to August              
                                      1997.                                                                           
                                                                                                                      
           Gary P. Pryor              Vice President, Finance since July 1997. Chief Financial Officer at        N/A  
           (49)                       Johnston Sweeper Company from June 1995, to June 1997, and Vice                 
                                      President, Finance, at Bicore Monitoring Systems, Inc. from                     
                                      December 1991 to June 1995.                                                     
                                                                                                                      
           Richard G. Wahl            Director. Owner and President of MRD Construction Incorporated,            1993 
           (62)                       since 1964. Mr. Wahl also serves as managing partner of both G & W              
                                      Construction of Evergreen, Colorado, and Willow Ridge Conference                
                                      Center of Morrison, Colorado.                                              
</TABLE>


       The Company's Articles of Incorporation, as amended, provide for a board
       of directors made up of three classes. The members of each class serve
       three-year staggered terms with one class to be elected at each annual
       meeting. As provided in the Company's Bylaws, the Board has currently set
       the total number of directors at five (5). The current terms of the Class
       A, Class B and Class C directors expire at the Company's annual meeting
       of shareholders in 1998, 1999 and 2000, respectively. Officers serve at
       the discretion of the Board of Directors and are elected at the first
       meeting of the Board of Directors after each annual meeting of
       shareholders.

       Charles R. Drummond and Ladd A. Drummond are father and son. There are no
       other family relationships between any of the directors and executive
       officers of the Company.

       SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE - Section 16(a)
       of the Securities Exchange Act of 1934 and the rules thereunder require
       the Company's officers and directors, and persons who own more than ten
       percent of a registered class of the Company's equity securities, to file
       reports of ownership and changes in ownership with the Securities and
       Exchange Commission and to furnish the Company with copies.

       Based solely on its review of the copies of the Section 16(a) forms
       received by it, or written representations from certain reporting
       persons, the Company believes that, during the last fiscal year, all
       Section 16(a) filing requirements applicable to its officers, directors
       and greater-than-ten-percent beneficial owners were filed in compliance
       with all applicable filing requirements.



                                      12
<PAGE>   14

       ITEM 10.  EXECUTIVE COMPENSATION

       The following table sets forth certain information concerning
       compensation paid by the Company to the Chief Executive Officer and any
       executive officer whose total annual salary and bonus exceeded $100,000
       for the last fiscal year:

<TABLE>
<CAPTION>
         --------------------------------------------------------------------------------------------------------------------
                                                       SUMMARY COMPENSATION TABLE
         --------------------------------------------------------------------------------------------------------------------
                                                               ANNUAL                           LONG-TERM
                                                            COMPENSATION                   COMPENSATION AWARDS
         --------------------------------------------------------------------------------------------------------------------
                    (a)                        (b)              (c)              (d)               (g)               (i)
         --------------------------------------------------------------------------------------------------------------------
                                                                                                SECURITIES        ALL OTHER
         NAME & PRINCIPAL POSITION                                                              UNDERLYING       COMPENSATION
                                               YEAR          SALARY ($)       BONUS ($)       OPTIONS/SARS (#)        ($)
         --------------------------------------------------------------------------------------------------------------------
<S>                                           <C>              <C>                <C>          <C>                <C>    
         Charles R. Drummond                   1998             150,000               -0-          -0-             24,000 (1)
         Chairman, Chief Executive             1997             150,000               -0-          -0-             24,000 (1) 
         Officer and Treasurer                 1996             125,000           25,000           -0-                 -0-    
         --------------------------------------------------------------------------------------------------------------------
         John H. Grant                         1998             105,000               -0-          -0-                 -0-
         Vice Chairman, Chief Operating        1997               8,750               -0-          -0-                 -0-
         Officer and Secretary                 1996                  -0-              -0-          -0-                 -0-
         --------------------------------------------------------------------------------------------------------------------
         Bruce A. Goldberg (2)                 1998             105,000               -0-          -0-                 -0-
         President, GPI                        1997             104,000               -0-          -0-                 -0- 
                                               1996             104,000           20,000           -0-                 -0- 
         --------------------------------------------------------------------------------------------------------------------
</TABLE>


       (1) Living Allowance.
       (2) Mr. Goldberg is no longer an employee of the Company.

       The foregoing compensation tables do not include certain fringe benefits
       made available on a nondiscriminatory basis to all Company employees such
       as group health insurance, dental insurance, long-term disability
       insurance, vacation and sick leave. In addition, the Company makes
       available certain non-monetary benefits to its executive officers with a
       view to acquiring and retaining qualified personnel and facilitating job
       performance. The Company considers such benefits to be ordinary and
       incidental business costs and expenses. The aggregate value of such
       benefits in the case of each executive officer and of the group listed in
       the above table, which cannot be precisely ascertained but which is less
       than the lesser of (a) ten percent of the cash compensation paid to each
       such executive officer or to the group, respectively, or (b) $50,000, or
       $50,000 times the number of individuals in the group, as the case may be,
       is not included in such table.

       EMPLOYMENT AGREEMENTS - On September 1, 1991 the Company entered into an
       employment agreement with Mr. Charles R. Drummond whereby Mr. Charles R.
       Drummond was employed by the Company beginning on September 1, 1991 for a
       period of three years or the termination of the employment agreement.
       Pursuant to the terms of the agreement, Mr. Charles R. Drummond's duties
       are to act as Chairman of the Board and Secretary of the Company. The
       agreement provides that Mr. Charles R. Drummond will be paid an annual
       salary subject to periodic increases from time to time at the sole
       discretion of the Board. The agreement provides that Mr. Charles R.
       Drummond's employment with the Company may be terminated for cause, as
       defined therein. If Mr. Charles R. Drummond's employment is terminated
       without cause, the Company shall pay Mr. Charles R. Drummond, in addition
       to amounts accrued during the respective periods prior to such
       termination, severance pay in an amount equal to the amount of
       compensation that would otherwise be payable to Mr. Charles R. Drummond
       under the agreement. The Board and Mr. Charles R. Drummond have agreed to
       extend the employment agreement on a year to year basis. Mr. Charles R.
       Drummond's salary for the period of September 1, 1998, through August 31,
       1999, will be $190,000 plus a living allowance of $60,000.

       In 1997, the Company entered into an employment agreement with John H.
       Grant for a period of five years or until termination of the agreement.
       Mr. Grant's duties include service as Vice Chairman of the Board at a
       minimum annual salary of $95,000. He is currently being paid a salary of
       $105,000 per year.

                                       13

<PAGE>   15

       In October 1992, the Company adopted a Performance Stock Option Plan (the
       "Plan"), approved by the shareholders, for the benefit of employees,
       officers and directors of the Company, including the executive officers
       referred to in the Summary Compensation Table. The Stock Option Committee
       of the Board of Directors selects the optionee and determines the terms
       and conditions of the stock option grants. As of August 31, 1998, options
       to purchase 950,000 shares of common stock were outstanding pursuant to
       the Plan.

       COMPENSATION OF DIRECTORS - Directors who are not employees of the
       Company are entitled to $1,500 for each board meeting attended in person,
       and $500 for each committee meeting attended in person plus reimbursement
       for travel and other expenses relating to attendance at each such
       meeting.

       ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

       The following table sets forth certain information regarding beneficial
       ownership of outstanding shares of common stock as of November 30, 1998,
       by (i) each person who is known by the Company to own beneficially more
       than five percent of the outstanding shares of the Company's common
       stock, (ii) the Company's directors, Chief Executive Officer and
       executive officers whose total compensation exceeded $100,000 for the
       last fiscal year; and (iii) all directors and executive officers of the
       Company as a group.

<TABLE>
<CAPTION>
                                                           Shares
                Name                                 Beneficially Owned              Percent of Class
                ----                                 ------------------              ----------------

<S>                                                        <C>                             <C>
                Timothy E. Drummond(1)                     15,154,546                      12%
                623 Kihekah
                Pawhuska, Oklahoma  74056

                Charles R. Drummond(1)                     29,086,376                      23%
                3000 West Warner Avenue
                Santa Ana, CA 92704

                John H. Grant (1)                           2,314,435                       2%
                3000 West Warner Avenue
                Santa Ana, CA 92704

                Richard G. Wahl(1)                          3,227,594                       3%
                150 Buckboard, Box 1328
                Edwards, CO  81632

                Ladd A. Drummond(1)                        15,233,203                      12%
                623 Kihekah
                Pawhuska, Oklahoma  74056

                Arch G. Gothard, III(1)                     3,126,804                       3%
                Box 5950
                Breckenridge, CO  80424

                Bruce A. Goldberg(1)                        6,561,000                       5%
                5225 Dayton St.
                Greenwood, CO 80111

                Daniel B. Guinn(1)                          2,100,000                       2%
                3000 West Warner Avenue
                Santa Ana, CA  92704

                All executive officers
                and directors as a group
                (six persons)(1)                           55,088,412                      44%
</TABLE>

                (1) Shares are considered beneficially owned, for purposes of
                this table, only if held by the person indicated, or if such
                person, directly or indirectly, through any contract,
                arrangement, understanding, relationship or otherwise has or
                shares the power to vote, to direct the voting of and/or to
                dispose of or to 


                                       14
<PAGE>   16

                direct the disposition of, such security, or if the person has 
                the right to acquire beneficial ownership within 60 days, unless
                otherwise indicated.

       ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

       In August 1995, the Company issued 2,000,000 shares of its common stock
       to a corporation of which Mr. Charles R. Drummond is the sole shareholder
       in order to have the Company released from a contingent liability. This
       matter has been resolved and the shares are in the process of being
       transferred back to the Company.

       In January 1997, the Company issued 2,000,000 shares of its common stock
       to Daniel B. Guinn, President of QCP, as consideration for terminating an
       employment agreement originally entered into July 9, 1995. The agreement
       terminating the employment agreement was effective March 9, 1996, but the
       common stock issued as consideration was not issued until January 1997.

       The Company is due $34,445 from a related entity with common shareholders
       and officers. The amount due the Company has been guaranteed by the
       shareholders. The related shareholders are as follows: Charles R.
       Drummond, Bruce A. Goldberg, Daniel B. Guinn, and Arch G. Gothard, III,
       all of whom are officers or directors of the Company.

       RxDirect subleases approximately 1,500 square feet at the Santa Ana,
       California, facility for $7,800 per year.

       LOANS FROM SHAREHOLDERS AND DIRECTORS - During the fiscal year ended
       August 31, 1998, and subsequent to the end of the year, the Company
       obtained financing through the issuance of notes payable to certain
       shareholders and directors of the Company. The amounts outstanding
       through the issuance of these notes payable were $5,014,200 ($4,544,200
       payable to Charles R. Drummond; $470,000 payable to Arch G. Gothard III)
       and $5,364,200 ($4,894,200 payable to Charles R. Drummond; $470,000
       payable to Arch G. Gothard III) at August 31, 1998, and December 1, 1998,
       respectively.




                                       15
<PAGE>   17


                                     PART IV

       Item 13.  Exhibits and Reports on Form 8-K

       (a)  The following documents of the Company are filed as a part of this 
       Report

       1.     Financial Statements

       2.     Financial Statement Schedules

       Schedules for which provision is made in the applicable regulations of
       the Securities and Exchange Commission have been omitted because they are
       not required under the related instructions or the information related is
       contained elsewhere in the financial statements.

       3.     Exhibits

<TABLE>
<CAPTION>
Exhibit No.                      Description
-----------                      -----------

<S>                <C>     
    3.1(1)         Articles of Incorporation filed October 4, 1973.

    3.2(1)         Articles of Amendment to Articles of Incorporation filed December 22, 1976.

    3.3(1)         Articles of Amendment to Articles of Incorporation filed August 25, 1978.

    3.4(1)         Articles of Amendment to Articles of Incorporation filed June 15, 1979.

    3.5(1)         Articles of Amendment to Articles of Incorporation filed January 12, 1981.

    3.6(1)         Articles of Amendment to Articles of Incorporation filed June 16,1987.

    3.7(1)         Articles of Amendment to Articles of Incorporation filed October 9, 1992.

    3.8(2)         Articles of Amendment to Articles of Incorporation filed December 16, 1997

    3.9(1)         Certificate of Designation of 15%/30% Cumulative Convertible Preferred Stock filed
                   December 9, 1987.

    3.10(1)        Corrected Certificate of Designation of 15%/30% Cumulative Convertible Preferred Stock
                   filed December 14, 1987.

    3.11(1)        Corrected Certificate of Designation of 15%/30% Cumulative Convertible Preferred Stock
                   filed February 5, 1988.

    3.12(1)        Certificate of Designation of Class A Convertible Preferred Stock filed October 12,
                   1990.

    3.13(3)        Second Amended and Restated Bylaws

    4.2(1)         Specimen Certificate for Common Stock, no par value per share.

</TABLE>


                                       16
<PAGE>   18
<TABLE>
<S>                <C>     
    10.1(3)        Amended and Restated Credit and Security Agreement dated August 7, 1995 among the
                   Company, Quality Care Pharmaceuticals, Inc. and Norwest Credit, Inc.

    10.2(4)        Operating Agreement dated June 14, 1996 between the Registrant and Pharma France, Inc.

    10.3*          Form of Promissory Notes executed by the Company in favor of Charles R. Drummond.
                   Schedule A sets forth the date and principal amount of each promissory note.

    10.4*          Form of Promissory Notes executed by the Company in favor of Arch G. Gothard, III.
                   Schedule B sets forth the date and principal amount of each promissory note.

    10.5*          Purchase Agreement dated November 10, 1998 by and among Adams Equities, Inc., Pharma
                   Labs, LLC, GMP Laboratories of America and Golden Pharmaceuticals, Inc.

    10.6*          Agreement Not to Compete dated November 10, 1998 among Pharma Labs, LLC, Golden
                   Pharmaceuticals, Inc.

    21(2)          Subsidiaries of the Registrant.

    27*            Financial Data Schedule.

    (b)            Reports on Form 8-K

                   None.
</TABLE>

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

(1)  Incorporated by reference to registrant's Annual Report on Form 10-K, dated
     August 31, 1991, as filed with the Securities and Exchange Commission.

(2)  Incorporated by reference to registrant's Annual Report on Form 10-K, dated
     August 31, 1997, as filed with the Securities and Exchange Commission

(3)  Incorporated by reference to registrant's Annual Report on Form 10-K, dated
     August 31, 1995, as filed with the Securities and Exchange Commission.

(4)  Incorporated by reference to registrant's Annual Report on Form 10-K, dated
     August 31, 1996, as filed with the Securities and Exchange Commission.


*    Filed herewith.




                                       17
<PAGE>   19


                  GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                           AND SUPPLEMENTAL SCHEDULES

<TABLE>
<CAPTION>
                                                                                       Page
                                                                                       ----
<S>                                                                                   <C>
FINANCIAL STATEMENTS:

Report of Independent Certified Public Accountants                                     F-2

Consolidated Balance Sheets as of August 31, 1998 and 1997                             F-3

Consolidated Statements of Operations for the Years Ended
   August 31, 1998 and 1997                                                            F-5

Consolidated Statement of Stockholders' Equity (Deficit)
    for the Years Ended August 31, 1998 and 1997                                       F-6

Consolidated Statements of Cash Flows for the Years Ended
   August 31, 1998 and 1997                                                            F-7

Notes to Consolidated Financial Statements                                             F-9
</TABLE>



















                                      F-1
<PAGE>   20

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Golden Pharmaceuticals, Inc.
Golden, Colorado

We have audited the accompanying consolidated balance sheets of Golden
Pharmaceuticals, Inc. (a Colorado corporation) and Subsidiaries as of August 31,
1998 and 1997, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the years 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 audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Golden Pharmaceuticals, Inc.
and Subsidiaries as of August 31, 1998 and 1997, and the consolidated results of
their operations and their consolidated cash flows for each of the years then
ended in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $10,067,760 during the year ended August 31,
1998, and, as of that date, the Company's current liabilities exceeded its
current assets by $5,435,192 and its total liabilities exceeded its total assets
by $4,594,824. These factors, among others, as discussed in Note C to The
financial statements, raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note C. The financial statements do not include any
adjustments that might result from the outcome of this uncertainly.


GRANT THORNTON LLP


Denver, Colorado
October 28, 1998 (except for Note T, as to which the date is December 3, 1998)





                                      F-2
<PAGE>   21


                  GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS


<TABLE>
<CAPTION>
                                                                                  AUGUST 31,
                                                                          ------------------------
                                                                             1998          1997
                                                                          ----------    ----------
CURRENT ASSETS

<S>                                                                       <C>           <C>       
       Cash                                                               $   61,860    $   26,143
       Trade receivables, net of allowance for doubtful accounts of
          $535,945 and $446,834 at August 31, 1998 and 1997                1,377,291     1,778,321
       Notes receivable                                                      139,797       252,500
       Inventories                                                           577,947     1,024,689
       Prepaid expenses and other                                            141,144       174,768
       Net assets held for sale                                              173,000          --
                                                                          ----------    ----------

              TOTAL CURRENT ASSETS                                         2,471,039     3,256,421

PROPERTY, PLANT AND EQUIPMENT - AT COST                                    2,166,642     3,362,288
       Less accumulated depreciation and amortization                        873,325       908,804
                                                                          ----------    ----------

              TOTAL PROPERTY, PLANT & EQUIPMENT                            1,293,317     2,453,484

OTHER ASSETS
       Goodwill, less accumulated amortization of $422,784 at
       August 31, 1997                                                          --       3,740,525
       Intangibles - net of accumulated amortization of $1,933 and
       $1,133 at August 31, 1998 and 1997                                     10,067        10,867
       Non-compete agreement                                                  69,050       331,076
       Investment in joint venture                                              --           1,866
                                                                          ----------    ----------

              TOTAL OTHER ASSETS                                              79,117     4,084,334
                                                                          ----------    ----------

                      TOTAL ASSETS                                        $3,843,473    $9,794,239
                                                                          ==========    ==========
</TABLE>



                 See Notes to Consolidated Financial Statements






                                      F-3
<PAGE>   22

                  GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS - continued

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                    AUGUST 31,
                                                                            -----------------------------
                                                                                1998             1997
                                                                            ------------     ------------
<S>                                                                         <C>              <C>         
CURRENT LIABILITIES
       Notes payable                                                        $    833,639     $    743,168
       Notes payable - related parties                                         5,014,200          615,000
       Current maturities of long-term debt                                      212,228          262,506
       Current maturities of capitalized lease obligations                       224,588          202,061
       Accounts payable                                                        1,142,999        1,041,639
       Income taxes payable                                                         --             40,000
       Accrued liabilities
              Salaries, wages and other compensation                              47,070          161,277
              Interest                                                           316,854            3,506
              Other                                                              114,653           63,250
                                                                            ------------     ------------
              TOTAL CURRENT LIABILITIES                                        7,906,231        3,132,407

LONG-TERM OBLIGATIONS, less current maturities                                    25,000           80,903

CAPITALIZED LEASE OBLIGATIONS, less current maturities                           467,191          528,774

EXCESS LOSS ON INVESTMENT IN JOINT VENTURE                                        39,875             --

CONTINGENCIES AND COMMITMENTS                                                       --               --

MINORITY INTEREST                                                                   --            582,969

STOCKHOLDERS' EQUITY (DEFICIT)
       Common stock - no par value; 200,000,000 shares authorized;
       128,451,873 and 128,416,847 issued; 125,162,873 and
       125,127,847 outstanding in 1998 and 1997, respectively                 24,714,858       24,709,383

       Preferred stock - no par value; 10,000,000 shares authorized
       Class A 15%/ 30% cumulative convertible, 29,653 shares issued
       and outstanding in 1998 and 1997                                          292,558          292,558

       Dividends accrued on preferred stock                                      236,419          234,363
                                                                            ------------     ------------
                                                                              25,243,835       25,236,304
       Accumulated deficit                                                   (29,744,527)     (19,672,986)
                                                                            ------------     ------------
                                                                              (4,500,692)       5,563,318
       Less common stock in treasury at cost, 3,289,000 shares at
       August 31, 1998 and 1997                                                   94,132           94,132
                                                                            ------------     ------------
              TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                            (4,594,824)       5,469,186
                                                                            ------------     ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 
   (DEFICIT)                                                                $  3,843,473     $  9,794,239
                                                                            ============     ============
</TABLE>

                 See Notes to Consolidated Financial Statements


                                      F-4
<PAGE>   23


                  GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                            FOR THE YEAR ENDED AUGUST 31,
                                                           -------------------------------
                                                                1998              1997
                                                           -------------     -------------
<S>                                                        <C>               <C>          
NET SALES                                                  $   6,443,863     $  11,957,841

COST OF SALES                                                  5,302,545         8,146,734
                                                           -------------     -------------

              GROSS MARGIN                                     1,141,318         3,811,107

       Selling, general and administrative expense             6,819,170         6,394,291
       Unusual charge - impairment loss                          943,275              --
       Goodwill impairment charge                              3,509,847              --
                                                           -------------     -------------
              OPERATING LOSS                                 (10,130,974)       (2,583,184)

OTHER INCOME (EXPENSE)
       Interest expense                                         (598,160)       (1,456,439)
       Joint venture loss                                       (125,741)          (71,358)
       Gain on disposal of division                                 --           6,210,434
       Gain (loss) on disposal of assets                         112,074            (2,048)
       Other income (expense)                                     99,786            96,507
                                                           -------------     -------------

              TOTAL OTHER INCOME (EXPENSE)                      (512,041)        4,777,096
                                                           -------------     -------------

              INCOME (LOSS) BEFORE                           (10,643,015)        2,193,912
              INCOME TAX EXPENSE

INCOME TAX EXPENSE                                                 7,714           642,390
                                                           -------------     -------------

INCOME (LOSS) BEFORE MINORITY INTEREST                       (10,650,729)        1,551,522

MINORITY INTEREST                                                582,969           269,404
                                                           -------------     -------------

                    NET INCOME (LOSS)                      $ (10,067,760)    $   1,820,926
                                                           =============     =============


BASIC EARNINGS (LOSS) PER SHARE                            $        (.08)    $         .01
                                                           =============     =============

DILUTED EARNINGS (LOSS) PER SHARE                          $        (.08)    $         .01
                                                           =============     =============

NUMBER OF SHARES USED IN PER SHARE CALCULATION:
       Basic                                                 125,149,055       122,192,311
                                                           =============     =============

       Diluted                                               125,149,055       122,687,952
                                                           =============     =============
</TABLE>

                 See Notes to Consolidated Financial Statements


                                      F-5
<PAGE>   24



                  GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                  FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997



<TABLE>
<CAPTION>
                                                COMMON STOCK                 PREFERRED STOCK
                                         ------------------------------------------------------------
                                                                                                         OBLIGATION      
                                                                                 15% / 30%                TO ISSUE       
                                                                                 CUMULATIVE                COMMON        
                                                                         ----------------------------       STOCK        
                                            SHARES          AMOUNT          SHARES          AMOUNT          AMOUNT       
                                         ------------    ------------    ------------    ------------    ------------    

<S>                                       <C>            <C>                   <C>       <C>             <C>             
BALANCE - September 1, 1996               124,063,778    $ 23,867,384          29,653    $    292,558    $    200,000    
Accrued dividends on preferred
stock (Note L)                                   --              --              --              --              --      
Conversion of debt, bonus and
     services to common stock                 353,069         241,999            --              --              --      
Common stock issued pursuant to
     joint marketing agreement
     (Note D)                               1,000,000         300,000            --              --              --      
Stock options exercised                     1,000,000         100,000            --              --              --      
Common stock issued as
     consideration for terminating
     employment agreement                   2,000,000         200,000            --              --          (200,000)   
Net income                                       --              --              --              --              --      
                                         ------------    ------------    ------------    ------------    ------------    
BALANCE - August 31, 1997                 128,416,847    $ 24,709,383          29,653    $    292,558    $       --      
Accrued dividends on preferred
     stock (Note L)                              --              --              --              --              --      
Conversion of debt, dividends
     payable and services to
     common stock                              35,026           5,475            --              --              --      
Net Loss                                         --              --              --              --              --      
                                         ------------    ------------    ------------    ------------    ------------    
BALANCE - August 31, 1998                 128,451,873    $ 24,714,858          29,653    $    292,558    $       --      
                                         ============    ============    ============    ============    ============    




<CAPTION>
                                         
                                         
                                            DIVIDENDS
                                            ACCRUED ON      
                                             PREFERRED        ACCUMULATED           TREASURY STOCK
                                               STOCK            DEFICIT       ----------------------------
                                               AMOUNT           AMOUNT           SHARES         AMOUNT
                                            ------------     ------------     ------------    ------------

<S>                                         <C>              <C>                 <C>          <C>         
BALANCE - September 1, 1996                 $    450,740     $(21,478,789)       3,289,000    $     94,132
Accrued dividends on preferred
stock (Note L)                                    15,123          (15,123)            --              --
Conversion of debt, bonus and
     services to common stock                   (231,500)            --               --              --
Common stock issued pursuant to
     joint marketing agreement
     (Note D)                                       --               --               --              --
Stock options exercised                             --               --               --              --
Common stock issued as
     consideration for terminating
     employment agreement                           --               --               --              --
Net income                                          --          1,820,926             --              --
                                            ------------     ------------     ------------    ------------
BALANCE - August 31, 1997                   $    234,363     $(19,672,986)       3,289,000    $     94,132
Accrued dividends on preferred
     stock (Note L)                                3,781           (3,781)            --              --
Conversion of debt, dividends
     payable and services to
     common stock                                 (1,725)            --               --              --
Net Loss                                            --        (10,067,760)            --              --
                                            ------------     ------------     ------------    ------------
BALANCE - August 31, 1998                   $    236,419     $(29,744,527)       3,289,000    $     94,132
                                            ============     ============     ============    ============
</TABLE>


                 See Notes to Consolidated Financial Statements


                                      F-6
<PAGE>   25



                  GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                       FOR THE YEARS ENDED AUGUST 31,
                                                                                       -----------------------------
                                                                                           1998             1997
                                                                                       ------------     ------------
<S>                                                                                    <C>              <C>         
CASH FLOWS USED IN OPERATING ACTIVITIES
       Net income (loss)                                                               $(10,067,760)    $  1,820,926
       Adjustments to reconcile net income to net cash provided by operating
       activities:
              Depreciation and amortization                                                 806,548          777,955
              (Gain) Loss on disposal of property, plant and equipment                     (112,074)           2,048
              Gain on sale of division                                                         --         (6,210,434)
              Unusual charge - impairment loss                                              943,275             --
              Goodwill impairment charge                                                  3,509,847             --
              Non-cash settlement of land judgement                                            --            150,000
              Stock issued for services and fees                                              3,750           10,500
              Minority interest                                                            (582,969)        (269,404)
              Joint venture loss                                                            125,741           71,358
       Changes in assets and liabilities net of effects of acquisition and joint
       venture:
              (Increase) decrease in accounts receivable                                    401,030         (334,637)
              Decrease in inventories                                                       423,743          311,944
              (Increase) decrease in prepaid expenses and other                              33,624           (6,186)
              Decrease in deferred taxes                                                       --            600,000
              Increase in accounts payable                                                  101,360          120,593
              Increase (decrease)in income taxes payable                                    (40,000)          40,000
              Increase (decrease) in accrued expenses                                       250,544          (54,363)
                                                                                       ------------     ------------
                  TOTAL ADJUSTMENTS                                                       5,864,419       (4,790,626)
                                                                                       ------------     ------------

                  NET CASH USED IN OPERATING ACTIVITIES                                  (4,203,341)      (2,969,700)

CASH FLOWS FROM INVESTING ACTIVITIES
       Purchase of property, plant, and equipment                                          (332,979)        (235,344)
       Proceeds from sale of property, plant and equipment                                  198,901            1,153
       Proceeds from sale of division                                                          --          6,550,000
       Increase investment in joint venture                                                 (84,000)         (84,000)
       Decrease (increase) in notes receivable                                              112,703          (87,500)
                                                                                       ------------     ------------
              NET CASH PROVIDED BY (USED BY)
               INVESTING ACTIVITIES                                                        (105,375)       6,144,309

CASH FLOWS FROM FINANCING ACTIVITIES
       Borrowings under notes payable - related parties                                   4,480,000          615,000
       Payments under notes payable - related parties                                       (80,800)            --
       Issuance of common stock                                                                --            400,000
       Borrowings under capitalized lease and other long term obligations                   185,005             --
       Payments on capitalized lease and other long-term obligations                       (330,243)      (4,409,365)
       Borrowings on line of credit                                                      10,208,254       11,449,596
       Payments on line of credit                                                       (10,117,783)     (11,238,569)
                                                                                       ------------     ------------
              NET CASH PROVIDED BY (USED BY)
              FINANCING ACTIVITIES                                                        4,344,433       (3,183,338)
                                                                                       ------------     ------------

NET INCREASE (DECREASE) IN CASH                                                              35,717           (8,729)
CASH, BEGINNING OF YEAR                                                                      26,143           34,872
                                                                                       ------------     ------------

CASH, END OF YEAR                                                                      $     61,860     $     26,143
                                                                                       ============     ============
</TABLE>

                 See Notes to Consolidated Financial Statements


                                      F-7
<PAGE>   26

                  GOLDEN PHARMACEUTICALS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                            FOR THE YEARS ENDED AUGUST 31,
                                                                            ------------------------------
                                                                                1998              1997
                                                                            -------------    -------------

<S>                                                                         <C>              <C>          
       Cash paid during the period for interest                             $     284,812    $   1,597,081
                                                                            =============    =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Supplemental schedule of non-cash investing and financing activities:


       Purchase of equipment under a capital lease                          $    185,005     $     478,500

       Issue of common stock upon settlement of employment contract                   -0-          200,000 
                                                                                                           
       Issue of note payable in settlement of land judgement                          -0-          150,000 
                                                                                                           
       Conversion of dividends payable to common stock                              1,725          231,500 
                                                                                                           
       Stock issued for services                                                    3,750           10,500 
                                                                                                   
</TABLE>




                 See Notes to Consolidated Financial Statements



                                      F-8
<PAGE>   27

A.     HISTORY AND BUSINESS ACTIVITY

       GOLDEN PHARMACEUTICALS, INC. (GPI) is the name of the parent company. In
       April 1997, GPI sold its radiopharmaceutical and radiochemical drug
       business (See Note F). GPI is a holding company that provides management
       support to its subsidiaries.

       QUALITY CARE PHARMACEUTICALS, INC. (QCP) is a wholly-owned subsidiary of
       GPI. QCP purchases bulk quantities of pharmaceutical products from
       manufacturers for repackaging into a single user prescription form, and
       produces software for dispensing sites. QCP's clients consist of private
       physicians, hospitals, group practices, managed care programs, pharmacies
       and other legally constituted medical facilities throughout the United
       States.

       PHARMA LABS, LLC. (Pharma Labs), a 52% owned subsidiary of GPI, was
       engaged in the manufacturing, packaging, and distribution of nutritional
       supplement products, such as vitamins, minerals and herbal products.
       Pharma Labs distributed its products primarily to Southeast Asia. On
       December 3, 1998, the Company completed the sale of Pharma Labs. (See
       Note G and Note T).

       RxDIRECT, LLC (RxDirect) is a joint venture with VNA Home Health Systems
       (VNA), of which the Company owns 50%. RxDirect is engaged in the
       dispensing of medications via mail order and direct delivery. In October
       1998, the Company and VNA signed an agreement pursuant to which VNA would
       withdraw from the joint venture upon payment of a withdrawal fee of
       $154,000. (See Note D and Note T).


B.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       Principles of Consolidation - The consolidated financial statements
       include the accounts of GPI, its wholly-owned subsidiary QCP, and its 52%
       owned subsidiary Pharma Labs, collectively referred to as the Company.
       All material intercompany balances and transactions have been eliminated
       in consolidation.

       Investment in Consolidated Subsidiary - On June 15, 1996, the Company
       entered into a joint venture agreement with Pharma France, Inc. to form
       Pharma Labs. At August 31, 1998, the Company owned 52% of Pharma Labs,
       and accordingly, the accounts of Pharma Labs are consolidated for
       financial statement purposes. The Company contributed $1,000,000 in
       working capital, leasehold improvements, and operational support to
       Pharma Labs, while Pharma France, Inc. contributed $923,076 in machinery
       and equipment and leasehold improvements.

       Investment in Joint Venture - RxDirect, a 50% owned subsidiary of QCP, is
       recorded under the equity method on QCP's financial statements.

       Inventories - Inventories are stated at the lower of cost or market,
       determined by the first-in, first-out (FIFO) method.

       Depreciation and Amortization - Depreciation and amortization are
       computed on a straight-line basis for book and tax purposes over the
       estimated useful lives of the respective assets which range from three to
       fifteen years.

       Amortization of Capitalized Software Costs - The Company capitalizes and
       amortizes certain software costs upon project completion on a
       straight-line basis over a five year period.

       Goodwill - The Company tests for impairment of goodwill in accordance
       with the methodology prescribed by the Financial Accounting Standards
       Board (FASB) in Statement of Financial Accounting Standards (SFAS) 121.
       Under this method, the goodwill attributable to the acquisition of QCP is
       grouped with QCP's property, plant and equipment carrying value



                                      F-9
<PAGE>   28

B.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued


       for comparison to QCP's undiscounted, forecasted cash flow. If the sum of
       the expected undiscounted cash flow is less than the carrying value of
       the above assets, an impairment loss is recognized.

       Earnings Per Common Share - In accordance with SFAS 128, which was
       effective for periods ending after December 15, 1997, earnings per common
       share has been revised and the prior period has been restated to present
       basic and diluted earnings per share.

       Basic and diluted earnings per share for the fiscal years ended August 31
       is calculated as follows:

<TABLE>
<CAPTION>
                                                             1998              1997
                                                         -------------     -------------

<S>                                                      <C>               <C>          
Net income (loss)                                        $ (10,067,760)    $   1,820,926
                                                         -------------     -------------

Weighted average number of shares outstanding
    Basic earnings per share
        Weighted average shares outstanding for
        basic earnings per share calculation               125,149,055       122,192,311
                                                         -------------     -------------

    Diluted earnings per share
        Weighted average shares outstanding                125,149,055       122,192,311

        Effect of exercise of options                                *     **    495,641
                                                         -------------     -------------

        Weighted average shares outstanding for
        diluted earnings per share calculation             125,149,055       122,687,952
                                                         -------------     -------------
</TABLE>


       *      The effect of options and convertible shares was not included in
              the diluted earnings per share calculation for the fiscal year
              ended August 31, 1998 as they would have been anti-dilutive. The
              total number of common shares not included in the diluted earnings
              per share calculation for the fiscal year ended August 31, 1998
              that could potentially dilute earnings per share in the future is
              1,482,949 shares.

       **     Options to purchase 350,000 shares of Common Stock at $0.32 per
              share and 1,000,000 shares of Common Stock at $0.30 per share were
              outstanding during the fiscal year ended August 31, 1997. These
              options were not included in the computation of diluted EPS
              because the exercise prices were greater than the average market
              price of the Common Stock. These options, which expire June 2001,
              and July 2001, respectively, were still outstanding at August 31,
              1997.

       Reclassification - Certain reclassifications have been made to conform
       prior years' information with the current year presentation.

       Use of Estimates - In preparing the Company's consolidated financial
       statements, management is required to make estimates and assumptions that
       affect the reported amounts of assets and liabilities, at the date of the
       consolidated financial statements. Actual results could differ from those
       estimates.

C.     REALIZATION OF ASSETS

       The accompanying financial statements have been prepared on a going
       concern basis, which contemplates the realization of assets and the
       satisfaction of liabilities in the normal course of business. As shown in
       the financial statements, the Company incurred operating losses of



                                      F-10
<PAGE>   29

C.     REALIZATION OF ASSETS - continued

       ($10,130,974) and ($2,583,184), respectively, during the years ended
       August 31, 1998 and 1997. In addition, at August 31, 1998, the Company
       had a negative working capital position of ($5,435,192) due primarily to
       $5,014,200 in short term borrowings from related parties (see Note P),
       and the Company had a total stockholders' deficit of ($4,594,824). These
       factors among others raises substantial doubt that the Company will be
       able to continue as a going concern for a reasonable period of time.

       The financial statements do not include any adjustments related to the
       recoverability and classification of assets and liabilities that might be
       necessary should the Company be unable to continue as a going concern. As
       described in Note L, the Company is not in compliance with the covenants
       of its revolving line of credit, and the Bank elected to exercise certain
       of its remedies under the Credit Agreement, including termination of the
       credit agreement by February 1, 1999. The Company's continuation as a
       going concern is dependent upon its ability to generate sufficient cash
       flow to meet its obligations on a timely basis, to obtain replacement
       working capital financing by February 1, 1999, to obtain sufficient
       equity financing in early fiscal 1999 to re-capitalize the Company, and
       ultimately to attain profitability.

D.     INVESTMENT IN JOINT VENTURE

       On February 12, 1996, QCP entered into a joint venture agreement with VNA
       to form RxDirect, a mail order/ direct delivery pharmacy. QCP owns 50% of
       RxDirect and, accordingly, RxDirect is recorded under the equity method
       on QCP's financial statements. QCP provides management and operational
       support for RxDirect, and VNA agreed to contribute $300,000 to fund the
       start up of operations of which $250,000 has been contributed to date. As
       of August 31, 1998, QCP has contributed $224,000 in services and
       operational support and has made $244,576 in loans to RxDirect for
       working capital and to fund operations.

       In October 1998, the Company and VNA entered into an agreement whereby
       VNA would withdraw from the joint venture upon payment of a withdrawal
       fee. Under the terms of the withdrawal agreement, VNA agreed to pay a
       $154,000 withdrawal fee, including accounts receivable of $47,761. See
       Note T.

       The following shows condensed financial information for RxDirect:

<TABLE>
<CAPTION>
                                                               AT AUGUST 31,
                                                           -----------------------
                                                              1998          1997
                                                           ---------     ---------
<S>                                                        <C>           <C>      
            Total Assets                                   $ 212,071     $ 144,941
                                                           =========     =========

            Working Capital Loans from QCP                 $ 244,576     $  29,503
            Total Other Liabilities                           21,245         1,706
            Total Equity (Deficit)                           (53,750)      113,732
                                                           ---------     ---------

            Total Liabilities & Equity (Deficit)           $ 212,071     $ 144,941
                                                           =========     =========
</TABLE>

<TABLE>
<CAPTION>
                                                   FOR THE YEAR ENDED AUGUST 31
                                                   -----------------------------
                                                       1998             1997
                                                   ------------     ------------
<S>                                                <C>              <C>         
            Net Sales                              $    546,785     $    414,604
            Total Costs and Expenses                    798,267          557,320
                                                   ============     ============
            Net Loss                               $   (251,482)    $   (142,716)
                                                   ============     ============
</TABLE>



                                      F-11
<PAGE>   30



E.     JOINT MARKETING AGREEMENT

       On July 15, 1997, the Company and Dornoch Medical Systems, Inc. (Dornoch)
       entered into a Joint Marketing Agreement, whereby the Company agreed to
       market Dornoch's Redaway products. In connection with this agreement,
       Dornoch purchased 1,000,000 shares of the Company's common stock for $.30
       per share and had an option to purchase an additional 1,000,000 shares at
       $.30 per share. Also, the Company had an option to purchase 220 shares of
       Dornoch common shares at a purchase price of $2,000 per share. Sales and
       royalties derived from this agreement were not material. In May 1998, the
       Joint Marketing Agreement was terminated by mutual consent and all stock
       purchase options were cancelled.

F.     SALE OF BUSINESS

       On April 7, 1997, the Company completed the sale of the assets related to
       its business line of manufacturing and distributing radiopharmaceutical
       and radiochemical drugs for a total sale price of $6,700,000 pursuant to
       the terms of an Asset Purchase Agreement dated April 7, 1997, by and
       between the Company and Syncor Pharmaceuticals, Inc. Included in the sale
       was the New Drug Application (NDA) for the radiopharmaceuticals, the
       building that contains the manufacturing facility for this business, and
       all of the related equipment. The proceeds from the sale were used to pay
       off the Company's term loans in the principal amounts of $3,750,000 and
       $266,660, respectively, and to pay down $1,485,000 of its revolving line
       of credit.

G.     DISCONTINUED LINE OF BUSINESS

        On August 3, 1998, the Company and the other member of Pharma Labs, LLC
        (Member) entered into an agreement for the Dissolution and Liquidation
        of Pharma Labs, LLC (Liquidation Plan). In order to facilitate the
        wind-down of Pharma Labs, the Company entered into a Unit Purchase
        Agreement on October 8, 1998 with the Member, whereby the Company
        purchased the Member's 48% equity interest in Pharma Labs for $35,000.

        On December 3, 1998, the Company completed the sale of Pharma Labs'
        machinery and equipment to Adams Equities, Inc. (Buyer) for $150,000,
        pursuant to the terms of a Purchase Agreement dated November 10, 1998.
        The Purchase Agreement also includes a non-compete agreement between the
        Company and the Buyer, for which the Company received $250,000 at
        closing. In addition, the Buyer assumed Pharma Labs' obligations under
        two (2) equipment leases and an affiliate of Buyer entered into a
        sublease with the Company to sublease Pharma Labs' facility and
        reimbursed the Company $57,000 for a lease deposit.

        Through August 31, 1998, The Company recorded the following adjustments
        to reduce the carrying value of Pharma Labs assets to estimated net
        realizable value:

              Property, plant and equipment, and lease hold improvements were
              written down $750,775 to the $150,000 sale price per the Purchase
              Agreement. The unamortized balance of $192,500 remaining on the
              non-compete agreement with the Member was written-off as no future
              benefit existed with the shut down of Pharma Labs. These
              write-downs are reported in the Consolidated Statement of
              Operations under the category unusual charge. Also, the Pharma
              Labs' property, plant and equipment is classified in the
              accompanying Consolidated Balance Sheets as net assets held for
              sale.

              The Company recorded a $366,656 loss on the write-off of
              inventory. All efforts to liquidate this inventory were
              unsuccessful. In the consolidated Statement of Operations, the
              inventory write-down was included in cost of sales.



                                      F-12
<PAGE>   31

G.     DISCONTINUED LINE OF BUSINESS - continued

              The $415,000 trade receivable from a Vietnam-based business
              affiliated with the Member was written-off as not collectable due
              to the poor financial condition of the Member and the Company's
              inability to collect an unsecured debt in Vietnam. To date, the
              Company loaned Pharma Labs $976,274 in working capital funds.
              Based on estimated proceeds from the liquidation of Pharma Labs, a
              $676,000 bad debt provision was recorded against the Pharma Labs
              loan. In the Consolidated Statement of Operations, the above bad
              debt provisions were included in selling, general and
              administrative expense.

H.      INVENTORIES

       Inventories consist of the following items which are stated at the lower
       of cost or market, determined by the first-in, first-out (FIFO) method:

<TABLE>
<CAPTION>
                                                   AT AUGUST 31,
                                              ------------------------
                                                 1998          1997
                                              ----------    ----------
<S>                                           <C>           <C>       
            Raw materials                     $   93,359    $  489,419
            Work-in-progress                       2,088        82,817
            Finished goods                       482,500       452,453
                                              ----------    ----------
                                              $  577,947    $1,024,689
                                              ==========    ==========
</TABLE>


I.     PROPERTY, PLANT AND EQUIPMENT

       Property, plant and equipment are carried at cost and are classified as
       follows:

<TABLE>
<CAPTION>
                                                                         AT AUGUST 31,
                                                                  ---------------------------
                                                                      1998            1997
                                                                  -----------     -----------
<S>                                                               <C>             <C>        
            Building and leasehold improvements                   $   170,274     $   486,294
            Machinery and equipment                                 1,208,576       2,051,264
            Computers                                                 561,373         502,620
            Furniture and fixtures                                    226,419         248,110
            Land                                                         --            74,000
                                                                  -----------     -----------
                                                                    2,166,642       3,362,288

            Less accumulated depreciation and amortization           (873,325)       (908,804)
                                                                  -----------     -----------

                                                                  $ 1,293,317     $ 2,453,484
                                                                  ===========     ===========
</TABLE>


J.     NOTES RECEIVABLE

       The Company holds two note receivable totaling $139,797 as of August 31,
       1998, in conjunction with the release of a contingency (see Note O). The
       $59,797 note accrues interest at the Bank prime plus 1% (totaling 9.5% at
       August 31, 1998) and the $80,000 note is without interest. The notes are
       unsecured. The full balance outstanding on both notes is past due.



                                      F-13
<PAGE>   32

K.     LEASE COMMITMENTS

       Capitalized Leases - The Company leases equipment for use in the
       production process and administration of its business. Computer equipment
       is also leased for customer use in prescription drug dispensing. For
       financial reporting purposes, minimum lease rentals relating to the
       equipment have been capitalized.

       The leases, which are non-cancelable, expire at various dates through the
       year 2003. The recorded cost of assets under capital leases is $1,188,929
       and $993,344 at August 31, 1998, and 1997, respectively. Accumulated
       amortization associated with the recorded assets was $358,991 and
       $201,235 at August 31,1998 and 1997, respectively.

       Future minimum annual lease payments under capitalized leases are as
       follows:


<TABLE>
<CAPTION>
                   Year ending August 31,
                   <S>                                          <C>     
                   1999                                         $310,536
                   2000                                          273,596
                   2001                                          183,075
                   2002                                           80,876
                   2003                                           24,120
                                                                --------
                                                                 872,203
                   Less amount representing interest             180,424
                                                                --------
                   Discounted lease obligations                  691,779
                   Less current portion                          224,588
                                                                --------
                   Long-term portion                            $467,191
                                                                ========
</TABLE>

       Operating Leases - The Company leases business facilities, vehicles and
       equipment under operating leases which expire at various dates through
       2004. Under the terms of the leases, the Company will pay monthly rental
       ranging from $28,481 in 1998 and $11,301 in 2004. Future minimum annual
       rental payments under operating leases are as follows:


<TABLE>
<CAPTION>
                   Year ending August 31,
                   <S>                                          <C>     
                   1999                                         $  366,838
                   2000                                            375,709
                   2001                                            335,349
                   2002                                            135,614
                   2003                                            135,614
                   Thereafter                                       67,804
                                                                ----------
                                                                $1,416,928
                   Less: Annual rental payments receivable 
                   under sub-lease of facility (See Note G)        657,418
                                                                ----------
                                                                $  759,510
                                                                ==========
</TABLE>

       Rent expense totaled approximately $324,850 and $298,050 for the fiscal
years ending August 31, 1998 and 1997, respectively.


                                      F-14

<PAGE>   33
L.     NOTES PAYABLE AND LONG-TERM DEBT

       Notes payable and long-term debt consist of the following:

<TABLE>
<CAPTION>
                                                                                             AT AUGUST 31,
                                                                                     ----------------------------
                                                                                         1998             1997
                                                                                     -----------      -----------
<S>                                                                                  <C>              <C>        
         Note payable, term loan, payable in monthly installments of $1,180,
              including interest at the Bank prime plus 3% (totaling 11.5% at
              August 31, 1998) through January 1, 1999. Collateralized by
              equipment, general intangibles,
              inventory and accounts receivable                                      $     5,903      $    20,069

         Note payable, $1,000,000 revolving line of credit with interest payable
              at Bank prime plus 3% (totaling 11.5% at August 31, 1998) through
              February 1, 1999. Collateralized by equipment, general
              intangibles, inventory and accounts
              receivable                                                                 833,639          743,168

         Non-interest bearing notes payable, to officer of QCP payable in
              semi-annual installments of $33,334 through July 15, 1998,
              uncollateralized. The current balance is past due 
                                                                                          31,325           73,340
         Notes payable to a shareholder who is also an officer and director of
              the Company payable on demand, including interest at Bank prime
              plus 2% (totaling 10.5% at August 31, 1998), uncollateralized 
              $1,425,000 of the August 31, 1998 outstanding balance was due
              April 1, 1998 and is past due. The note holder, however, agreed to
              defer payment until after August 31, 1999 or until the Company has
              the ability
              to pay such obligations                                                  4,544,200          575,000

         Notes payable to a director of the Company, payable on demand,
              including interest at Bank prime plus 2% (totaling 10.5% at August
              31, 1998), uncollateralized. The total outstanding balance of the
              notes was due on April 1, 1998 
                                                                                         470,000           40,000
         Non-interest bearing note payable in semi-annual installments of
              $25,000, commencing April 30, 1997, uncollateralized 
                                                                                          75,000          125,000
         Non-interest bearing note payable to officers of Pharma Labs, currently
              due but settlement is being withheld pending
              liquidation of Pharma Labs                                                 125,000          125,000

                                                                                     -----------      -----------
                                                                                       6,085,067        1,701,577
         Less:  Note payable, revolving line of credit                                  (833,639)        (743,168)
                Current maturities                                                    (5,226,428)        (877,506)
                                                                                     -----------      -----------
                                                                                     $    25,000      $    80,903
                                                                                     ===========      ===========
</TABLE>


                                      F-15
<PAGE>   34
L.     NOTES PAYABLE AND LONG-TERM DEBT - continued

       In connection with the note payable, term loan, and revolving line of
       credit, the Company was not in compliance at August 31, 1998 with
       covenants related to book net worth, debt service coverage, interest
       coverage, net income (loss) and capital expenditures. The Company
       re-negotiated the terms of the Credit Agreement with the Bank, including
       re-negotiation of the above covenants and an Amended and Restated Credit
       Agreement (Credit Agreement Amendment) was signed by both parties on
       August 7, 1998. However, the Credit Agreement Amendment was conditional
       upon the Company obtaining a $2.5 million capital investment by August
       31, 1998.

       To date the Company has not obtained the $2.5 million capital investment,
       and on October 27, 1998, the Bank informed the Company of its decision to
       exercise certain of its remedies under the Credit Agreement. The Bank
       elected to; (1) implement an additional one percent (1%) default rate of
       interest provided for in the Credit Agreement, retroactive to July 31,
       1998; (2) reduce the maximum loan commitment level to $1.0 million; and
       (3) terminate the credit agreement by February 1, 1999. The Bank did not
       waive any existing defaults or its right to exercise any of the other
       remedies available under the credit agreement.

       Aggregate annual principal payments applicable to notes payable and
       long-term debt for years ending after 1998 are as follows:

<TABLE>
                   <S>                                  <C>
                   Year ending August 31, 1999          $6,060,067
                   2000                                     25,000
                   2001                                         --
                   2002                                         --
                   2003                                         --
                                                        ----------
                   Thereafter                           $6,085,067
                                                        ==========
</TABLE>


M.     STOCKHOLDERS' EQUITY

       Preferred Stock - In 1987 the Company initiated a private offering of
       equity securities comprised of units of one share of Preferred Stock and
       two shares of Common Stock valued at $10 per unit. The offering became
       effective in October, 1988. The maximum number issuable is 700,000 shares
       of Preferred Stock.

       The annual and quarterly dividend rates of the Preferred Stock, expressed
       as a percentage of original issue price, are as follows:

<TABLE>
<CAPTION>
                                                          Annual Rate      Quarterly Rate
               Period                                         (%)               (%)
               ------                                     -----------      --------------
               <S>                                        <C>              <C>
               12 calendar months ended October, 1989          0               0.00
               12 calendar months ended October, 1990         15               3.75
               12 calendar months ended October, 1991         15               3.75
               12 calendar months ended October, 1992         30               7.50
               12 calendar months ended October, 1993         30               7.50
               All periods thereafter                         30               7.50
</TABLE>

       Dividends are payable from the net profits generated from the sale of
       Iodine 123 HIPDM ("HIPDM") (as defined in the Certificate of
       Designation). However, the underlying license rights related to Iodine
       123 HIPDM were fully impaired in 1991 and released upon termination of
       the license agreement on November 30, 1993. Because all rights to HIPDM
       were released, these dividends will only be paid by conversion to Common
       Stock.


                                      F-16
<PAGE>   35
M.     STOCKHOLDERS' EQUITY - continued

       The holders of the Preferred Stock may convert any accumulated and unpaid
       dividends into one share of Common Stock for each dollar accumulated.
       Additionally, each share of the Preferred Stock may be converted into 10
       shares of Common Stock. The Company is required to reserve Common Stock
       sufficient to allow conversion of all Preferred Stock and accrued
       dividends.

       The Preferred Stock shareholders, in the event of liquidation of the
       Company, will receive an amount equal to the issue price plus accumulated
       and unpaid dividends before any holder of Common Stock or any other stock
       ranking junior to the Preferred Stock can be paid.

       As of August 31, 1998 and 1997, 54,589 of the 84,242 shares of Preferred
       Stock outstanding were converted into Common Stock. As of August 31,
       1998, $233,255 of the $469,644 in accrued dividends on the Preferred
       Stock were converted into Common Stock. Based on the number of
       outstanding shares of Preferred Stock, the above mentioned conversions
       and the dividend rate schedule above, the estimated accrued cumulative
       dividend is $236,419 and $234,363 at August 31, 1998 and 1997,
       respectively. At August 31,1998, the holders of Preferred Stock can
       convert their shares into 532,949 shares of Common Stock including
       accrued dividends.

       In the event the Company completes a public offering of its Common Stock
       where the offering price is at least $1.00 per share, the Preferred Stock
       and accumulated dividends will automatically convert to Common Stock in
       the ratios discussed above.

       Commencing in 1991, the Company has the right but not the obligation to
       convert all of the outstanding Preferred Stock into Common Stock at the
       conversion price exhibited below plus any accumulated unpaid dividends.

<TABLE>
<CAPTION>
               Stated Redemption Date                              Percentage
               ----------------------                              ----------
               <S>                                                 <C>
               January 1, 1994 - December 31, 1994                    108%
               January 1, 1995 - December 31, 1995                    106%
               January 1, 1996 - December 31, 1996                    104%
               All periods commencing January 1, 1997                 102%
</TABLE>

       Class A Convertible Preferred Stock - In October 1990, the Company
       created a second series of preferred stock, Class A Convertible Preferred
       Stock (Convertible Preferred Stock). Issue price was $10 per share and
       the maximum issuable shares under the series was 200,000 shares. There
       are currently no shares of Convertible Preferred Stock outstanding.

       Stock Option Plan - On October 30, 1992, the Company's Stockholders
       approved the Plan which provides 50,000,000 shares of Common Stock
       available for the granting of options. The Plan permits the granting of
       stock options to certain directors, officers and employees of the Company
       or any subsidiary thereof. Authority to grant options under the Plan will
       terminate on October 7, 2002

       A summary of stock option transactions follows:

<TABLE>
<CAPTION>
                                              1998                               1997
                                    ----------------------------       ----------------------------
                                                    Weighted                           Weighted
                                                     average                            average
                                      Shares      exercise price         Shares      exercise price
                                    ----------    --------------       ----------    --------------
<S>                                 <C>           <C>                  <C>           <C> 
         Options outstanding
              September 1            2,000,000      $     0.23          2,350,000      $     0.13
              Granted                       --                          1,000,000            0.30
              Canceled              (1,050,000)           0.30           (350,000)           0.13
              Exercised                     --                         (1,000,000)           0.10
                                    ----------      ----------         ----------      ----------
         Options outstanding
              August 31                950,000      $     0.15          2,000,000      $     0.23
                                    ==========      ==========         ==========      ==========
</TABLE>


       Weighted average fair value of options granted during the year ended
       August 31, 1997, is $0.07.


                                      F-17
<PAGE>   36
M.     STOCKHOLDERS' EQUITY - continued

       The following information applies to options outstanding at August 31,
       1998:

<TABLE>
<CAPTION>
                               Options Outstanding                     Options Exercisable
                    -------------------------------------------   ----------------------------
                                   Weighted
                                    average
                                   remaining       Weighted                       Weighted
         Exercise     Number      contractual       average         Number         average
         Prices     Outstanding   life (years)   exercise price   Exercisable   exercise price
         --------   -----------   ------------   --------------   -----------   --------------
         <S>        <C>           <C>            <C>              <C>           <C>
         $  0.03      100,000        2.00          $  0.030         100,000        $ 0.030
            0.075     350,000        7.00             0.075         350,000          0.075
            0.10      200,000        8.00             0.100         100,000          0.100
            0.32      300,000        3.00             0.320         300,000          0.320
                      -------                                       -------
                      950,000                                       850,000
                      =======                                       =======
</TABLE>


       The following information applies to options outstanding at August 31,
       1997:

<TABLE>
<CAPTION>
                                         Options Outstanding                        Options Exercisable
                         --------------------------------------------------    ----------------------------
                                        Weighted
                                         average
         Range of                       remaining           Weighted                           Weighted
         Exercise           Number     contractual           average             Number         average
         Prices          Outstanding   life (years)       exercise price       Exercisable   exercise price
         -------------   -----------   ----------------   -----------------    -----------   --------------
         <S>             <C>           <C>                <C>                  <C>           <C> 
         $ 0.03 - 0.05      100,000        3.00               $ 0.03              100,000        $ 0.03
           0.06 - 0.09      350,000        8.00                 0.08              350,000          0.08
           0.10 - 0.15      200,000        9.00                 0.10                  -0-            --
           0.25 - 0.38    1,350,000        3.83                 0.31              300,000          0.32
                          ---------                                               -------
                          2,000,000                                               750,000
                          =========                                               =======
</TABLE>

       SFAS 123, "Accounting for Stock-Based Compensation" encourages, but does
       not require companies to record compensation cost for stock-based
       employee compensation plans at fair value. The Company has chosen to
       continue to account for stock-based compensation using the intrinsic
       value method prescribed in Accounting Principles Board Opinion No. 25,
       "Accounting for Stock Issued to Employees," and related interpretations.
       Accordingly, compensation cost for stock options is measured as the
       excess, if any, of the quoted market price of the Common Stock at the
       date of grant over the amount the employee must pay to acquire the stock.
       The pro forma effect of implementing SFAS 123 is not disclosed as it is
       deemed to be not material.


                                      F-18

<PAGE>   37
N.     INCOME TAXES

       The following is a summary of the provision for income taxes:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED AUGUST 31,
                                                                  ----------------------------
                                                                      1998             1997
                                                                  -----------      -----------
<S>                                                               <C>              <C>        
         Current provision
                 Federal                                          $    10,876      $    40,000
                 State                                                 (3,162)           2,390
                                                                  -----------      -----------
                                                                  $     7,714      $    42,390
                                                                  ===========      ===========

         Deferred provision
                 Federal                                          $        --      $   523,000
                 State                                                     --           77,000
                                                                  -----------      -----------
                                                                  $        --      $   600,000
                                                                  ===========      ===========

         Total provision
                 Federal                                          $    10,876      $   563,000
                 State                                                 (3,162)          79,390
                                                                  -----------      -----------
                                                                  $     7,714      $   642,390
                                                                  ===========      ===========

       The provision for income taxes differs from the
       amount determined by applying the statutory rate to
       net income, due to the following reasons for the years
       ended August 31:

         Income taxes (benefit) at statutory rate                 $(3,926,000)     $   882,000
         Goodwill impairment charge                                 1,617,000               --
         Change in prior year deferred tax estimate                 1,252,000               --
         (Benefit) expense due to change in asset valuation
         allowance                                                  1,072,000         (298,000)
         Other                                                         (7,286)          58,390
                                                                  -----------      -----------

         Income tax provision                                     $     7,714      $   642,390
                                                                  ===========      ===========

       Sources of change in deferred taxes and the deferred
       tax effect of each were as follows for the year ended
       August 31:

         Change in asset valuation allowance                      $(1,072,000)     $   298,000
         Accrued liabilities                                           25,000          140,000
         Depreciation and amortization                                118,000           80,000
         Carry forward (use) of net operating losses for
              income tax reporting                                    929,000       (1,118,000)
                                                                  -----------      -----------

         Income tax provision                                     $        --      $  (600,000)
                                                                  ===========      ===========

       Components of deferred tax assets at August 31,
       were as follows:

         Net operating loss carry forward                         $ 5,949,000      $ 5,020,000
         Accrued liabilities                                          188,000          163,000
         Depreciation and amortization                                282,000          164,000
                                                                  -----------      -----------
                                                                    6,419,000        5,347,000
         Valuation allowance                                       (6,419,000)      (5,347,000)
                                                                                   -----------
                                                                                   -----------

                 NET ASSET                                        $        --      $        --
                                                                  ===========      ===========
</TABLE>


                                      F-19
<PAGE>   38
N.     INCOME TAXES - continued

       The Company has net operating loss carry forwards for tax purposes as
       follows:

<TABLE>
<CAPTION>
                                  Federal
       Year                    Net Operating                    Year
       Generated                   Loss                        Expires
       ---------               -------------                   -------
       <S>                   <C>                               <C>
       1984                   $   2,888,000                     1999
       1985                         992,000                     2000
       1986                         909,000                     2001
       1987                       1,074,000                     2002
       1990                       2,092,000                     2005
       1991                       1,075,000                     2006
       1994                          62,000                     2009
       1996                         570,000                     2011
       1998                       5,593,000                     2013
                               ------------
                               $ 15,255,000
                               ============
</TABLE>

       The Company's ability to utilize its net operating loss carry forwards is
       subject to an annual limitation in future periods pursuant to the "change
       in ownership" rules under Section 382 of the Internal Revenue Code of
       1986. The Company has established a valuation allowance against 100% of
       the net operating loss carry forwards because it is uncertain whether the
       Company will utilize these carry forwards due to continuing operating
       losses.

O.     CONTINGENCIES AND COMMITMENTS

       Due to the nature of its products, the Company is subject to regulation
       by a number of federal and state agencies, including the U.S. Food and
       Drug Administration, the U.S. Drug Enforcement Agency and the State of
       California. The Company must comply with regulatory requirements. Should
       it violate such requirements, its ability to operate could be suspended
       or terminated. Management believes it has the control system and policies
       in place so that it will fully comply with regulatory requirements.

       On November 4, 1991, the Company entered into a settlement agreement
       which transferred certain undeveloped land in satisfaction of a judgment
       against the Company. As provided in the settlement agreement, the Company
       would remain contingently liable to the extent proceeds from the sale of
       the land were less than $2,715,000.

       In August, 1995, the Company amended the settlement agreement whereby
       another corporation, 100% owned by a director, officer and shareholder,
       has assumed the obligations of the Company under the settlement
       agreement. In exchange, the Board of Directors approved the issuance of
       2,000,000 shares of the Company's Common Stock to this corporation. The
       judgement has been completely satisfied, and arrangements are being made
       to have these shares transferred back to the Company.

P.     RELATED PARTY TRANSACTIONS

       During fiscal 1998, the Company borrowed $3,929,000, net of repayments,
       from a shareholder who is also an officer and director, and $470,000, net
       of repayments, from a shareholder who is also a director. During fiscal
       1998, the Company recorded $331,000 in interest expense on these loans.
       Subsequent to fiscal 1998 year end and through December 1, 1998 an
       additional $350,000 was borrowed from the same officer and director
       described above. These loans are payable on demand and bear interest at
       Bank prime plus 2%. Loan proceeds were used for working capital. See
       "Management's Discussion and Analysis Liquidity and Capital Resources."


                                      F-20
<PAGE>   39
P.     RELATED PARTY TRANSACTIONS - continued

       During fiscal 1997, the Company issued 2,000,000 shares to an officer of
       QCP as consideration for terminating an employment agreement entered into
       in July, 1995.

       The Company is due $34,445 from a related entity with common shareholders
       and officers. The amount due the Company has been guaranteed by the
       shareholders of the related entity.

       On July 15, 1997, the Company entered into a Joint Marketing Agreement
       with Dornoch. This agreement is described further in Note E "Joint
       Marketing Agreement."

Q.     DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

       Estimated fair value of financial instruments held for purposes other
       than trading are as follows:

<TABLE>
<CAPTION>
                                                           AT AUGUST 31, 1998
                                              ------------------------------------------
                                               CARRYING VALUE            FAIR VALUE
                                              -----------------      -------------------
          <S>                                <C>                    <C>
          Cash                                $         61,860       $        61,860
          Notes receivable                             139,797               139,797
</TABLE>

<TABLE>
<CAPTION>
                                                           AT AUGUST 31, 1997
                                              ------------------------------------------
                                               CARRYING VALUE            FAIR VALUE
                                              -----------------     --------------------
          <S>                                <C>                    <C>
          Cash                                $         26,143       $        26,143
          Notes receivable                             252,500               252,500
          Notes payable - related parties              615,000               615,000
          Notes payable                                743,168               743,168
          Long term debt                               343,409               343,409
</TABLE>

       The following methods and assumptions were used to estimate the fair
       value of each class of financial instrument for which it is practicable
       to estimate that value.

       Cash - The Company classifies as cash the amounts on deposit in banks.

       Notes receivable - The carrying value approximates fair value as the
       interest rate at August 31, 1998 and 1997, is considered to approximate
       the market rate.

       Notes payable and long term debt - Due to the defaults discussed in Note
       L and the related party nature of the debt, the fair market value is not
       determinable at August 31, 1998. The carrying value approximates fair
       value at August 31, 1997 as the interest rate at August 31, 1997, is
       considered to approximate the market rate in all material respects.

R.     GOODWILL IMPAIRMENT CHARGE

       Based on the current year's operating loss and negative cash flow from
       operations, combined with a history of operating losses and negative cash
       flow from operations, the Company has determined that significant
       uncertainty exists regarding the recoverability of the carrying value of
       goodwill. Accordingly, a $3,509,847 goodwill impairment charge was
       recorded in the fourth quarter of fiscal 1998.

S.     FOURTH QUARTER ADJUSTMENTS

       Operating results for the fourth quarter of fiscal 1998 include the
       following adjustments: A $384,775 write down of property held for sale to
       re-value Pharma Labs assets to their selling price as specified in a
       pending sale contract. A $125,000 adjustment to re-instate a payable due
       to the other member of Pharma Labs in accordance with a non-complete
       agreement.


                                      F-21
<PAGE>   40
S.     FOURTH QUARTER ADJUSTMENTS - continued

       These adjustments were included in the category unusual charges
       impairment loss. A $166,656 write-off of obsolete Pharma Labs inventory
       was charged to cost of sales.

       In addition, as disclosed in Note R, a $3,509,847 goodwill impairment
       charge was recorded in the fourth quarter of fiscal 1998.

T.     SUBSEQUENT EVENTS

       During the first quarter of fiscal 1999, the Company obtained $350,000
       through the issuance of notes payable to a shareholder who is also an
       officer and director of the Company. The notes are unsecured, due and
       payable upon demand and have a variable interest rate of 2% over Bank
       prime (prime was 8.5% at August 31, 1998).

       In October 1998, the Company and VNA signed an agreement pursuant to
       which VNA will withdraw from the RxDirect joint venture. Under the terms
       of the withdrawal agreement, VNA was to pay the Company a $154,000
       withdrawal fee by December 1, 1998. See Note D.

       On December 3, 1998, the sale of Pharma Labs assets was completed. See
       Note G.

U.     DISCLOSURE OF SIGNIFICANT RISK AND UNCERTAINTY

       At August 31, 1998, the Company conducted a test for asset impairment in
       accordance with Financial Accounting Standard 121. It is management's
       opinion that, exclusive of the write-downs for Pharma Labs and the
       write-off of goodwill, no impairment has occurred. Management's opinion
       is based upon key assumptions regarding sales growth through new business
       development, and obtaining necessary funding to support the Company
       during continuing near term operating losses and negative cash flow from
       operations. Also QCP has a current period operating loss and negative
       cash flow from operations, and is expected to have continuing losses and
       negative cash flow from operations in the near term. Accordingly, it is
       reasonably possible that the results of the impairment test may change in
       the near future and an impairment loss may result.


                                      F-22
<PAGE>   41

                                   SIGNATURES

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

                                        GOLDEN PHARMACEUTICALS, INC.

Dated:  December 23, 1998               By   /s/ Charles R. Drummond
                                             -------------------------
                                             Charles R. Drummond, President,
                                             Chief Executive Officer and
                                             Treasurer

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

<TABLE>
<CAPTION>
Signature                               Title                                   Date
---------                               -----                                   ----
<S>                                     <C>                                    <C>
 /s/ Charles R. Drummond                Chairman of the Board,                  December 23, 1998
--------------------------------        Chief Executive Officer
Charles R. Drummond                     and Treasurer


 /s/ Ladd A. Drummond                   Director                                December 23, 1998
--------------------------------
Ladd A. Drummond


/s/ Arch G. Gothard, III                Director                                December 23, 1998
--------------------------------
Arch G. Gothard, III


 /s/ John H. Grant                      Vice Chairman of the Board              December 23, 1998
--------------------------------        and Corporate Secretary
John H. Grant                           


 /s/ Gary P. Pryor                      Vice President of Finance               December 23, 1998
--------------------------------
Gary P. Pryor


 /s/ Richard G. Wahl                    Director                                December 23, 1998
--------------------------------
Richard G. Wahl
</TABLE>



<PAGE>   42

                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit No.                         Description
-----------                         -----------
    <S>           <C>
     3.1(1)       Articles of Incorporation filed October 4, 1973.

     3.2(1)       Articles of Amendment to Articles of Incorporation filed
                  December 22, 1976.

     3.3(1)       Articles of Amendment to Articles of Incorporation filed
                  August 25, 1978.

     3.4(1)       Articles of Amendment to Articles of Incorporation filed June
                  15, 1979.

     3.5(1)       Articles of Amendment to Articles of Incorporation filed
                  January 12, 1981.

     3.6(1)       Articles of Amendment to Articles of Incorporation filed June
                  16,1987.

     3.7(1)       Articles of Amendment to Articles of Incorporation filed
                  October 9, 1992.

     3.8(2)       Articles of Amendment to Articles of Incorporation filed
                  December 16, 1997.

     3.9(1)       Certificate of Designation of 15%/30% Cumulative Convertible
                  Preferred Stock filed December 9, 1987.

    3.10(1)       Corrected Certificate of Designation of 15%/30% Cumulative
                  Convertible Preferred Stock filed December 14, 1987.

    3.11(1)       Corrected Certificate of Designation of 15%/30% Cumulative
                  Convertible Preferred Stock filed February 5, 1988.

    3.12(1)       Certificate of Designation of Class A Convertible Preferred
                  Stock filed October 12, 1990.

    3.13(3)       Second Amended and Restated Bylaws

     4.2(1)       Specimen Certificate for Common Stock, no par value per share.

    10.1(3)       Amended and Restated Credit and Security Agreement dated
                  August 7, 1995 among the Company, Quality Care
                  Pharmaceuticals, Inc. and Norwest Credit, Inc.

    10.2(4)       Operating Agreement dated June 14, 1996 between the Registrant
                  and Pharma France, Inc.

    10.3*         Form of Promissory Notes executed by the Company in favor of
                  Charles R. Drummond. Schedule A sets forth the date and
                  principal amount of each promissory note.
</TABLE>


<PAGE>   43
<TABLE>
     <S>          <C>
      10.4*       Form of Promissory Notes executed by the Company in favor of
                  Arch G. Gothard, III. Schedule B sets forth the date and
                  principal amount of each promissory note.

      10.5*       Purchase Agreement dated November 10, 1998 by and among Adams
                  Equities, Inc., Pharma Labs, LLC, GMP Laboratories of America
                  and Golden Pharmaceuticals, Inc.

      10.6*       Agreement Not to Compete dated November 10, 1998 among Pharma
                  Labs, LLC, Golden Pharmaceuticals, Inc., Adams Equities, Inc.
                  and GMP Laboratories of America.

        21(2)     Subsidiaries of the Registrant.

        27*       Financial Data Schedule.

        (b)       Reports on Form 8-K

                  None
</TABLE>
-----------------------
(1)    Incorporated by reference to registrant's Annual Report on Form 10-K,
       dated August 31, 1991, as filed with the Securities and Exchange
       Commission.

(2)    Incorporated by reference to registrant's Annual Report on Form 10-K
       dated August 31, 1997, as filed with the Securities and Exchange
       Commission.

(3)    Incorporated by reference to registrant's Annual Report on Form 10-K
       dated August 31, 1995, as filed with the Securities and Exchange
       Commission.

(4)    Incorporated by reference to registrant's Annual Report on Form 10-K
       dated August 31, 1996, as filed with the Securities and Exchange
       Commission.

*      Filed herewith.