<PAGE>

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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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

                                  FORM 10-K/A

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

                  For the fiscal year ended December 31, 1998

                       Commission File Number 000-21930

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

                         BIOSOURCE INTERNATIONAL, INC.
            (Exact name of registrant as specified in its charter)

<TABLE>
  <S>                                                       <C>
                  Delaware                                       77-0340829
       (State or other jurisdiction of                        (I.R.S. Employer
       incorporation or organization)                       Identification No.)

    820 Flynn Road, Camarillo, California                          93012
  (Address of principal executive offices)                       (Zip Code)
</TABLE>

      Registrant's telephone number, including area code: (805) 987-0086

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

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

                                     None

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

                        Common Stock, $0.001 par value
                        Preferred Stock purchase rights

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

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

  Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K
or any amendment to this Form 10-K. [_]

  The aggregate market value of the voting stock (based on the last sale price
of such stock as reported by the National Association of Securities Dealers
Automated Quotation National Market System) held by non-affiliates of the
registrant as of March 31, 1999 was $26,317,000.

  The number of shares of the Registrant's common stock outstanding as of
March 31, 1999 was 7,181,925.

                      DOCUMENTS INCORPORATED BY REFERENCE

  Portions of the Company's definitive Proxy Statement for the annual meeting
to be held on July 16, 1999 (the "Proxy Statement") are incorporated by
reference into Part III of this Form 10-K.

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<PAGE>

                                    PART I

Item 1. Description of Business

Overview

  We develop, manufacture, market and distribute products used worldwide in
disease related biomedical research and clinical diagnostics, principally in
the fields of immunology and molecular biology. Our products include ELISA
assay test kits, clinical diagnostic kits, bioactive proteins, antibodies,
bioactive peptides, oligonucleotides and related products. These products
enable scientists to better understand the biochemistry, immunology and cell
biology of the human body. Some examples would include certain diseases such
as cancer, aging, arthritis and other inflammatory diseases, AIDS and certain
other infectious diseases.

  We were originally incorporated as a California corporation in October 1989,
and we reincorporated as a Delaware corporation in May 1993 in connection with
the acquisition of TAGO Immunologicals, Inc. ("TAGO"). TAGO developed and
manufactured immunological reagents derived from antibodies produced in goats
and other animals.

  Since we acquired TAGO in May 1993, we have concentrated on internal
development of new products, and we currently offer over 2,800 products to
more than 2,300 medical laboratories and research centers in universities,
government institutions and pharmaceutical and biotechnology companies. In
November, 1995, we further expanded our product lines by acquiring Keystone
Laboratories, Inc. ("Keystone"), which enabled us to manufacture
oligonucleotides (DNA) both as a new product line and for our own internal use
in the production of cytokines and ELISA test kits.

  In June 1996, we acquired certain assets and assumed selected liabilities of
Medgenix Diagnostics, S.A. ("Medgenix"), located in Fleurus, Belgium. The
Medgenix assets consisted of certain product lines, primarily diagnostic and
research assay kits, and included manufacturing and distribution facilities,
research and development laboratories, customer accounts, and an existing
employee base. Our European headquarters is located in Nivelles, Belgium and
we have sales offices in Germany and the Netherlands. Since the acquisition,
we continue to manufacture and sell the Medgenix product line and also
distribute the BioSource product line to our European customer base and other
international locations.

  On December 10, 1998, we acquired Quality Controlled Biochemicals, Inc.
("QCB"). QCB was founded in 1992 and is a leading manufacturer of
phosphopeptides, phosphorylation state-specific antibodies, custom peptides
and custom antibodies.

  On December 15, 1998 we acquired substantially all the assets and selected
liabilities of Biofluids, Inc. Biofluids was founded in 1974 and is a leader
in the manufacture and sale of high quality serum, media and buffers.

Industry Overview

  The biomedical research industry has seen major advances in the
understanding of physiological processes at the cellular and molecular level.
New research technologies require the use of qualitative and quantitative
analysis to monitor the way in which tissues and cells communicate with each
other and how cells respond when stimulated. Biomedical researchers around the
world are constantly in search of specialty research products, which are
necessary to conduct both basic and clinical research. This research is
conducted in settings that range from university and medical school
laboratories to pharmaceutical and biotechnology research and development
groups. The success of this type of research depends upon the availability of
biological reagents, including the types of biological proteins, antibodies,
serums and immunoassay kits that we manufacture and sell.

  Biomedical research is a large and growing segment of the biotechnology
industry. The biotechnology industry consists of large and highly capitalized
biotechnology and pharmaceutical companies which have

                                       2
<PAGE>

concentrated their efforts on the development of human therapeutics and high
volume diagnostic tests as well as smaller specialized biotechnology company's
which focus on specific areas of research or product development for FDA
approval. We supply these companies with the tools to assist them in achieving
their scientific goals.

  Most industrialized nations, led by the United States, Japan and the
countries of Western Europe, support some level of biomedical research. Our
products are used by thousands of research scientists who are employed by or
affiliated with universities, medical schools, research institutes and private
industry. The biomedical research industry is highly fragmented with no
dominant companies.

Strategy

  Our goal is to capitalize on the growth of the biotechnology industry by
creating "building block" reagents and test kits which are not subject to
regulatory overview or the risk and volatility inherent in developing
pharmaceuticals, and to grow through the selective acquisition of
complementary businesses. Our strategy includes the following elements:

  Focus on the Strategic Direction of Biomedical Research. Our continued
success, in part, depends on staying abreast of new trends and technologies in
the medical research industry. We use various methods to address current
market trends, current trends in the scientific community and the broader
scope of overall biomedical product research. These methods include reviewing
trends published in scientific journals, attending trade shows and scientific
meetings, which discuss new research technologies and collaborations with the
scientific community. In addition, our sales people, who have educational
backgrounds and have been trained in the biological sciences, discuss issues
and ideas with our customers which creates an additional source for creating
some of our new products under consideration and development.

  Develop Broad Product Lines. We now offer over 2,800 products in four major
product lines. We believe our industry is diverse and fragmented, and by
offering many products we more fully address the needs of researchers, thereby
offering them the ability to look to us first to satisfy many of their needs.

  Commitment to Product Development. We have historically invested 9% to 12%
of our revenues in research and development. The introduction of new products
is essential to meet the needs of our customers and the rapid changes that are
taking place in biomedical research.

  Offer Products of Exacting Capability. We continually strive to offer
products with the greatest sensitivity, precision, accuracy and
reproducibility available on the market. For example, our products are
generally capable of measuring picogram (one-trillionth of a gram) levels of a
protein more quickly than products available from many of our competitors.

  Create Superior Value. We seek to create superior value for our customers.
For instance, we include two ELISA test plates in most of our ELISA test kit
packages. This provides our customer with double the number of tests, at a
comparable price, than the test kits of most of our competitors. We offer
greater affordability and convenience to our customers, and foster more
economical research.

  Acquire Complementary Businesses, New Products and Technologies. We evaluate
potential acquisitions of complementary products and businesses from time to
time and have a proven track record of profiting from these business
acquisitions.

  Esprit de Corps. We seek to create a team spirit among all of our employees,
fostering awareness of our objectives and strategies at all levels within our
company, and rewarding meritorious performance with compensation and other
incentives. We believe this creates loyalty and pride, which translates into
greater quality and enhanced customer service.

                                       3
<PAGE>

Products

  We have over 2,800 different products in our inventory. We group our
products into the following product lines, ELISA test kits, monoclonal and
polyclonal antibodies, oligonucleotides, bioactive proteins, bioactive
peptides, custom peptides and antibodies and clinical diagnostic
radioimmunoassays (RIA).

  ELISA Test Kits. We have developed methodologies for the measurement of
cytokines and chemokines in blood or other body fluids. ELISA test kits are a
combination of certain cytokines, their antibodies and other chemical
reagents, and are used to measure the presence or quantity of a particular
bioactive protein in serum, plasma or other biological sample. In a typical
ELISA test kit, an antibody is bound in the well of the kit's test plate.
Quantitation of these proteins has become an integral tool both in research
and diagnostic applications as it provides a relatively inexpensive, accurate
and rapid method for the evaluation of immune status.

  We offer kits for human, mouse, rat, monkey and swine proteins. The
diversity of species is important to allow investigators to establish such
measurements in preclinical animal model systems. We offer over 70 types of
ELISA kits and we believe we are the leader in rat cytokine ELISA kits.

  In addition, we have combined our oligonucleotide and ELISA technologies to
develop a portfolio of assay kits which measure the quantity of messenger RNA
of various cytokines in blood, cultured cells or tissues.

  Our European subsidiary produces a line of RIA assays, which are used
internationally in clinical laboratories for the measurement of hormones
important in growth, reproductive and thyroid disease.

  Antibodies. Antibodies are used as detector systems in the research of
normal and abnormal proteins. Antibodies are molecules generated by a
particular group of immune cells in response to foreign antigens. They have
specific amino acid sequences by virtue of which they interact only with the
antigen that induced their creation. They are classified according to their
mode of action. In vivo (with in the body) secreted antibodies circulate in
the blood and serve as the effects of immunity by searching out and
neutralizing or eliminating foreign antigens. Antibodies are also used in in
vitro (outside the body) for neutralization studies in bioassay systems.
Antibodies are generally produced by injecting a particular protein or
fragment of that protein into animals (usually goats, chickens, rabbits or
mice) which cause the animals' immune system to produce an antibody specific
to that antigen. The polyclonal or monoclonal antibodies derived from these
animals are critical reagents for research and for the development of
analytical assays such as ELISA, Immunohistochemistry and Flow Cytometry.

  Our TagoImmunologics (TAGO) product line provides researchers and
biotechnology companies with a broad array of secondary antibodies. These
products are used in the development of analytical signals in various assays.
Many other companies use our TAGO products as a component of their test kits.

  The acquisition of Quality Controlled Biochemicals has added a portfolio of
antibodies that are specifically engineered to bind to proteins when they are
in specific states of phosphorylation. Phosphorylation is the process of
adding or removing molecules of phosphate from a protein that turns on or off
many of the key molecules within cells. These molecules control most, if not
all, of the key processes that regulate the inner workings of all cells as
well as their interaction(s) with other cells. Disease states such as cancer,
Alzheimer's Disease, and many other pathological conditions have been shown to
be at least in part due to the malfunctioning of key molecules within cells,
in many cases due to alterations in their activity through phosphorylation.

  Oligonucleotides. The production of oligonucleotides is a custom service we
provide for investigators doing molecular biology. An oligonucleotide is a
synthesized polymer made up of the same building blocks that form DNA.
Synthetic oligonucleotides have been used in molecular biology for over twenty
years, basically to act as templates for nucleic acid and protein synthesis,
and more recently, as the therapeutic agents for the inhibition of either DNA
transcription of RNA translation or as a diagnostic agent to identify disease.
DNA is used by almost every discipline in biomedical research in both academic
and industry areas, including molecular

                                       4
<PAGE>

biology and cell biology departments of major universities, and biomedical
companies developing gene therapy products.

  Bioactive Proteins. The development of an effective immune response involves
complex cell-to-cell communications, which are mediated by a group of secreted
proteins collectively called cytokines. Many cytokines are being investigated
for their ability to activate or suppress host immunity. Cytokines and other
similar growth factors and adhesion molecules are instrumental in the body's
defense against cancer, AIDS and other life-threatening disorders. Through
recombinant DNA technology, we have developed a broad offering of these
regulatory molecules, which control growth and differentiation of cells.

  Cytokines are small, hormone-like, soluble proteins secreted by activated
cells of the immune system. Through their activities, cytokines coordinate and
orchestrate the proper functioning of the immune system. Growth factors are
proteins that stimulate the multiplication and differentiation of various
types of immature precursor cells. Adhesion molecules enable cells to interact
for the purpose of cell communication and are involved in such processes as
wound healing and tumor metastasis. We have produced not only the human
cytokines, but also the equivalent proteins from mice, rats, swine and
monkeys.

  Chemokines are specific proteins that regulate the recruitment and
activation of leukocytes and other sites of inflammation. Chemokines function
by binding to receptors on the surface of affected cells. Tremendous interest
in chemokines exists due to recent studies linking chemokines and their
receptors to the pathogeneses of HIV, the causative agent of AIDS.

  Bioactive Peptides. Bioactive peptides are subsections of proteins that are
synthetically created. These peptides represent the active site of a
particular protein and are utilized to study the activity of various proteins.
Our acquisition of Quality Controlled Biochemicals has added a significant
catalog of bioactive peptides to our product offerings.

  Serum, Buffers and Media. Research in the arena of life science generally
requires the use of a variety of serums, buffers and media to grow cell
cultures. Our new Biofluids division manufactures and sells a wide variety of
serum, buffers and media and adds an important complimentary line of products
and services for life science researchers.

  Custom Peptides and Antibodies. The research of our customers sometimes
requires the creation of unique, specific peptides or antibodies to carry out
a research project. With the acquisition of Quality Controlled Biochemicals we
have expanded our scope of our business to include custom manufacturing of
peptides and antibodies. We feel that providing custom manufacturing services
allows us to be of greater service to our customers and furthers our strategic
relationships.

Sales and Marketing

  The principal markets for our products are in the United States, Japan and
Western Europe. We have a direct sales force strategically located in major
metropolitan areas in the United States, we advertise in various scientific
trade journals, and we distribute our own product catalog to all current and
selected potential customers. The use of a direct sales force also provides us
with an opportunity to discuss directly with researchers and scientists new
developments and trends in the industry. We sell to our international markets
directly through our European subsidiary, and we use highly respected
international distributors that specifically target the foreign medical
market.

  Our sales people hold biological sciences undergraduate degrees and undergo
training in the nature and application of our products and proven selling
techniques. We believe that by investing in the scientific training of our
sales force, we are able to determine the needs of researchers and scientists
in the biomedical community. Our sales force is used not only as a traditional
marketing group, but also to provide valuable feedback for product
development.


                                       5
<PAGE>

  Our network of international distributors are both exclusive and non-
exclusive, but we generally grant exclusive distribution rights only where the
distributor maintains direct field representatives proportionate to the
potential for sales of our products in a defined geographical area. We also
try to establish mutually acceptable annual sales goals. All of our
distributors are required to limit their primary sales focus to the biomedical
research market. We offer all of our distributors annual training to enhance
their knowledge of our products as well as their respective applications,
solicit requests for new products and ultimately to increase sales.

Research and Development

  We develop most of the products we sell. Currently we employ 15 research
scientists who hold Ph.D.'s. Among these professionals are experts in peptide
chemistry, molecular biology, immunology, and signal transduction. In
particular their knowledge is fundamental to the development of peptides,
oligonucleotides, proteins, antibodies, and assay kits. Our research
laboratories are located in Camarillo, California; Hopkinton, Massachusetts
and Nivelles, Belgium. In 1998 we introduced over 300 products, of which
approximately 50% were developed by our scientists. In addition, at December
31, 1998 we have approximately 100 products under development.

Availability of Raw Materials

  The principal raw materials for our oligonucleotides are the chemicals that
comprise DNA which are available from numerous sources. Oligonucleotides are
used to produce genes. Genes are then used to manufacture cytokines, which are
in turn used to make antibodies. We also purchase some cytokines, which are in
turn used to make antibodies, and some antibodies, from third party suppliers
in order to offer our customers a full array of products.

  ELISA test kits are manufactured from antibodies, proteins, enzymes and
various buffers, and utilize plastic test well plates. We develop most of our
cell lines internally. When we cannot develop a cell line internally we obtain
a license to the cell line. We believe that we have adequate supplies of
materials on hand to continue to manufacture almost all of our products and
meet customer demand, and that those materials that we do not produce
internally are readily available from multiple sources.

Seasonality of Business

  We typically do not experience material seasonality of sales. However, we do
experience a slowing of sales in Europe during the summer months and worldwide
during the Christmas holidays.

Significant Customers

  No single customer accounted for more than 10% of net sales during any of
our last three years.

Competition

  We are engaged in a segment of the health care products industry that is
highly competitive. Our primary competitors include biotechnology companies
such as Techne Corporation, Southern Biotechnology, Endogen, Inc., Jackson
Labs, Dako Corporation and Genosys Biotechnologies. Many of our competitors
have been involved in the health care industry significantly longer than us
and benefit from greater name recognition. In addition, many of our
competitors have greater resources to devote to research and development,
sales and marketing and occasionally engage in price cutting measures to
achieve leadership in their field.

  We believe that by offering a very broad and complete product line that
enables the end user to obtain many of products from one source we gain a
competitive advantage. In addition, we compete by producing high quality
products with exacting capabilities at reasonable prices, and by maintaining
an aggressive marketing and sales

                                       6
<PAGE>

effort. We also believe that the biomedical research market is highly
fragmented, and that no one has a dominant share of any of the market
segments.

Patents and Trademarks

  We do not own any patents and do not believe that patent protection is
available for any of our processes. We license from third parties a number of
products that are incorporated in some of our products, resulting in our
receiving quasi or derivative patent protection from some of those products.

  "TAGOImmunologicals", "Cytoscreen", "Primescreen", "ICScreen", "Cytosets",
and "Dynamix" are product trademarks used for some of our products, but are
only of limited importance to our business. We seek to protect our interests
by treating technologies and know-how as trade secrets and by requiring all
employees and contractors to execute invention and assignment agreements with
us which include confidentiality provisions.

Government Regulation

  Approval by the FDA is not required for the sale of any of our products in
the United States because our products are marketed and sold for research use
only. Research products are not currently required to comply with the lengthy
FDA approval process associated with diagnostics or therapeutics.

  Some of our products, however, are used by certain of our customers as raw
materials or intermediates in the production of diagnostics. In the past we
did not need an approval from the FDA to sell our products to these customers.
Starting in 1999, however, we will need to register some products with the FDA
as analyte specific reagents. This registration will be focused on the
consistency of our manufacturing, in order to continue to supply these
customers with products.

  We believe that we are materially in compliance with the Occupational Safety
and Health Act, the Environmental Protection Act, the Toxic Substances Control
Act, and other similar laws of general application.

  Our European subsidiary's clinical products are produced in facilities that
have achieved ISO 9001 certification, and are eligible to be used as clinical
diagnostics. These products are subject to much less stringent regulatory
requirement than that of the United States.

  In the event the Company develops products for the diagnostic market, it may
be required to obtain FDA approval prior to selling them. Such approval, if
required, could be time consuming and costly. In such event, the Company would
also be subject to the FDA Good Manufacturing Practices that include testing,
control and documentation requirements enforced by periodic site inspections.

Employees

  As of December 31, 1998, we employed 186 individuals, 181 of whom were full
time employees.

Business Segments

  The information required by this item is incorporated herein by reference to
Note 12 in the Notes to Consolidated Financial Statements.

Item 2. Properties

Description of Properties

  Our executive offices and manufacturing facilities consist of approximately
29,000 square feet in Camarillo, California. The property is subject to a
mortgage through June 2016.


                                       7
<PAGE>

  Our Keystone division leases facilities in Foster City, California, which
consist of approximately 3,000 square feet of laboratory space under a lease
which expires in May 2003.

  Our QCB division leases facilities in Hopkinton, Massachusetts, which
consist of approximately 7000 square feet of laboratory space under a lease
which expires in May 2001.

  Our Biofluids division leases facilities in Rockville, Maryland, which
consist of approximately 11,500 square feet of warehouse, manufacturing, and
office space under a lease which expires in May 2001.

  In January 1998, we entered into a new lease for approximately 30,000 square
feet of manufacturing, laboratory and office space located in Nivelles,
Belgium. The lease expires in March 2007. Additional small sales offices are
leased in Ratingen, Germany and Amersfoort, Holland.

  We believe that all of our facilities are in good condition, are adequately
covered by insurance and will be adequate for our occupancy needs for the
foreseeable future.

Item 3. Legal Proceedings

  We are not a party, nor is any of our property subject, to any material
pending legal proceedings.

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

  No matter was submitted to a vote of our security holders during the fourth
quarter of our last year.

                                       8
<PAGE>

                                    PART II

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

                          PRICE RANGE OF COMMON STOCK

  The Company's Common Stock commenced trading on the NASDAQ National Market
on April 29, 1996 under the symbol "BIOI". Prior to that time, the Company's
Common Stock traded on the NASDAQ Small Cap Market under the same symbol. The
following table sets forth, for the periods indicated, the high and low
closing sales prices of the common stock on the Nasdaq National Market as
reported by the National Association of Securities Dealers, Inc.

<TABLE>
<CAPTION>
                                                                 High     Low
                                                                ------- -------
<S>                                                             <C>     <C>
Year Ended December 31, 1997
  First Quarter................................................ $ 9 1/8 $ 6 5/8
  Second Quarter...............................................   8 1/8   6 5/8
  Third Quarter................................................   7 1/8   5 5/8
  Fourth Quarter............................................... 7 15/16 4 13/16

<CAPTION>
                                                                 High     Low
                                                                ------- -------
<S>                                                             <C>     <C>
Year Ended December 31, 1998
  First Quarter................................................ $     7 $5 7/16
  Second Quarter...............................................       7   5 1/2
  Third Quarter................................................   6 1/4  3 1/16
  Fourth Quarter...............................................   3 7/8 2 13/32
</TABLE>

  As of March 31, 1999, BioSource International had 7,181,925 shares
outstanding and 629 shareholders of record.

                                       9
<PAGE>

                                DIVIDEND POLICY

  BioSource has never paid cash dividends on its common stock and does not
currently anticipate that it will do so in the foreseeable future. We plan to
retain earnings to finance the Company's operations.

  On February 16, 1999, our Board of Directors declared a dividend of one
preferred share purchase right for each share of common stock outstanding on
March 2, 1999. The purchase rights are subject to the terms and conditions of,
the Right Agreement dated February 25, 1999, filed with the Securities and
Exchange Commission on March 1, 1999, on Form 8-A. The purchase rights are not
represented by separate certificates, but, instead, initially will be
evidenced by the certificates representing our outstanding common stock.

Item 6. Selected Financial Data

<TABLE>
<CAPTION>
                               Selected Statement of Operations Data for the Years
                                           Ended December 31, (1) (4)
                              --------------------------------------------------------
                                1998(5)      1997       1996      1995     1994(2)
                              ----------- ---------- ---------- --------- ------------
                                    (In thousands, except per share amounts)
     <S>                      <C>         <C>        <C>        <C>       <C>
     Net sales...............    $21,859     $20,572    $15,913    $8,608    $7,367
     Gross profit............      8,670      13,642     10,345     5,612     4,234
     Net income (loss).......     (5,136)      3,186      2,767     1,160      (210)
     Net income (loss) per
      share:
       Basic.................      (0.68)       0.38       0.38      0.20     (0.04)
       Diluted...............      (0.68)       0.36       0.35      0.20     (0.04)

<CAPTION>
                               Selected Statement of Operations Data for the Years
                                           Ended December 31, (1) (4)
                              --------------------------------------------------------
                                  1998       1997       1996      1995     1994(2)
                              ----------- ---------- ---------- --------- ------------
                                                 (In thousands)
     <S>                      <C>         <C>        <C>        <C>       <C>
     Working capital.........    $ 8,239     $24,430    $18,088    $4,996    $3,485
     Total assets(3).........     41,400      33,157     33,795     7,388     5,968
     Long-term debt..........     13,666       1,292      1,314        64       150
     Total stockholders'
      equity(4)..............     17,696      28,658     28,161     5,897     4,673
</TABLE>
--------
(1) The data reflects the acquisition of Keystone, effected on November 21,
    1995, which was accounted for as a pooling of interests. Additionally,
    Quality Controlled Biochemicals (QCB) was acquired as of December 10, 1998
    and assets of Biofluids, Inc. were acquired as of December 15, 1998. Both
    QCB and Biofluids were accounted for as purchase transactions and,
    accordingly, their results are reflected in BioSource's results subsequent
    to the acquisition dates. See Note 2 of the Notes to Consolidated
    Financial Statements for further discussion.

(2) BioSource recognized compensation expense of $577,452 in 1994 related to
    the release from escrow of 469,180 shares of common stock held by
    directors, officers and others deemed to the able to affect the financial
    results of the Company. No expense was recognized with respect to 635,763
    shares of common stock held by other stockholders which were also released
    from escrow. In addition, BioSource incurred a one-time charge in 1994 of
    $312,000 in connection with the closure of its Northern California
    facility. These charges affect the comparability of operating results
    during 1994 and 1995.

(3) Certain assets and liabilities of Medgenix were acquired concurrently with
    the completion of a second primary offering of BioSource common stock.

(4) Reflects the sale in 1996 of 2,362,000 shares of common stock in
    connection with the secondary public offering and the application of
    proceeds received from the offering. See Note 6 of the Notes to
    Consolidated Financial Statements for further discussion.

(5) BioSource incurred a one-time charge in 1998 of $4,222,000 in connection
    with the purchase of In-process technology related to the acquisition of
    Quality Controlled Biochemicals. See Note 2 of the Notes to Consolidated
    Financial Statements for further discussion.

                                      10
<PAGE>

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

  Product sales were $21,858,600 in 1998, an increase of $1,286,800 or 6.3%
over 1997. In 1997, product sales were 20,571,800, an increase of $4,658,500
or 29.3% over 1996.

  Product sales in the United States were $8,844,100 in 1998, an increase of
$1,392,000 or 18.7% over 1997. The increase in sales was driven by increases
in sales of assays and oligos. Product sales in the United States were
$7,452,100 in 1997, an increase of $660,600 or 9.7% as compared to 1996. The
increase in US sales for 1997 was driven by increases in assay kits.

  Product Sales to European customers were $9,692,400 in 1998, a decrease of
$292,200 or 2.9% over 1997. The decline in sales was driven primarily by
reduced sales of radioimmunoassay (RIA) kits. These kits are facing strong
competition from non radioactive assays and as a result we are realizing a
decline in revenue and market share. Product sales to European customers were
$9,984,600 in 1997, an increase of $2,582,100 or 34.9% over 1996. 1997 was the
first full year of operations subsequent to the acquisition of Medgenix
Diagnostics in June, 1996. The increased sales in 1997 reflect the benefit
derived from this acquisition in increased sales of our RIA and ELISA
immunoassay kits.

  Product Sales in Japan were $2,634,700 in 1998, an increase of $181,300 or
7.4% over the prior year. The increase in sales was driven primarily by
increases in sales of our ELISA kits to both new and existing Japanese
customers. However, Japanese sales in the December 1998 quarter were affected
by the current economic climate in Asia. We expect this issue to impact sales
to Japan throughout 1999. Product sales in Japan were $2,453,400 in 1997, an
increase of $1,301,400 or 113.0% over the prior year. The increase in sales
was due to the acquisition of new distributors in Japan and an aggressive
expansion of our product lines into the Japanese markets.

  A large portion of our sales are derived from foreign sales, representing
59.5%, 63.8% and 57.3% of our net sales in 1998, 1997 and 1996, respectively.
Although the percentage of domestic sales to total net sales has remained
relatively constant, domestic sales volume has increased by 18.7%, 9.7% and
9.5% in 1998, 1997 and 1996, respectively, as compared to the prior year.

  Gross profit Gross profit for the years ended December 31, 1998, 1997 and
1996 was $8,670,000, $13,641,700 and $10,345,300 or 39.7%, 66.3% and 65.0%,
respectively. The decline in gross profit of $4,971,700 or 36.4% in 1998 as
compared to 1997 is primarily the result of charges of approximately
$4,966,000 related to (1) the establishment of a valuation reserve for our
current antibody inventory and (2) the reduction of standard costs for on hand
ELISA test kits and products manufactured in Europe. Our strategy is to
maintain a broad base of products available for sale to our customers. With
regard to the antibody product inventory, we offer over 1,000 antibodies for
sale and find it to be more cost efficient to produce large quantities of the
antibody product during each production run, however, this inventory turns
slowly. Attempts have been made to reduce the quantity of antibody inventory
maintained in stock in order to increase the inventory turnover, however, this
approach did not allow us to maintain proper strategic levels of inventory
necessary to service our customer needs. As a result, in order to reduce the
financial risk of excess or slow moving inventory resulting from the large
production runs, the proper financial management policy with regard to the
antibody inventory was determined to be one of expensing the cost of
production as incurred as a component of cost of sales. Also, contributing to
the reduced gross profit is an increased percentage of sales of lower profit
oligonucleotides as compared to the prior year and costs relating to the sale
of custom antibodies, custom peptides, sera, and buffers/media resulting from
our acquisitions of Quality Controlled Biochemicals (QCB) and Biofluids in
December 1998. The increased gross profit of $3,296,400 in fiscal 1997
compared to 1996 is primarily due to increased sales of $4,658,500 resulting
in additional gross profit of $3,028,400 combined with cost controls both in
the United States and European facilities.

 Operating expenses:

  Research and development--Research and development expense for the years
ended December 31, 1998, 1997 and 1996 amounted to $2,648,300, $2,077,700 and
$1,420,900, respectively. The increased research and

                                      11
<PAGE>

development expense of $570,600 in 1998 as compared to 1997 is primarily due
to increased staffing costs, expenditures related to the development of new
product lines and additions to current product lines, a reduction in grant
funds received in the current fiscal year and research and development
expenditures related to QCB for the month of December 1998. The increased
research and development costs of $656,800 in 1997 as compared to 1996 was due
primarily to incremental expenses associated with our acquisition of BioSource
Europe. Additionally, we also recognized incremental expenses in 1997 in the
United States in connection with the expansion of our core product lines
including new ELISA assay test kits, and other biomedical research and
clinical diagnostic products.

  Sales and marketing--Sales and marketing expense for the years ended
December 31, 1998, 1997 and 1996 amounted to $4,337,500, $4,043,000 and
$2,761,600, respectively. The increased sales and marketing expense of
$294,500 or 7.3% in 1998 as compared to 1997 is primarily due to increased
staffing costs, costs related to the repatriation of a United States employee
that had been assigned to an overseas position, and increased advertising and
other marketing programs. The increased sales and marketing expense of
$1,281,400 or 46.4% in 1997 as compared to 1996 is primarily due to
incremental expenses associated with the acquisition of BioSource Europe.
Additionally, costs for the United States operations reflect increased
staffing costs and increased marketing and promotional expenditures.

  General and administrative--General and administrative expense for the years
ended December 31, 1998, 1997 and 1996 amounted to $4,468,900, $3,552,000 and
$2,702,500, respectively. The increased general and administrative expense of
$916,900 or 25.8% in 1998 as compared to 1997 is primarily due to increased
staffing costs, the settlement of a claim by our former landlord of our
Belgian facility, costs associated with the closure of overseas offices, costs
related to the repatriation of a United States employee that had been assigned
to an overseas position, and costs related to operating QCB and Biofluids for
the period from the acquisition dates to December 31, 1998. The increased
general and administrative expense of $849,500 or 31.4% in 1997 as compared to
1996 is primarily due to incremental costs associated with the acquisition of
BioSource Europe. Additionally, costs increased in the United States
predominantly due to increased staffing costs required to support BioSource's
domestic growth.

  Amortization of intangible assets--Amortization of intangible assets for the
years ended December 31, 1998, 1997 and 1996 amounted to $95,100, $30,700 and
$0, respectively. The increase of $64,400 in 1998 as compared to 1997 was due
to the amortization of intangible assets acquired in conjunction with the
acquisitions of QCB and Biofluids in December 1998. The $30,700 increase in
1997 compared to 1996 is the result of intangible assets acquired with the
acquisition of BioSource Europe.

  Purchased in-process technology--Purchased in-process technology for the
years ended December 31, 1998 was $4,222,000 as compared to zero in both 1997
and 1996. The purchased in-process technology charge in 1998 relates to the
portion of the QCB purchase price that was allocated to products in
development which had not yet reached technological feasibility as of the
acquisition date and did not have alternative future uses and in accordance
with applicable accounting rules, purchased in-process technology is required
to be expensed. See Note 2 of the Notes to Consolidated Financial Statements
for further discussion.

  Interest income, net--Net interest income for the years ended December 31,
1998, 1997 and 1996 amounted to $297,500, $627,400 and $274,700, respectively.
The decline in net interest income for the year ended December 31, 1998 of
$329,900 or 52.6% as compared to 1997 is primarily due to reduced interest
rates earned on invested cash, the use of our cash to fund the two
acquisitions completed in 1998, the share repurchase program, and interest
expense on the debt incurred to fund the acquisitions. The increased net
interest income of $352,700 or 128.4% for the year ended December 31, 1997 as
compared to 1996 is due to income derived from investing, for a full year,
excess cash received through our second primary offering of common stock which
was completed in June 1996.

  Provision for (benefit from) income taxes--The income tax benefit for the
year ended December 31, 1998 was $1,534,600. The provisions for income taxes
for the years ended December 31, 1997 and 1996 were

                                      12
<PAGE>

$1,460,000 and $696,000, respectively. The income tax benefit recorded in 1998
is primarily due to the book versus tax timing differences relating to the
inventory valuation reserves and purchased in-process technology charges
recorded in 1998 for financial statement purposes but will be deductible on
our tax returns in future periods. The increase in the income tax provision in
1997 as compared to 1996 relates to both increased pre-tax income in 1997 and
a reduction of a valuation reserve in 1996 which provided a tax benefit in
1996.

 Trends and Uncertainties:

  The Company consummated two acquisitions in December 1998. These
acquisitions are primarily intended to broaden our product portfolio, increase
sales to current and new customers, and provide new strategic locations for
the manufacture and sale of products. Implementation of these strategic
transactions has resulted in charges and write-downs having an adverse effect
on our financial results for the year ended December 31, 1998. In addition,
there are business risks associated with acquisitions, including the
successful integration of the acquired companies in an efficient and timely
manner, the coordination of research and development and sales efforts, the
retention of key personnel, and the integration of acquired products. There
can be no assurance that these efforts will be successful, or if successful,
will produce the desired results.

 Year 2000:

  The following statements constitute a "Year 2000 Readiness Disclosure" under
the Year 2000 Information and Readiness Disclosure Act.

  BioSource's review of accounting and business systems in order to ensure
Year 2000 compliance is proceeding on schedule. Phase I of this project is the
assessment and identification phase. Phase II is the completion of necessary
modifications and upgrades identified during phase I. We expect to complete
both phase I and phase II during the first half of 1999. As part of phase I,
the Company has engaged an outside consulting firm to assess issues
surrounding our desktop computer and telephone systems. Additionally, we have
assessed our accounting systems. To date, we have identified that one of our
accounting systems is not currently Year 2000 compliant and, during phase II,
a normal conversion and upgrade path is in progress which will provide us with
the Year 2000 compliant current release of the accounting system. We expect to
complete this conversion during the first half of 1999.

  Also as part of phase I, the Company is assessing other business and
operational systems and contacting suppliers and customers in an effort to
identify additional Year 2000 issues. We expect to complete modifications
identified as part of this effort during the first half of 1999.

  To date, we have spent an immaterial amount on the compliance program, and
we do not expect the cost associated with required modifications and capital
expenditures to become Year 2000 compliant to exceed $100,000. The foregoing
costs do not include our internal costs (principally the payroll costs for
those person's working on the project), which costs we do not track.

  The reasonably likely "worst case" scenario of BioSource's failure to
correct a material Year 2000 problem would likely be an interruption in, or a
failure of, certain normal business activities or operations. These failures
could adversely affect our results of operations, liquidity, and financial
condition. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third-
party suppliers and customers (which we have not fully assessed), we are
unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on our results of operations, liquidity,
or financial condition. The Year 2000 project is expected to reduce our level
of uncertainty about the Year 2000 problem. We do not generally rely on sole
source suppliers, and consequently we believe that we will have alternative
sources of supply available as a contingency in the event any of our suppliers
suffer material Year 2000 problems. We do not anticipate material problems
with our power supply or telecommunications. We believe that, with the
implementation of the new business systems and completion as scheduled, the
possibility of significant interruptions of normal operations should be
reduced. Subsequent to the completion of our upgrade

                                      13
<PAGE>

efforts and the determination of our customer and vendor compliance with Year
2000, we will ascertain the need for a formal Year 2000 contingency plan.

 Stockholder Rights Plan:

  On February 16, 1999, our Board of Directors declared a dividend of one
preferred share purchase right for each of share of common stock outstanding
on March 2, 1999. The purchase rights are subject to the terms and conditions
of the Right Agreement dated February 25, 1999, and filed with the Securities
and Exchange Commission on March 1, 1999, on Form 8-A. The purchase rights are
not represented by separate certificates, but, instead, initially will be
evidenced by the certificates representing our outstanding common stock.

 Recently Issued Accounting Standards:

  SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
is effective for fiscal years beginning after June 15, 1999. SFAS No. 133
addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities.
The Statement standardizes the accounting for derivative instruments by
requiring that an entity recognize those items as assets or liabilities in the
statement of financial position and measure them at fair value. We are
evaluating the Statement's provisions to determine the effect on its financial
statements. In addition, the impact of SFAS No. 133 will depend on the terms
of future transactions.

  In March 1998, the American Institute of Certified Public Accountants
Accounting Standards Executive Committee issued a Statement of Position 98-1
(SOP 98-1), "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." BioSource will adopt SOP 98-1 effective on January
1, 1999. The adoption of SOP 98-1 will require us to modify our method of
accounting for software. Based on information currently available, we do not
expect the adoption of SOP 98-1 to have a significant impact on our financial
position or results of operations.

 Liquidity and Capital Resources:

  Cash and cash equivalents and short term investments as of December 31, 1998
of $7,076,900 decreased by $7,369,300 or 51.0% from $14,446,200 at December
31, 1997. Working capital, which is the excess of current assets over current
liabilities, at December 31, 1998 was $8,239,300 as compared to $24,430,000 at
December 31, 1997 representing a decrease of $16,190,600 or 66.4%. The
reduction in cash and working capital resulted primarily from the use of cash
to acquire QCB and Biofluids, the purchase of the Company's stock under the
stock repurchase program, and the charges associated with the creation of the
inventory valuation reserves in 1998. Also affecting working capital during
1998 is an accounts receivable increase of $921,500 which is primarily due to
$378,000 of accounts receivable acquired with QCB and Biofluids and an
increase of $472,700 in the Company's European operation. The increase in the
European accounts receivable is due to a slowdown in collection efforts during
1998 due to both the Company's simultaneous move to new facilities in Belgium
and the conversion to a new computer system. BioSource's policy is to maintain
liquidity in its investments to provide working capital and have the ability
to react to future potential long term investment opportunities in
complementary businesses, products or technologies.

  Capital expenditures of $1,390,000 were primarily for the purchases of
laboratory, manufacturing and computer equipment.

  In April 1997, the Board of Directors authorized us to repurchase up to
200,000 shares of our outstanding common stock at market price. In December
1997, the Board of Directors authorized us to repurchase up to 1,000,000
additional shares of its outstanding common stock at market price and in
August 1998 we were authorized to repurchase up to an additional 250,000
shares of the outstanding common stock at market price. During the year ended
December 31, 1998, we have repurchased 996,200 shares of the Company's common
stock for $6,309,800, an average price of $6.33. As of December 31, 1998, we
have repurchased a total of

                                      14
<PAGE>

1,279,500 shares of the Company's common stock for $8,054,300, an average
price of $6.29 per share since the inception of the repurchase program in
April 1997.

  In December, 1998, we executed a loan agreement with Union Bank of
California, N.A. and borrowed $14,000,000 which was to be used to finance the
acquisitions of Quality Controlled Biochemicals, Inc. and all of the assets
and selected liabilities of Biofluids, Inc. The principal amount outstanding
as of December 31, 1998 was $14,000,000. Principal repayments are to be made
at approximately $166,700 per month for the seven year term of the loan.
Interest is provided at a rate which is 2% per annum in excess of either the
bank's adjusted treasury rate, or the bank's LIBOR rate, in each case, for a
term we select. The actual interest rate at December 31, 1998 was 7.19%. The
loan matures on December 5, 2005. The terms of this loan require us to
maintain a minimum cash balance of $3,500,000 as of December 31, 1998 and
beginning January 1, 1999 to maintain minimum cash balances of $4,000,000.
Additionally, we must maintain a minimum ratio of total liabilities to
tangible net assets, achieve minimum net profit levels, and comply with
specified ratios of earnings before interest, taxes, depreciation and
amortization to debt service costs. We are also required to comply with
certain non-financial covenants. At December 31, 1998, we were in compliance
or had obtained waivers with regard to these covenants.

  QCB had six loans outstanding aggregating $1,394,700 with MetroWest Bank
which we assumed upon completion of the acquisition of QCB in December 1998.
The loans mature from April 17, 1999 through 2003 with rates between 8.75% and
9.00%. Under the terms of these loans we must meet certain financial covenants
which include, a minimum tangible net worth covenant, debt to tangible net
worth, current ratio covenant, and other non financial covenants. At December
31, 1998, we were in compliance or had obtained temporary forbearance relating
to these covenants through July 1, 1999.

                                      15
<PAGE>

                                 RISK FACTORS

  Many of the matters discussed in this Report are forward-looking statements
that inherently involve risks and uncertainties. Factors associated with such
forward-looking statements which could cause actual results to differ
materially from those projected in the statements appear below. In addition to
the other information contained in this Report, prospective investors should
carefully consider the following risk factors and cautionary statements.

  We Rely on Raw Materials for our Manufacturing. Our manufacturing process
relies on the continued availability of high-quality raw materials, many of
which we currently receive from specific vendors. It is possible that a change
in vendors, or in the quality of the raw materials supplied to us, could have
an adverse impact on our manufacturing process and, ultimately, on the sale of
our finished products. We have from time to time experienced a disruption in
the quality or availability of certain key raw materials, which has created
minor delays in our ability to fill orders for certain test kits. This could
occur again in the future, resulting in significant delays, and could have a
detrimental impact on the sale of our products.

  We are Engaged in a Competitive Industry. We are engaged in a segment of the
human health care products industry that is highly competitive. Many of our
competitors, both in the United States and elsewhere, are major
pharmaceutical, chemical, and biotechnology companies, and many of them have
substantially greater capital resources, marketing experience, research and
development staffs, and facilities than we do. Any of these companies could
succeed in developing products that are more effective than any that we have
or may develop, and may also be more successful than us in producing and
marketing their products. Not only do we face intense competition in the
marketplace against our competitors, but we also must compete with these same
companies for the services of personnel.

  We expect competition to continue and intensify in the future. Increased
competition could result in price reductions for our products, reduced margins
and loss of market share, any of which could adversely impact our business.

  Our industry has also seen substantial consolidation in recent years. We
believe that the success that others have had in our industry will attract new
competitors. Some of our current and future competitors may join forces to
better compete against us. We may be not be able to compete effectively
against current or future competitors, and competitive pressures may have an
adverse effect on our business, financial condition and results of operations.

  We Rely on International Sales. International sales accounted for
approximately 63.8% and 59.5% of our revenues in 1997 and 1998, respectively.
International sales can be subject to certain inherent risks, including
unexpected changes in regulatory requirements and tariffs, difficulties in
staffing and managing foreign operations, longer payment cycles, problems in
collecting accounts receivable, and potentially adverse tax consequences. We
also depend on third-party distributors for a material portion of our
international sales. If we lose or suffer any significant reduction in sales
to any material distributor, our business could be materially adversely
affected.

  In addition, approximately 40% of our sales are made in Belgian Francs. In
the past, gains and losses on the conversion of our accounts receivable
arising from international operations have contributed to fluctuations in our
results of operations, although the impact of foreign exchange conversions
were not significant during 1998. In general, increases in the exchange rate
of the United States dollar to foreign currencies cause our products to become
relatively more expensive to customers in those countries, leading to a
reduction in sales or profitability in some cases.

  We Depend on Key Management. Our success will continue to depend to a
significant extent on the members of our management team and, in particular,
on our Chief Executive Officer, James H. Chamberlain. As is the case with any
company, we may not be able to retain the services of our executive officers
and key

                                      16
<PAGE>

personnel or attract additional qualified members to management in the future.
The loss of services of Mr. Chamberlain, or of any key employee, could have a
material adverse effect upon our business.

  Our Stock Price has been Volatile. Our common stock is quoted on The Nasdaq
National Market System, and there has been substantial volatility in the
market price of our common stock. The trading price of the common stock has
been, and is likely to continue to be, subject to significant fluctuations in
response to variations in quarterly operating results, the gain or loss of
significant contracts, changes in management, announcements of technological
innovations or new products by us or our competitors, legislative or
regulatory changes, general trends in the industry, recommendations by
securities industry analysts, and other events or factors. In addition, the
stock market has experienced extreme price and volume fluctuations which have
affected the market price of our common stock, as well as the stock of many
technology companies. Often, price fluctuations are unrelated to operating
performance of the specific companies whose stock is affected.

  We Are Subject to Extensive Government Regulation. We operate in a highly
regulated industry. Our business is subject to extensive regulation,
supervision and licensing by federal, state and local governmental
authorities. Also, from time to time we must expend significant resources to
comply with newly adopted regulations as well as changes in existing
regulations. If we fail to comply with these regulations, we could be subject
to certain disciplinary actions or administrative enforcement actions. Such
actions could result in penalties, including fines.

  Protection of our Trademarks and Propriety Rights is Uncertain. We regard
our trademarks, trade secrets and similar intellectual property as important
to our success. We rely on trademark law and trade secret protection and
confidentiality and/or license agreements with employees, customers, partners
and others to protect our proprietary rights. We have pursued the registration
of our trademarks in the U.S. and internationally. Effective trademark and
trade secret protection may not be available in every country in which our
products are available. We cannot be certain that we have taken adequate steps
to protect our proprietary rights, especially in countries where the laws may
not protect our rights as fully as in the United States. In addition, third
parties may infringe or misappropriate our proprietary rights, and we could be
required to incur significant expenses in preserving them.

  Year 2000 Issues. The Year 2000 issue is the result of computer programs
being written using two digits rather than four to define the applicable year.
In other words, date-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of operations, including, among others, a
temporary inability to process transactions, send invoices, manufacture
product, or engage in similar normal business activities.

  Our own information systems correctly define the year 2000. We are currently
analyzing the extent to which the Year 2000 issue affects our major suppliers'
systems, insofar as they relate to our business. We cannot currently predict
the extent to which the year 2000 issue will affect our suppliers, or the
extent to which we would be vulnerable to the suppliers' failure to remedy any
Year 2000 issues on a timely basis.

                                      17
<PAGE>

Item 8. Financial Statements and Supplementary Data

<TABLE>
<CAPTION>
                                                                         Page
                                                                         -----
<S>                                                                      <C>
Report of KPMG LLP, Independent Auditors................................   F-1

Consolidated Balance Sheets at December 31, 1998 and 1997...............   F-2

Consolidated Statements of Operations for the Years Ended December 31,
 1998, 1997 and 1996....................................................   F-3

Consolidated Statements of Stockholders' Equity for the Years Ended
 December 31, 1998, 1997 and 1996.......................................   F-4

Consolidated Statements of Cash Flows for the Years Ended December 31,
 1998, 1997 and 1996....................................................    F5

Notes to Consolidated Financial Statements for the Years Ended December
 31, 1998, 1997 and 1996................................................ F6-20

Schedule II Valuation and Qualifying Accounts...........................   S-1
</TABLE>

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

  None

                                       18
<PAGE>

                                   PART III

Item 10. Directors and Executive Officers of the Registrant

  The current directors, executive officers and key employees of the Company
are as follows:

<TABLE>
<CAPTION>
   Name                         Age                     Position
   ----                         ---                     --------
   <S>                          <C> <C>
   James H. Chamberlain........  51 Chairman of the Board, President and Chief
                                     Executive Officer

   Larry A. May................  49 Chief Financial Officer, Executive Vice
                                     President--Finance

   Gus E. Davis................  51 Chief Operating Officer, Executive Vice
                                     President--Sales and Marketing

   Leonard M. Hendrickson*.....  51 Director

   David J. Moffa, Ph.D.*......  56 Director

   John R. Overturf, Jr.**.....  38 Director

   Robert D. Weist**...........  59 Director

   Key Employees

   Richard O. Buford...........  50 Vice President--Human Resources, Secretary

   Cirilo D. Cabradilla, Jr.,    50 Vice President--Molecular Biology
    Ph.D. .....................

   Kevin J. Reagan, Ph.D.......  46 Vice President--Immunology Products

   Jordan B. Fishman, Ph.D.....  41 Vice President--Cellular Biology

   Jef Vangenechten, Ph.D......  44 General Manager--BioSource Europe, S.A.
</TABLE>
--------
 * Member of the Compensation Committee
** Member of the Audit Committee

  James H. Chamberlain has served as Director, President and Chief Executive
Officer of the Company and its predecessor, BioSource Industries, Inc. since
it was founded in October 1989, and elected as its Chairman of the Board in
November 1993. Previously, Mr. Chamberlain was Manager for Business
Development for Amgen, Inc., where he started and managed the Amgen
Biologicals Division. Mr. Chamberlain has held various executive positions
with Browning Ferris Industries and Amersham Corporation, a biomedical
company, and was a research biochemist for Wm. H. Rorer Pharmaceutical, a
major pharmaceutical company. He received his Bachelor of Arts degree from
West Virginia University and studied biochemistry at the University of
Pittsburgh.

  Larry A. May became Executive Vice President Finance and Chief Financial
Officer of the Company on June 1, 1998. Prior to joining BioSource, Mr. May
served in various capacities at Amgen, the world's largest biotechnology
company, from 1983 to May, 1998. From 1997 to May 1998, Mr. May served as
Treasurer of Amgen, and from 1988 to 1997, served as its Corporate
Controller/Chief Accounting Officer, and from 1983 to 1988, Mr. May served as
Corporate Controller of Amgen. Mr. May has also served as Vice President of
Finance West Coast Operations for IDC Services, a company providing payroll
and accounting services to major advertising agencies, motion picture and
television production companies (1978-1983). Mr. May holds a Bachelor of
Science degree in Business Administration and Accounting from the University
of Missouri.

  Gus E. Davis became Executive Vice President Sales and Marketing and Chief
Operating Officer of the Company in June 1995. From February 1994 to June
1995, Mr. Davis served as Vice President of Sales and Marketing of the
Company. Prior to that time, since February 1993, Mr. Davis was employed as
Vice President of Sales and Marketing at Genosis BioTechnology, a company
engaged in the manufacturing of oligonucleotides. From January 1983 to January
1993, Mr. Davis was employed as the Midwestern Area Manager for Pharmacia

                                      19
<PAGE>

BioTechnology, a company involved in the sale of reagents and capital
equipment used to purify samples. Mr. Davis received his Bachelor of Science
and Masters degree in Biology and Chemistry from Sam Houston State University.

  Leonard M. Hendrickson has been a Director of the Company since October
1993. Mr. Hendrickson is the President of Isotope Products Laboratories, a
privately held company, a position he has held since February 1992. From
February 1990 to January 1992, Mr. Hendrickson served as the principal
consultant for Microchemics, a marketing and business development consulting
firm which he founded. Prior to that time, Mr. Hendrickson served as Director
of Marketing for Scicor, a diagnostics laboratory in Indianapolis, Indiana,
and held various executive positions with Amersham Corporation. Mr.
Hendrickson has also held positions with Marion Laboratories, a pharmaceutical
company, and Standard Oil Company. Mr. Hendrickson holds a Bachelor of Science
degree from the University of Pennsylvania and a Masters in Business
Administration from American University in Washington, D.C.

  David J. Moffa, Ph.D. has been a Director of the Company since April 1995.
Dr. Moffa serves: as the Regional Director and as special projects director
for Lab Corporation of America, Inc. (Fairmont, WV), positions he has held
since 1982 and 1984, respectively; as Director of Medical Arts Lab/RBL, a
position he has held since 1985; and as Director of Lab Corporation of
America, Inc. (Altoona, PA), a position he has held since 1990. Dr. Moffa also
serves as an advisor and consultant to various diagnostic, scientific and
health care facilities, and is an owner and developer of GM Realty and Moffa
Properties. Prior to serving in his current positions, Dr. Moffa has served as
a Director and General Manager of BioMedical Reference and Roche Biomedical
Labs, as President, Chief Executive Officer and a Director of BioPreps
Laboratories, Inc., as Assistant Professor of Medical Biochemistry and
Director of Dental Biochemistry Programs at the West Virginia University
School of Medicine, as NIH Post Doctoral Fellow and Instructor in Medical
Biochemistry as well as a Graduate Research Assistant at the West Virginia
University School of Medicine. Dr. Moffa also serves on a number of committees
and boards of directors of various privately held companies and governmental
offices. Dr. Moffa has completed a post doctoral fellowship in Clinical
Biochemistry at the West Virginia University National Institutes of Health,
holds a Ph.D. in Medical Biochemistry from the West Virginia School of
Medicine, a Masters of Science degree in Biochemistry from West Virginia
University and a Bachelor of Arts degree in Pre-Medicine from West Virginia
University.

  John R. Overturf, Jr. has been a Director of the Company since September
1993. Mr. Overturf serves: as the President of R.O.I., Inc., a private
investment company, a position he has held since July 1993; and as President
of the Combined Penny Stock Fund, Inc., a closed-end stock market fund, a
position he has held since September 1996. From September 1993 until September
1996, Mr. Overturf served as Vice-President of the Rockies Fund, Inc., a
closed-end stock market fund. From June 1984 until February 1992, Mr. Overturf
served as Vice President of Colorado National Bank. Mr. Overturf holds a
Bachelor of Science degree in Finance from the University of Northern
Colorado.

  Robert D. Weist has been Director of the Company since April 1996. Mr. Weist
has been President of Weist Associates (a management consulting firm) since
April 1992. From January 1986 through April 1992, Mr. Weist was a consultant
to and Senior Vice President, Administration, General Counsel and Secretary of
Amgen, Inc., having served as Vice President, General Counsel and Secretary
from March 1982 through January 1986. Mr. Weist holds a Juris Doctor degree
from New York University and a Masters in Business Administration from the
University of Chicago.

Key Employees

  The Company also considers the following individuals to be key to its
operations.

  Richard O. Buford became Vice President of Human Resources of the Company in
February 1993. From 1989 to 1992, Mr. Buford served as Vice President of
Operations for The Office Mart, a California regional commercial furniture and
office supply distributor. From 1978 to 1989, Mr. Buford held various
operational and

                                      20
<PAGE>

administrative management positions with Schwabacher/Frey, an office supply
distribution unit of Hanson Industries, most recently as Director of Finance
and Administration from 1984-1989. Mr. Buford received a Bachelor of Arts and
a Masters degree in English from the University of California at Santa
Barbara.

  Cirilo D. Cabradilla, Jr., Ph.D. became President of the Keystone subsidiary
in November 1995. From 1992 to 1995, Dr. Cabradilla served as President of
Keystone Laboratory, Inc Prior to that time, from 1988 to 1992, Dr. Cabradilla
was Vice President, Product Development, of Vascor, a pharmaceutical company.
Dr. Cabradilla received a Bachelor of Science and a Ph.D. degree in
Biochemistry from the University of California Davis.

  Kevin J. Reagan, Ph.D. became Vice President, Immunology in December, 1996.
From 1991 to December 1996, Dr. Reagan served as the first Director of
Development Laboratories and then Vice President, Laboratory Operations at
Specialty Laboratories, Inc., a clinical reference lab. From 1990 to 1991, Dr.
Reagan was the Associate Director of AIDS/Hepatitis R&D at Ortho Diagnostics,
Inc., a Johnson & Johnson Company. Prior to that time, from 1984 to 1990, he
was a Research Virologist, Senior Research Virologist, Research Associate and
Group Leader in the Biomedical Products Department of E.I. Dupont de Nemours &
Co., Inc. From 1981 to 1984, he was employed at the Wistar Institute of
Anatomy and Biology. Dr. Reagan received his Bachelor of Arts in Biological
Sciences from the University of Delaware. Dr. Reagan received both his Masters
and Ph.D. degrees in Microbiology and Immunology from Hahnemann Medical
College.

  Jozef Vangenechten, Ph.D. became Managing Director of BioSource Europe, S.A.
in February, 1998. From 1988 to February 1998, Dr. Vangenechten worked for
Societe Generale de Surveillance, n.v. ("SGS"), an international provider of
environmental compliance services, most recently as Managing Director of the
SGS's EcoCare Environmental Services division. Prior to that time, from 1988
to 1992, he served as Manager and Assistant Director of EcoCare. From 1981 to
1988, Dr. Vangenechten worked for the Belgian Nuclear Energy Research Center,
most recently as Research Scientist and Group Leader within its Department of
Radiobiology.

  Jordan Fishman, Ph.D. became President of the Quality Controlled
Biochemicals subsidiary in December 1998. From 1993 to 1998, Dr. Fishman
served as the Senior Vice-President and Chief Scientific Officer of Quality
Controlled Biochemicals, Inc. From 1988 until 1992, Dr. Fishman was an
Assistant Professor of Pharmacology at the University of Massachusetts Medical
School. From 1985 until 1988, Dr. Fishman was an Assistant Professor of
Biochemistry at Boston University School of Medicine and a Research
Neurochemist at the Edith Nourse Rogers Memorial VA Hospital in Bedford, MA.
Dr. Fishman received his Ph.D. in Biochemistry and Toxicology/Carcinogenesis
from the University of Tennessee at Oak Ridge, and his Bachelor of Science
from Washington University, St. Louis, MO.

Item 11. Executive Compensation

  Information relating to executive compensation is contained in the Company's
Proxy Statement for its 1999 Annual Stockholders meeting and is hereby
incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

  Information relating to security ownership of directors and executive
officers and certain beneficial owners is contained in the Company's Proxy
Statement for its Annual Stockholders meeting and is hereby incorporated by
reference.

Item 13. Certain Relationships and Related Transactions

  Information relating to certain transactions is contained in the Company's
Proxy Statement for its 1999 Annual Stockholders meeting is hereby
incorporated by reference.

                                      21
<PAGE>

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

  (a)(1) The financial statements listed below are included as part of this
report:

    Independent Auditors' Report

    Consolidated Balance Sheets at December 31, 1998 and 1997

    Consolidated Statements of Operations for the Years ended December 31,
  1998, 1997, and 1996

    Consolidated Statements of Stockholders' Equity for the Years ended
  December 31, 1998, 1997 and 1996

    Consolidated Statements of Cash Flows for the Years ended December 31,
  1998, 1997, and 1996

    Notes to Consolidated Financial Statements

  (a)(2) The following schedule supporting the financial statements of the
Company is included herein:

    Schedule II Valuation and Qualifying Accounts

    All other schedules are omitted because they are not applicable, not
  required or because the required information is included in the
  consolidated financial statements or notes thereto.

  (a)(3) Exhibits

    See Exhibit Index immediately following signature page.

  (b) Reports on Form 8-K:

    Filed as an exhibit to the Company's Current Report on Form 8-K dated
  December 31, 1998, and incorporated herein by reference.

    Filed as an exhibit to the Company's Current Report on Form 8-K dated
  December 24, 1998, and incorporated herein by reference.

                                      22
<PAGE>

                                  SIGNATURES

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

Date: May 28, 1999                                 /s/ Larry A. May
                                          By: _________________________________
                                                      Larry A. May
                                           Executive Vice President--Finance,
                                                 Chief Financial Officer

Date: May 28, 1999                             /s/ James H. Chamberlain
                                          By: _________________________________
                                                  James H. Chamberlain
                                                 Chairman of the Board,
                                              President and Chief Executive
                                                         Officer

  In accordance with the Exchange Act, this report has been signed below by
the following person on behalf of the registrant and in the capacities and on
the date indicated:

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

<S>                                  <C>                           <C>
   /s/ Leonard M. Hendrickson        Director                      May 28, 1999
____________________________________
       Leonard M. Hendrickson

   /s/ David J. Moffa, Ph.D.         Director                      May 28, 1999
____________________________________
       David J. Moffa, Ph.D.

   /s/ John R. Overturf, Jr.         Director                      May 28, 1999
____________________________________
       John R. Overturf, Jr.

      /s/ Robert D. Weist            Director                      May 28, 1999
____________________________________
          Robert D. Weist
</TABLE>



                                      23
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
BioSource International, Inc.:

  We have audited the accompanying consolidated balance sheets of BioSource
International, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BioSource
International, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally
accepted accounting principles.

                                          KPMG LLP

Los Angeles, California
March 26, 1999

                                      F-1
<PAGE>

                 BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                           December 31, 1998 and 1997
         (Amounts in thousands, except for share and per share amounts)

<TABLE>
<CAPTION>
                                                            1998       1997
                                                          ---------  ---------
<S>                                                       <C>        <C>
                         Assets
Current assets:
  Cash and cash equivalents.............................. $ 7,076.9  $ 9,477.5
  Short-term investments.................................       --     4,968.7
  Accounts receivable, less allowance for doubtful
   accounts of $301.0 at December 31, 1998 and $203.0 at
   December 31, 1997.....................................   4,381.0    3,459.5
  Inventories, net (note 3)..............................   4,970.6    7,883.4
  Prepaid expenses and other current assets..............     726.2    1,599.3
  Deferred income taxes (note 10)........................   1,123.4      248.0
                                                          ---------  ---------
    Total current assets.................................  18,278.1   27,636.4
Property and equipment, net (note 4).....................   5,513.6    4,560.1
Intangible assets, net of $125.8 of accumulated
 amortization at December 31, 1998 and $30.7 at December
 31, 1997 (note 2).......................................  14,451.2      429.3
Other assets.............................................   1,318.0      308.3
Deferred income taxes (note 10)..........................   1,839.2      223.0
                                                          ---------  ---------
                                                          $41,400.1  $33,157.1
                                                          =========  =========
          Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable....................................... $ 1,643.0  $ 1,446.4
  Accrued expenses.......................................   4,143.9    1,472.7
  Notes payable to banks, current portion (note 5).......   3,024.2       34.5
  Deferred income........................................     625.9        --
  Income tax payable.....................................     601.7      252.8
                                                          ---------  ---------
    Total current liabilities............................  10,038.7    3,206.4
Notes payable to banks, less current portion (note 5)....  13,665.6    1,292.4
                                                          ---------  ---------
    Total liabilities....................................  23,704.3    4,498.8
Commitments and contingencies (notes 5 and 13)
Stockholders' equity:
  Preferred stock, $.001 par value. Authorized 1,000,000
   shares; none issued or outstanding....................       --         --
  Common stock, $.001 par value. Authorized 20,000,000
   shares: issued 7,469,925 shares and outstanding
   7,178,925 shares at December 31, 1998 and 8,147,715
   shares at December 31, 1997...........................       7.2        8.1
  Additional paid-in capital.............................  21,186.8   27,304.8
  Retained earnings (accumulated deficit)................  (2,629.3)   2,506.5
  Accumulated other comprehensive loss...................    (868.9)  (1,161.1)
                                                          ---------  ---------
    Net stockholders' equity.............................  17,695.8   28,658.3
                                                          ---------  ---------
                                                          $41,400.1  $33,157.1
                                                          =========  =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-2
<PAGE>

                 BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                  Years ended December 31, 1998, 1997 and 1996
                 (Amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                 1998       1997      1996
                                               ---------  --------- ---------
<S>                                            <C>        <C>       <C>
Net sales..................................... $21,858.6  $20,571.8 $15,913.3
Cost of sales.................................  13,188.6    6,930.1   5,568.0
                                               ---------  --------- ---------
    Gross profit..............................   8,670.0   13,641.7  10,345.3
                                               ---------  --------- ---------
Operating expenses:
  Research and development....................   2,648.3    2,077.7   1,420.9
  Sales and marketing.........................   4,337.5    4,043.0   2,761.6
  General and administrative..................   4,468.9    3,552.0   2,702.5
  Purchased in-process technology.............   4,222.0        --        --
  Amortization of intangibles.................      95.1       30.7       --
                                               ---------  --------- ---------
    Total operating expenses..................  15,771.8    9,703.4   6,885.0
                                               ---------  --------- ---------
Operating income (loss).......................  (7,101.8)   3,938.3   3,460.3
Interest income, net..........................     297.5      627.4     274.7
Other income (expense), net...................     133.9       80.6    (271.8)
                                               ---------  --------- ---------
Income (loss) before income taxes.............  (6,670.4)   4,646.3   3,463.2
Provision for (benefit from) income taxes
 (note 10)....................................  (1,534.6)   1,460.0     696.0
                                               ---------  --------- ---------
    Net income (loss)......................... $(5,135.8) $ 3,186.3 $ 2,767.2
                                               =========  ========= =========
Net income (loss) per share:
  Basic....................................... $   (0.68) $    0.38 $    0.38
                                               ---------  --------- ---------
  Diluted..................................... $   (0.68) $    0.36 $    0.35
                                               ---------  --------- ---------
Shares used to compute net income (loss) per
 share:
  Basic.......................................   7,508.8    8,318.0   7,271.8
                                               ---------  --------- ---------
  Diluted.....................................   7,508.8    8,965.2   8,008.5
                                               ---------  --------- ---------
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-3
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                 Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                           Common stock                Retained
                         ---------------- Additional   earnings    Accumulated       Net
                         Number of         paid-in   (accumulated comprehensive stockholders' Comprehensive
                          shares   Amount  capital     deficit)       loss         equity     income (loss)
                         --------- ------ ---------- ------------ ------------- ------------- -------------
<S>                      <C>       <C>    <C>        <C>          <C>           <C>           <C>
Balance at December 31,
 1995...................  5,845.3   $5.8   $9,338.5   $(3,447.0)         --       $5,897.3
Issuance of common
 stock..................  2,362.0    2.4   19,299.0         --           --       19,301.4
Exercise of stock
 options................     80.7    0.1      140.1         --           --          140.2
Exercise of warrants....     31.0    --        59.5         --           --           59.5
Net income..............      --     --         --      2,767.2          --        2,767.2       2,767.2
Foreign currency
 translation
 adjustments............      --     --         --          --          (5.0)         (5.0)         (5.0)
                          -------   ----   --------   ---------     --------      --------      --------
Total comprehensive
 income.................                                                                         2,762.2
                                                                                                ========
Balance at December 31,
 1996...................  8,319.0    8.3   28,837.1   $  (679.8)        (5.0)     28,160.6
Exercise of stock
 options................     77.0    --       147.2         --           --          147.2
Exercise of warrants....     35.0    --        64.8         --           --           64.8
Purchases of treasury
 stock..................   (283.3)  (0.2)  (1,744.3)        --           --       (1,744.5)
Net income..............      --     --         --      3,186.3          --        3,186.3       3,186.3
Foreign currency
 translation
 adjustments............      --     --         --          --      (1,156.1)     (1,156.1)     (1,156.1)
                          -------   ----   --------   ---------     --------      --------      --------
Total comprehensive
 income.................                                                                         2,030.2
                                                                                                ========
Balance at December 31,
 1997...................  8,147.7    8.1   27,304.8   $ 2,506.5     (1,161.1)     28,658.3
Issuance of stock
 options to non
 employees..............      --     --       110.4         --           --          110.4
Exercise of stock
 options................     27.4    0.1       59.9         --           --           60.0
Income tax benefit from
 exercise of stock
 options................      --               20.5         --           --           20.5
Purchases of treasury
 stock..................   (996.2)  (1.0)  (6,308.8)        --           --       (6,309.8)
Net loss................      --     --         --     (5,135.8)         --       (5,135.8)     (5,135.8)
Foreign currency
 translation
 adjustments............      --     --         --          --         292.2         292.2         292.2
                                                                                                --------
Total comprehensive
 income.................                                                                        (4,843.6)
                          -------   ----   --------   ---------     --------      --------      ========
Balance at December 31,
 1998...................  7,178.9   $7.2   21,186.8   $(2,629.3)      (868.9)     17,695.8
                          =======   ====   ========   =========     ========      ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-4
<PAGE>

                 BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                  1998       1997       1996
                                                ---------  ---------  ---------
<S>                                             <C>        <C>        <C>
Cash flows from operating activities:
 Net income (loss)............................  $(5,135.8) $ 3,186.3  $ 2,767.2
 Adjustments to reconcile net income (loss) to
  net cash provided by operating activities:
 Depreciation and amortization................      959.8      712.0      457.6
 Net (gain) loss on sale of property and
  equipment...................................       31.5       (6.3)      57.5
 Gain on sale of investments..................        --         --        (9.0)
 Purchased in-process technology..............    4,222.0        --         --
 Non-cash stock compensation..................      110.4        --         --
 Non-cash write-down of inventory.............    4,966.0
 Other........................................       28.0     (110.0)      (5.0)
Changes in assets and liabilities, net of
 effects of acquisition:
 Accounts receivable..........................     (386.1)     413.0     (230.0)
 Inventories..................................   (1,048.3)  (1,177.3)  (1,155.9)
 Prepaid expenses and other current assets....      888.0     (549.7)    (476.1)
 Deferred income taxes........................   (2,491.6)     (56.0)    (501.0)
 Other assets.................................   (1,001.1)     142.5     (333.8)
 Accounts payable.............................      (62.0)    (318.9)     704.1
 Accrued expenses.............................    2,592.3     (581.3)   1,025.9
 Deferred income..............................        3.9        --         --
 Income taxes payable.........................      348.9      194.0     (264.4)
                                                ---------  ---------  ---------
  Net cash provided by operating activities...    4,025.9    1,848.3    2,037.1
                                                ---------  ---------  ---------
Cash flows from investing activities:
 Purchase of property and equipment...........   (1,390.0)    (659.0)  (2,349.6)
 Purchase of Medgenix Business................        --         --    (6,868.0)
 Purchase of Quality Controlled Biochemicals..  (15,193.9)       --         --
 Purchase of net assets from Biofluids........   (2,822.5)       --         --
 Proceeds from sale of property and
  equipment...................................        3.1       21.4        --
 Purchases of investments.....................   (7,614.8) (23,028.0) (19,954.7)
 Proceeds from sale of investments............   12,583.5   29,387.9    8,635.2
                                                ---------  ---------  ---------
  Net cash provided by (used in) investing
   activities.................................  (14,434.6)   5,722.3  (20,537.1)
                                                ---------  ---------  ---------
Cash flows from financing activities:
 Proceeds from issuance of common stock.......        --         --    19,301.4
 Proceeds from the exercise of options........       60.0      147.2      140.2
 Proceeds from the exercise of warrants.......        --        64.8       59.5
 Borrowings from bank.........................   14,000.0        --     1,957.0
 Repayments to bank...........................      (31.1)     (28.5)    (721.3)
 Payments on capital lease obligations........       (3.0)      (2.3)     (23.0)
                                                ---------  ---------  ---------
 Payments to acquire treasury stock...........   (6,309.8)  (1,744.5)       --
                                                ---------  ---------  ---------
  Net cash provided by (used in) financing
   activities.................................    7,716.1   (1,563.3)  20,713.8
                                                ---------  ---------  ---------
Net increase (decrease) in cash and cash
 equivalents..................................   (2,692.6)   6,007.3    2,213.8
Effect of exchange rates on cash and cash
 equivalents..................................      292.0     (136.7)       --
Cash and cash equivalents at beginning of
 year.........................................    9,477.5    3,606.9    1,393.1
                                                ---------  ---------  ---------
Cash and cash equivalents at end of year......  $ 7,076.9  $ 9,477.5  $ 3,606.9
                                                =========  =========  =========
Supplemental disclosure of cash flow
 information:
 Cash paid during the year for:
 Interest.....................................  $   117.2  $   136.4  $    97.5
 Income taxes.................................    1,117.6    1,477.7    1,109.3
                                                =========  =========  =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-5
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       December 31, 1998, 1997 and 1996

1. Summary of Significant Accounting Policies

 Description of Business

  We develop, manufacture, market and distribute products used worldwide in
disease related biomedical research and clinical diagnostics, principally in
the fields of immunology and molecular biology. Our products include ELISA
assay test kits, clinical diagnostic kits, bioactive proteins, antibodies,
bioactive peptides, oligonucleotides and related products. These products
enable scientists to better understand the biochemistry, immunology and cell
biology of the human body. Some examples would include certain diseases such
as cancer, aging, arthritis and other inflammatory diseases, AIDS and certain
other infectious diseases.

 Principles of Consolidation

  The consolidated financial statements include the accounts of BioSource
International, Inc. and its wholly owned subsidiaries (see note 2). All
significant intercompany accounts and transactions have been eliminated.

 Cash and cash equivalents

  Cash and cash equivalents includes all cash balances and highly liquid
investments with original maturities of three months or less.

 Investments

  We account for investments using Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". We had no investments at December 31, 1998. At December 31, 1997,
we had investments in U.S. Treasury securities that were classified in the
consolidated balance sheet as short term (matured in more than 91 days but
less than one year). These investments were categorized as held to maturity
when purchased and were carried at cost since BioSource had both the intent
and the ability to hold them until they matured.

 Financial Instruments

  The carrying value of financial instruments such as cash and cash
equivalents, trade receivables, payables and short-term debt approximates
their fair value at December 31, 1998 and 1997 due to the short-term nature of
these instruments. The carrying value of the short-term investments and the
long-term debt also approximates fair value as of December 31, 1997. However,
due to interest rate reductions during 1998, the interest rate on the Heller
Financial mortgage is approximately 2% higher than the fair value of similar
currently available debt instruments. Assuming interest rates remain constant
at the current level, this interest rate differential would cost BioSource
approximately $114,000 in additional interest over the remaining life of the
loan. See Note 5 for further description of this Note Payable.

 Inventories

  Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value) for raw materials and work in process and the average-
cost method for finished goods.

 Depreciation and Amortization

  Property and equipment are stated at cost. Depreciation and amortization of
property and equipment and goodwill is provided using the straight-line method
over the estimated useful lives of the related assets which

                                      F-6
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

generally range from three to fifteen years. Real property is depreciated over
thirty nine years. Leasehold improvements are amortized using the straight-
line method over their estimated useful lives or the lease term, whichever is
shorter.

 License Agreements

  License agreements are recorded at cost and are amortized using the
straight-line method over the shorter of the estimated useful lives of the
license or the license term (generally five to ten years). These costs are
included with other assets in the accompanying consolidated balance sheets.
Accumulated amortization at December 31, 1998 and 1997 was approximately
$201,000 and $152,000.

 Revenue Recognition

  Sales and related cost of goods sold are recognized upon shipment of
products. Our customers frequently prepay for sera or media and buffer product
and request shipment of the product at future dates. Also, our customers pay
for custom antibodies and custom peptides while the product is being
manufactured. Under both circumstances, deferred revenue is recorded by the
Company until such time as a product is shipped to our customer. Upon
shipment, the appropriate sale and cost of goods sold are recognized.

 Research and Development Costs

  Research and development costs are charged to expense as incurred. Such
costs amounted to $2,648,300, $2,077,700, and $1,420,900 in 1998, 1997 and
1996, respectively.

 Income Taxes

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

 Long-Lived Assets

  It is our policy to account for long-lived assets, including intangibles, at
amortized cost. As part of an ongoing review of the valuation and amortization
of long-lived assets, management assesses the carrying value of such assets if
facts and circumstances suggest that it may be impaired. If this review
indicates that the long-lived assets will not be recoverable, as determined by
a non-discounted cash flow analysis over the remaining amortization period,
the carrying value of the Company's long-lived assets would be reduced to its
estimated fair market value based on discounted cash flows. As a result, we
have determined that our long-lived assets are not impaired as of December 31,
1998 and 1997.

 Stock Compensation

  We account for stock-based compensation under the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). Under the provisions of SFAS 123, the Company has
elected to continue to measure compensation cost under APB No. 25 and comply
with the pro forma disclosure requirements.


                                      F-7
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 Comprehensive Income

  We adopted SFAS No. 130, "Reporting Comprehensive Income" in 1998. SFAS No.
130 establishes standards to measure all changes in equity that result from
transactions and other economic events other than transactions with owners.
Comprehensive income is the total of net earnings and all other non-owner
changes in equity. Except for net earnings and foreign currency translation
adjustments, the Company does not have any transactions and other economic
events that qualify as comprehensive income as defined under SFAS No. 130.

 Business Segment Reporting

  We adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information," effective in 1998. SFAS No. 131 establishes new
standards for reporting information about business segments and related
disclosures about products and services, geographic areas and major customers,
if applicable. Management of the Company has determined its reportable
segments are strategic business units that offer both sales to external
customers from geographic company facilities and sales to external customers
in certain geographic regions. Significant reportable business segments are
the United States and European facilities and sales to external customers
located in the United States, Europe and Japan. Information related to these
segments is summarized in Note 12.

 Use of Estimates

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

 Concentrations of Credit Risk

  Financial instruments which potentially subject us to concentrations of
credit risk consist primarily of short-term investments and trade accounts
receivable. As of December 31, 1998 we had no short-term investments. The
credit risk associated with trade accounts receivable is mitigated by our
credit evaluation process, reasonably short collection terms and the
geographical dispersion of sales transactions.

 Foreign Currency Translation

  The assets and liabilities of BioSource's foreign subsidiary, whose
functional currency is Belgian francs, are translated at the rate of exchange
at the balance sheet date, and related revenues and expenses are translated at
the average exchange rate in effect during the period. Resulting translation
adjustments are recorded as a component of stockholders' equity. Gains and
losses from foreign currency transactions are included in net income. Foreign
currency transaction gain (loss) was $(39,400), $59,600 for 1998 and 1997,
respectively and was immaterial for 1996.

 Reclassifications

  Certain prior year amounts have been reclassified to conform to the current
year's presentation.

2. Business Combinations

  On December 10, 1998, BioSource acquired Quality Controlled Biochemicals,
Inc. (QCB). QCB is a leading manufacturer of phosphopeptides, phosphorylation
state-specific antibodies, custom peptides and custom antibodies. The
transaction was accounted for as a purchase. The results of operations of QCB
are included in

                                      F-8
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the accompanying financial statements from the date of acquisition. The
purchase price was $15,193,900, including related acquisition costs, and was
financed through cash on hand and bank borrowings. The purchase price exceeded
the fair value of net assets acquired by approximately $16,034,500 of which
$4,222,000 was allocated to in-process technology. The remaining $11,812,500,
which is included in intangible assets in the consolidated balance sheet at
December 31, 1998, was allocated to identifiable intangible assets and
goodwill with useful lives ranging from 5 to 15 years and is summarized as
follows:

<TABLE>
      <S>                                                            <C>
      Developed technology.......................................... $ 7,655,400
      Core technology...............................................     665,300
      Assembled workforce...........................................     408,100
      Tradename.....................................................     257,000
      Goodwill......................................................   2,826,700
                                                                     -----------
                                                                      11,812,500
                                                                     ===========
</TABLE>

  The purchased in-process technology charge of $4,222,000 in 1998 relates to
the portion of the QCB purchase price that was allocated to products in
development which had not yet reached technological feasibility as of the
acquisition date and did not have alternative future uses and in accordance
with applicable accounting rules, purchased in-process technology is required
to be expensed.

  The acquisition of Quality Controlled Biochemicals (QCB) has added a
portfolio of antibodies that are specifically engineered to bind to proteins
when they are in specific states of phosphorylation. Phosphorylation is the
process of adding or removing molecules of phosphate from a protein that turns
on or off many of the key molecules within cells. These molecules control
most, if not all, of the key processes that regulate the inner workings of all
cells as well as their interaction(s) with other cells. Disease states such as
cancer, Alzheimer's Disease, and many other pathological conditions have been
shown to be at least in part due to the malfunctioning of key molecules within
cells, in many cases due to alterations in their activity through
phosphorylation. At the date of acquisition QCB had approximately 100 unique
phoshphorylated antibodies under development, most of these antibodies were in
the final phase of development. We estimate that on an overall basis these
antibodies are approximately 75% complete. The balance of the development work
to be completed is primarily outside testing. We expect the development of
these products will be complete by the end of 1999. Since the acquisition
date, approximately 6 antibodies have been introduced into the market. The
expected cost to complete the development of these products will range between
$100,000 and $200,000.

  On December 15, 1998, BioSource purchased certain assets and liabilities of
Biofluids, Inc. for $2,822,500 in cash, including related acquisition costs.
Biofluids is involved in the manufacture and sale of sera, media and buffers
utilized in biomedical research. The acquisition was accounted for as a
purchase. Accordingly, the assets and liabilities of the acquired business are
included in the consolidated balance sheet as of December 31, 1998. The
results of Biofluids operations from the date of the acquisition to December
31, 1998 were not significant. The acquisition was financed through cash on
hand and bank borrowings. The excess purchase price over the fair value of net
assets acquired of $2,355,300 represents goodwill, is being amortized over a
15 year period, and is included in intangible assets in the consolidated
balance sheet at December 31, 1998.

  The following summarized unaudited pro forma financial information assumes
the acquisitions of QCB and Biofluids, Inc. had occurred on January 1 of each
year:

 PRO FORMA INFORMATION

<TABLE>
<CAPTION>
                                                            1998        1997
                                                         ----------  ----------
                                                         (in thousands, except
                                                            per share data)
      <S>                                                <C>         <C>
      Net sales......................................... $ 27,752.9  $ 26,395.4
      Net income (loss).................................   (3,073.7)    2,583.1
      Net income (loss) per share--diluted..............      (0.49)       0.29
</TABLE>


                                      F-9
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  These amounts are based upon certain assumptions and estimates, and do not
reflect any benefit from economies which might be achieved from combined
operations. Additionally, for comparability purposes, the 1998 net loss
excludes the effect of the $4,222,000 in-process technology charge in 1998.
The pro forma results do not necessarily represent results which would have
occurred if the acquisitions had taken place on the basis assumed above, nor
are they indicative of the results of future combined operations.

3. Inventories

  Inventories at December 31, 1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
                                                              1998       1997
                                                            ---------  --------
   <S>                                                      <C>        <C>
   Raw materials........................................... $ 4,115.0  $2,567.5
   Work in process.........................................     750.4   2,029.9
   Finished goods..........................................   3,972.4   3,660.7
                                                            ---------  --------
                                                              8,837.8   8,258.1
   Inventory reserve.......................................  (3,867.2)   (374.7)
                                                            ---------  --------
   Net inventory........................................... $ 4,970.6  $7,883.4
                                                            =========  ========
</TABLE>

4. Property and Equipment

  Property and equipment at December 31, 1998 and 1997 are summarized as
follows:

<TABLE>
<CAPTION>
                                                             1998       1997
                                                           ---------  ---------
   <S>                                                     <C>        <C>
   Land................................................... $   360.0  $   360.0
   Building and improvements..............................   2,283.5    1,913.7
   Machinery and equipment................................   3,749.1    2,899.5
   Office furniture and equipment.........................   1,596.8    1,115.0
   Leasehold improvements.................................      87.2       19.5
                                                           ---------  ---------
                                                           $ 8,076.6  $ 6,307.7
   Less accumulated depreciation and amortization.........  (2,563.0)  (1,747.6)
                                                           ---------  ---------
                                                           $ 5,513.6  $ 4,560.1
                                                           =========  =========
</TABLE>

5. Notes Payable to Banks

  In December, 1998, BioSource executed a loan agreement with Union Bank of
California, N.A. and borrowed $14,000,000 which was to be used to finance the
acquisitions of Quality Controlled Biochemicals, Inc. and all of the assets
and selected liabilities of Biofluids, Inc. The principal amount outstanding
as of December 31, 1998 was $14,000,000. Principal repayments are to be made
at approximately $166,700 per month for the seven year term of the loan.
Interest is provided at a rate which is 2% per annum in excess of either the
bank's adjusted treasury rate for a term selected by BioSource or the bank's
LIBOR rate for a term also selected by the Company. The actual interest rate
at December 31, 1998 was 7.19%. The loan matures on December 5, 2005. The
terms of this loan require the Company to maintain a minimum cash balance of
$3,500,000 as of December 31, 1998 and beginning January 1, 1999 to maintain
minimum cash balances of $4,000,000. Additionally, BioSource must maintain a
minimum ratio of total liabilities to tangible net assets, achieve minimum net
profit levels, and comply with specified ratios of earnings before interest,
taxes, depreciation and amortization to debt service costs. We are also
required to comply with certain non-financial covenants. At December 31, 1998,
BioSource was in compliance or had obtained waivers with regard to these
covenants.

                                     F-10
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  In June, 1996, BioSource secured financing from Heller Financial Corp. in
order to finance the purchase of BioSource's corporate headquarters. The loan
principal was $745,000 and is secured by a first trust deed on the property.
The loan bears interest at a rate of 9.4% and has a 20 year term. The
outstanding principal balance at December 31, 1998 was $705,300.

  In June, 1996, a loan was obtained from the Small Business Administration to
finance the purchase of the corporate headquarters building. The original loan
principal was $616,000 and is secured by a first trust deed on the property.
The loan bears interest at a rate of 7.6% and has a 20 year term. The
outstanding principal balance at December 31, 1998 was $578,100.

  Payments to both Heller Financial Corp. and the Small Business
Administration are guaranteed by the chairman of the board of the Company.

  Quality Controlled Biochemicals, Inc. had six loans outstanding aggregating
$1,394,700 at December 31, 1998 with MetroWest Bank which were assumed by
BioSource upon completion of the acquisition of QCB in December, 1998.
Description of the loans follow:

<TABLE>
<CAPTION>
                                                                    Amount
                                                                Outstanding at
   Type of loan                  Maturity Date   Interest Rate December 31, 1998
   ------------                ----------------- ------------- -----------------
   <S>                         <C>               <C>           <C>
   Term loan..................  January 31, 2002     8.75%        $  123,300
   Term loan..................    April 17, 1999     8.75%            53,500
   Term loan..................    April 17, 2003     8.75%           385,700
   Term loan..................   August 22, 2000     9.00%            66,700
   Line of credit............. December 31, 1999     8.75%           562,000
   Line of credit.............    April 17, 1999     8.75%           203,500
                                                                  ----------
                                                                  $1,394,700
                                                                  ==========
</TABLE>

  Under the terms of the MetroWest Bank loan agreement, BioSource must meet
certain financial covenants which include, a minimum tangible net worth
covenant, debt to tangible net worth, current ratio covenant, and other non
financial covenants. BioSource was in compliance or had obtained temporary
forbearance relating to these covenants through July 1, 1999.

  BioSource leases certain equipment under a capital lease. As of December 31,
1998, the unpaid principal on the lease is approximately $9,500. Payments
continue through February, 2001. Interest is paid at a rate of approximately
6%.

  Maturities of the notes payable outstanding as of December 31, 1998 are:

<TABLE>
   <S>                                                               <C>
   Year ending December 31:
     1999........................................................... $ 3,024,200
     2000...........................................................   2,199,500
     2001...........................................................   2,169,000
     2002...........................................................   2,135,700
     2003...........................................................   2,076,900
     Thereafter.....................................................   5,084,500
                                                                     -----------
                                                                     $16,689,800
                                                                     ===========
</TABLE>

                                     F-11
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


6. Common Stock and Treasury Stock

  In June, 1996, the Company completed a second primary offering of 2,362,000
shares of its common stock resulting in net proceeds to the Company of
$19,301,400. A portion of the net proceeds of $19,301,400 was used to fund the
acquisition of the Medgenix Business, repay an installment note outstanding
under the Company's credit facility and repay a capital lease obligation.

  In April 1997, the Board of Directors authorized us to repurchase up to
200,000 shares of our outstanding common stock at market price. In December
1997, the Board of Directors authorized us to repurchase up to 1,000,000
additional shares of its outstanding common stock at market price and in 1998
we were authorized to extend the repurchase program up to 1,500,000 shares of
the Company's stock. During the year ended December 31, 1998, we have
repurchased 996,200 shares of the Company's common stock for $6,309,800, an
average price of $6.33. As of December 31, 1998, we have repurchased a total
of 1,279,500 shares of the Company's common stock for $8,054,300, an average
price of $6.29 per share since the inception of the repurchase program in
April 1997.

7. Stock Option and Purchase Plans

  The Company currently has one stock option plan in place--the 1993 Stock
Incentive Plan (the 1993 Plan)--and several stock option agreements with
certain officers in effect.

  Under the 1993 Plan, stock options may be granted to full-time employees,
part-time employees, directors and consultants of the Company to purchase a
maximum of 2,000,000 shares of common stock. Options granted under the 1993
Plan are exercisable at the rate of 25% beginning one year from the date of
grant. The stock options generally expire ten years from the date of grant.

  In August, 1998, the Board of Directors approved the repricing of options
granted under this plan to an exercise price of $4.625 per share for all
optionees. As part of the repricing, 395,500 options were canceled and 355,950
new options were granted at the new exercise price.

  The per share weighted average fair value of stock options granted during
1998, 1997 and 1996 was $2.40, $5.27 and $3.82, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:

<TABLE>
<CAPTION>
                                                               1998  1997  1996
                                                               ----  ----  ----
   <S>                                                         <C>   <C>   <C>
   Expected dividend yield....................................    0%   0%    0%
   Risk-free interest rate.................................... 4.75% 6.4%  6.4%
   Expected volatility........................................   60%  60%   30%
   Expected option life (years)...............................  8.8    9     9
</TABLE>

                                     F-12
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Company applies APB Opinion No. 25 in accounting for its plan, and
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based upon the fair value at the grant date for its stock options under
SFAS No. 123, the Company's net income (loss) would have changed to the pro
forma amounts indicated below:

<TABLE>
<CAPTION>
                                                     1998       1997     1996
                                                   ---------  -------- --------
                                                    (in thousands, except per
                                                           share data)
   <S>                                             <C>        <C>      <C>
   Net income (loss):
     As reported.................................. $(5,135.8) $3,186.3 $2,767.2
     Pro forma.................................... $(6,135.0) $2,774.6 $2,321.6
                                                   =========  ======== ========
   Net income (loss) per share:
     As reported
       Basic...................................... $   (0.68) $   0.38 $   0.38
       Diluted....................................     (0.68)     0.36     0.35
     Pro forma
       Basic...................................... $   (0.82) $   0.33 $   0.32
       Diluted....................................     (0.82)     0.31     0.29
                                                   =========  ======== ========
</TABLE>

  Pro forma net income (loss) reflects compensation expense related to the
vested portion of options granted during the periods 1995 through 1998.

  To the extent that BioSource derives a tax benefit from options exercised by
employees, such benefit is credited to additional paid-in capital when
realized on the Company's income tax return. Tax benefits realized totaling
$20,500, $0 and $0 were credited to additional paid-in capital in fiscal 1998,
1997 and 1996, respectively.

  The following summarizes the stock option transactions under the 1993 Plan
during the periods presented:

<TABLE>
<CAPTION>
                                                                     Weighted
                                                                     average
                                                        Shares    exercise price
                                                       ---------  --------------
   <S>                                                 <C>        <C>
   Options outstanding at December 31, 1995...........   829,105      $2.15
   Options granted....................................   368,500       7.69
   Options exercised..................................   (80,665)      1.74
   Options canceled...................................  (121,534)      2.91
                                                       ---------      -----
   Options outstanding at December 31, 1996...........   995,406       4.15
   Options granted....................................   194,000       7.21
   Options exercised..................................   (77,044)      1.98
   Options canceled...................................  (119,239)      6.88
                                                       ---------      -----
   Options outstanding at December 31, 1997...........   993,123       4.57
   Options granted.................................... 1,254,950       3.78
   Options exercised..................................   (27,410)      2.19
   Options canceled...................................  (505,517)      7.05
                                                       ---------      -----
   Options outstanding at December 31, 1998........... 1,715,146      $3.30
                                                       =========      =====
</TABLE>

  At December 31, 1998, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $1.28--$8.94 and 8.8
years, respectively.

                                     F-13
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  At December 31, 1998, 1997 and 1996, the number of options exercisable was
1,031,730, 592,435 and 412,632, respectively, and the weighted average
exercise price of those options was $3.30, $4.57 and $2.59, respectively.

  As discussed previously, the Company has several stock option agreements
with certain officers. The outstanding agreements expire from May 2003 through
December 2008.

  The following summarizes transactions outside the option plan during the
periods presented:

<TABLE>
<CAPTION>
                                                                     Weighted
                                                                     average
                                                          Shares  exercise price
                                                          ------- --------------
   <S>                                                    <C>     <C>
   Options outstanding at December 31, 1995.............. 255,500     $1.85
   Options granted....................................... 147,500      5.33
   Options exercised.....................................     --        --
   Options canceled......................................     --        --
                                                          -------     -----
   Options outstanding at December 31, 1996.............. 402,500      3.13
   Options granted.......................................     --        --
   Options exercised.....................................     --        --
   Options canceled......................................     --        --
                                                          -------     -----
   Options outstanding at December 31, 1997.............. 402,500      3.13
   Options granted.......................................     --        --
   Options exercised.....................................     --        --
   Options canceled......................................     --        --
                                                          -------     -----
   Options outstanding at December 31, 1998.............. 402,500     $3.13
                                                          =======     =====
</TABLE>

  At December 31, 1998, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $1.50--$6.44 and 6
years, respectively.

  At December 31, 1998, 1997 and 1996, the number of options exercisable was
365,259, 330,884 and 265,000, respectively, and the weighted average exercise
price of those options was $3.13, $3.13 and $2.03, respectively.

  Effective April 7, 1995, the Company adopted an Employee Stock Purchase Plan
to provide substantially all full-time employees, excluding officers, an
opportunity to purchase shares of its common stock through payroll deductions.
In addition, the Company provides a matching contribution equal to 50% of the
participant's contribution. All contributions are invested in the Company's
common stock, which is purchased on the open market at prevailing market
prices. Participants have a fully vested interest in the shares purchased with
payroll deductions and become fully vested in the shares purchased with
Company matching contributions after two years. The Company's matching expense
for the years ended December 31, 1998, 1997 and 1996 was approximately
$14,000, $10,000 and $3,000, respectively.

8. Common Stock Warrants

  In June, 1996, the Company granted warrants to purchase 59,050 shares of the
Company stock to each of Cruttenden Roth, Inc. and Commonwealth Associates in
connection with the second primary stock offering with an exercise price of
$11.10 per share and an expiration date of May 29, 2001.

                                     F-14
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  In September, 1996, Commonwealth Associates assigned warrants to purchase
11,810 shares of the Company stock to a Commonwealth Associates' employee. The
term and conditions of these warrants remained unchanged.

  In February, 1996, the Company granted warrants to purchase 100,000 shares
of the Company stock to Nordion International, Inc. in connection with the
Medgenix acquisition, with an exercise price of $7.50 per share and an
expiration date of February 1, 2001.

  In January, 1994, the Company granted warrants to purchase 24,000 shares of
the Company stock to The Equity Group, Inc., with an exercise price of $2.25
per share and an expiration date of January 17, 1999. On July 12, 1994, 18,000
of the warrants were canceled. The remaining 6,000 warrants were exercised
concurrently with the Company's June 1996 second primary offering.

  Proceeds from the sale of common stock issued under outstanding warrant
arrangements are credited to common stock at the time the warrants are
exercised. The Company recorded no charge to operations with respect to these
warrants since the warrants were issued at amounts approximating or exceeding
fair market value.

9. Stockholder Rights Plan

  On February 16, 1999, we adopted a stockholders' rights plan to protect the
Company and its stockholders from unsolicited attempts or inequitable offers
to acquire our stock. The rights plan has no immediate dilutive effect and
does not diminish our ability to accept an offer to purchase the Company that
is approved by the board. The stockholder rights plan was implemented through
a dividend of one preferred share purchase right on each outstanding share of
our common stock outstanding on March 2, 1999. Each right will entitle
stockholders to buy preferred stock at an exercise price of $24.50 which will
have a value of approximately two times the exercise price at the time of
exercise. The rights will become exercisable (with certain limited exceptions
provided in the rights agreement) following the 10th day after: (a) a person
or group announces acquisition of 15 percent or more of our common stock, (b)
a person or group announces commencement of a tender offer the consummation of
which would result in ownership by the person or group of 15 percent or more
of our common stock, (c) the filing of a registration statement for any such
exchange offer under the Securities Act of 1933, or (d) our board determining
that a person is an "adverse person," as defined in the rights plan. The buyer
or any "adverse person" would not be entitled to exercise rights under the
rights plan. The effect of the rights plan is to discourage acquisitions of
more than 15 percent of our common stock without negotiations with our board.
We can redeem the rights for $.001 per right at certain times as provided in
the rights agreement. The rights expire on January 31, 2009.

10. Income Taxes

  The summarized provision for (benefit from) income taxes is as follows:

<TABLE>
<CAPTION>
                                                      1998       1997     1996
                                                    ---------  --------  ------
   <S>                                              <C>        <C>       <C>
   Current:
     Federal....................................... $   802.6  $1,092.0  $885.0
     State and local...............................     155.0     172.0   222.0
     Foreign.......................................      (0.6)    140.0    90.0
   Deferred:
     Federal.......................................  (2,014.0)     61.0  (508.0)
     State and local...............................    (447.6)     (5.0)    7.0
                                                    ---------  --------  ------
                                                    $(1,534.6) $1,460.0  $696.0
                                                    =========  ========  ======
</TABLE>

                                     F-15
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Actual income tax expense (benefit) differs from that obtained by applying
the Federal income tax rate of 34% to income before income taxes as follows:

<TABLE>
<CAPTION>
                                                  1998       1997      1996
                                                ---------  --------  --------
   <S>                                          <C>        <C>       <C>
   Computed "expected" tax expense (benefit)... $(2,267.9) $1,580.0  $1,177.0
   Nondeductible items.........................      10.9       9.0      21.0
   State taxes (net of Federal benefit)........    (212.9)    110.0     151.0
   Reduction of valuation allowance............                 --     (607.0)
   Tax credits.................................     (66.0)   (111.0)    (40.0)
   Tax-exempt interest.........................       --        --      (36.0)
   Tax effect resulting from foreign sales
    corporation activities.....................     (94.2)    (63.0)     63.0
   Prior year adjustment to provision..........     116.5
   Effect of foreign operations................     923.4
   Other.......................................      55.6     (65.0)    (33.0)
                                                ---------  --------  --------
     Total..................................... $(1,534.6) $1,460.0  $  696.0
                                                =========  ========  ========
</TABLE>

  The primary components of temporary differences which give rise to deferred
taxes at December 31, 1998 and 1997 are:

<TABLE>
<CAPTION>
                                                                  1998    1997
                                                                -------- ------
   <S>                                                          <C>      <C>
   Deferred tax assets:
     Accruals for salary and bonus............................. $   21.6 $112.0
     Reserves for inventory....................................  1,084.4   53.0
     Purchased in-process technology/goodwill..................  1,752.2    --
     Net operating loss carryforwards..........................    317.4  400.0
                                                                -------- ------
       Total deferred tax assets............................... $3,175.6 $565.0
                                                                ======== ======
   Deferred tax liability:
     Depreciation.............................................. $  103.4 $ 94.0
     State taxes...............................................    109.6    --
                                                                -------- ------
       Total deferred tax liability............................ $  213.0 $ 94.0
                                                                ======== ======
</TABLE>

  In assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies in
making this assessment.

  Based on the level of historical taxable income and projections for future
taxable income over the periods in which the level of deferred tax assets are
deductible, management believes it is more likely than not that the Company
will realize all of the benefits related to these deductible temporary
differences at December 31, 1998, accordingly, there is no valuation allowance
at either December 31, 1998 or 1997.

  As of December 31, 1998, the Company has a net operating loss (NOL)
carryforward of approximately $933,400 for Federal income tax purposes. The
Federal NOL has a carryover period of 15 years and is available to offset
future taxable income, if any, through 2005, subject to an annual statutory
limitation.

                                     F-16
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


11. 401(k) Benefit Plan

  The Company has a 401(k) profit sharing plan which covers substantially all
domestic employees of the Company. Plan participants may make voluntary
contributions up to 20% of their earnings up to the statutory limitation. The
Company's contribution to the Plan is discretionary and no contributions were
made in fiscal years 1998, 1997 or 1996.

                                     F-17
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


12. Business Segments

  BioSource is engaged in a single industry, the licensing, development,
manufacture, marketing and distribution of immunological reagents, test kits
and oligonucleotides used in biomedical research and human diagnostics. The
Company's customers are not concentrated in any specific geographic region and
no single customer accounts for a significant amount of our sales.

  Our accounting policies of the segments below are the same as those
described in the summary of significant accounting policies, except that we
are only able to track net sales for the geographic "Sales-to" segments. We
evaluate performance for the "Sales-from" segments on net revenues and profit
or loss from operations. The Company's reportable segments are strategic
business units that offer geographic product availability. They are managed
separately because each business requires different marketing and distribution
strategies. Business segment information is summarized as follows:

Sales-from Segments:

<TABLE>
<CAPTION>
                                                   1998       1997      1996
                                                 ---------  --------- ---------
<S>                                              <C>        <C>       <C>
Net sales to external customers from:
 United States:
  Domestic...................................... $ 8,844.1  $ 7,452.1 $ 6,791.5
  Export........................................   4,270.3    4,220.7   3,213.8
                                                 ---------  --------- ---------
    Total United States.........................  13,114.4   11,672.8  10,005.3
 Europe.........................................   8,744.2    8,899.0   5,908.0
                                                 ---------  --------- ---------
  Consolidated.................................. $21,858.6  $20,571.8 $15,913.3
                                                 =========  ========= =========
Operating income (loss):
  United States................................. $(4,459.4) $ 3,244.7 $ 3,137.9
  Europe........................................  (2,642.4)     693.6     322.4
                                                 ---------  --------- ---------
    Consolidated................................ $(7,101.8) $ 3,938.3 $ 3,460.3
                                                 =========  ========= =========
Net interest expense (income):
  United States................................. $  (315.6) $   575.0 $   274.7
  Europe........................................      18.1       52.4       --
                                                 ---------  --------- ---------
    Consolidated................................ $  (297.5) $   627.4 $   274.7
                                                 =========  ========= =========
Depreciation and amortization:
  United States................................. $   502.3  $   371.7 $   251.6
  Europe........................................     457.5      340.3     206.0
                                                 ---------  --------- ---------
    Consolidated................................ $   959.8  $   712.0 $   457.6
                                                 =========  ========= =========
Capital expenditures:
  United States................................. $   608.2  $   398.3 $ 2,203.4
  Europe........................................     781.8      260.7     146.2
                                                 ---------  --------- ---------
    Consolidated................................ $ 1,390.0  $   659.0 $ 2,349.6
                                                 =========  ========= =========
Identifiable assets at end of year:
  United States................................. $33,762.7  $24,259.1
  Europe........................................   7,637.4    8,898.0
                                                 ---------  ---------
    Consolidated................................ $41,400.1  $33,157.1
                                                 =========  =========
</TABLE>

                                     F-18
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Sales-to Segments:

<TABLE>
<CAPTION>
                                                    1998      1997      1996
                                                  --------- --------- ---------
   <S>                                            <C>       <C>       <C>
   Net Sales to external customers:
     United States............................... $ 8,844.1 $ 7,452.1 $ 6,791.5
     Europe......................................   9,692.4   9,984.6   7,402.5
     Japan.......................................   2,634.7   2,453.4   1,152.0
     Other.......................................     687.4     681.7     567.3
                                                  --------- --------- ---------
       Consolidated.............................. $21,858.6 $20,571.8 $15,913.3
                                                  ========= ========= =========
</TABLE>

13. Commitments and Contingencies

  The Company leases certain of its facilities and equipment under various
noncancelable operating leases expiring through March 2007. Total rental
expense was approximately $453,400, $385,000 and $303,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.

  At December 31, 1998, the future minimum payments under these leases are as
follows:

<TABLE>
            <S>                                  <C>
            Year ending December 31:
              1999.............................. $  629.8
              2000..............................    558.1
              2001..............................    415.3
              2002..............................    338.9
              2003..............................    285.5
              Thereafter........................    786.7
                                                 --------
                                                 $3,014.3
                                                 ========
</TABLE>

14. Earnings Per Share

  The Company accounts for earnings per share under the provisions of SFAS No.
128, "Earnings per Share". SFAS 128 specifies the computation, presentation
and disclosure requirements for earnings (loss) per share (EPS).

  The reconciliations of basic to diluted weighted average shares are as
follows:

<TABLE>
<CAPTION>
                                                   Year ended December 31,
                                                 ----------------------------
                                                   1998       1997     1996
                                                 ---------  -------- --------
   <S>                                           <C>        <C>      <C>
   Net earnings (loss) used for basic and
    diluted earnings (loss) per share........... $(5,135.8) $3,186.3 $2,767.2
                                                 =========  ======== ========
   Weighted average shares used in basic
    computation.................................   7,508.8   8,318.0  7,271.8
   Dilutive stock options and warrants..........       --      647.2    736.7
                                                 ---------  -------- --------
   Weighted average shares used for diluted
    computation.................................   7,508.8   8,965.2  8,008.5
                                                 =========  ======== ========
</TABLE>

  Options to purchase 292,936 shares of common stock at prices ranging from
$5.25 to $8.94 were outstanding during 1998, but were not included in the
computation of diluted loss per share because the options' exercise price was
greater than the average market price of the common shares. Options to
purchase 1,824,710 shares of common stock at prices ranging from $1.28 to
$4.63 per share were outstanding during 1998, but were

                                     F-19
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

not included in the computation of diluted loss per share because the options
were anti-dilutive, as the Company has incurred a net loss for the year.

  Options to purchase 367,079 and 117,000 shares of common stock at prices
ranging from $7.06 to $9.06 and $7.75 to $9.25 were outstanding during 1997
and 1996, respectively, but were not included in the computation of diluted
EPS because the options' exercise price was greater than the average market
price of the common shares.

                                     F-20
<PAGE>

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                  Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                    Balance at Provision Deductions  Balance of
                                    Beginning   Charged   Accounts     End of
                                     of Year   to Income Written off    Year
                                    ---------- --------- ----------- ----------
<S>                                 <C>        <C>       <C>         <C>
1998
Allowance for doubtful accounts....   $203.0    $ 178.3    $  80.3    $ 301.0
Inventory reserve..................    347.7    5,240.8    1,748.3    3,867.2
                                      ======    =======    =======    =======
1997
Allowance for doubtful accounts....   $ 49.0    $ 154.0    $   --     $ 203.0
Inventory reserve..................     65.5      309.2        --       374.7
                                      ======    =======    =======    =======
1996
Allowance for doubtful accounts....   $ 29.0    $  20.0    $   --     $  49.0
Inventory reserve..................     95.0        --        29.5       65.5
                                      ======    =======    =======    =======
</TABLE>
<PAGE>

                                 EXHIBIT INDEX
               FOR FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------
 <C>     <S>
  2.1    Asset Purchase Agreement dated April 30, 1996, by and among
          Registrant, Nordion International, Inc. and Medgenix Diagnostics,
          S.A.(7)

  2.2    Stock Purchase Agreement dated as of December 9, 1998 by and among
          BioSource International, Inc., Quality Controlled Biochemicals, Inc.,
          the stockholders of Quality Controlled Biochemicals, Inc. and the
          stockholders of Javelle Pharmaceuticals, Inc.(9)

  2.3    Asset Purchase Agreement dated as of December 14, 1998 by and among
          BioSource International, Inc., a Delaware Corporation and Biofluids,
          Inc., a Maryland Corporation and the Biofluids stockholder.(11)

  3.1    Certificate of Incorporation of Registrant(1)

  3.2    Bylaws of Registrant(1)

 10.1    Registrant's 1992 Stock Incentive Plan(1)

 10.2    Registrant's 1993 Stock Incentive Plan(4)

 10.3    Licensing Agreement dated May 1, 1990, by and between TAGO, Inc., as
          licensee, and St. Jude's Children's Hospital, as licenser(1)

 10.4    License Agreement dated February 14, 1991, by and between Registrant
          and Schering Corporation(1)

 10.5    Warrant Agreement dated May 19, 1993, by and between Registrant and
          Immunoplex, Inc.(2)

 10.7    Warrant Agreement dated February 1, 1996, by and between Registrant
          and Nordion International, Inc.(7)

 10.8    Business Loan Agreement dated October 12, 1993, by and between
          Registrant, as borrower, and Silicon Valley Bank as lender, together
          with Commercial Security Agreement dated October 12, 1993 and
          promissory note dated October 12, 1993(3)

 10.9    License Agreement dated October 1, 1993, by and between Registrant, as
          licensee, and Schering Corporation, as licensor(2)

 10.10   Employment Agreement between Registrant and James H. Chamberlain dated
          January 2, 1998(12)

 10.11   License Agreement dated February 7, 1994, by and between Registrant,
          as licensee and Fundacio Clinic(4)

 10.12   Form of Indemnification Agreement for Directors and Executive
          Officers(7)

 10.13   List of Indemnities relating to Form of Indemnification Agreement
          previously filed as Exhibit 10.12(7)

 10.14   Purchase Agreement dated December 20, 1995 between Registrant and
          Pacific Ranch Company(5)

 10.15   Promissory Note dated March 25, 1996 in the principal amount of
          $745,000 payable to Heller Financial, Inc., Small Business Lending
          Division(5)

 10.16   Promissory Note dated March 25, 1996 in the principal amount of
          $596,000 payable to Heller Financial, Inc., Small Business Lending
          Division; Loan Agreement dated March 11, 1996 between California
          Statewide Certified Development Corporation and Registrant(5)

 10.17   Stockholder Rights Plan dated February 16, 1999 and filed with the
          Securities and Exchange Commission on Form 8-A March 1, 1999(10)

 10.18   Loan agreement and Promissory Note dated November 27, 1998 in the
          principal amount of $14,000,000 payable to Union Bank of California,
          N.A.(13)

 10.19   Registrant's Employee Stock Purchase Plan(8)
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                    Description
 -------                   -----------
 <C>     <S>
 16-1    Changes in Registrant's Certifying Accountant(6)

 21      Subsidiaries of the Company:

</TABLE>

<TABLE>
<CAPTION>
                                                              State/Country of
      Name                                                      Incorporation
      ----                                                    ----------------
      <S>                                                    <C>
      BioSource Europe S.A.................................. Belgium
      Keystone Laboratories, Inc............................ California
      BioSource V.I. FSC., LTD.............................. U.S. Virgin Islands
      BioSource France sarl................................. France
      BioSource B.V......................................... Holland
      BioSource Gmbh........................................ Germany
      Medgenix Diagnostici Italia, srl...................... Italy
</TABLE>

<TABLE>
<S>   <C>
23.1  Consent of KPMG LLP

27    Financial Data Schedule
</TABLE>
--------
 (1) Incorporated by reference to the Company's Registration Statement on Form
     S-4 as filed with the Securities and Exchange Commission on October 22,
     1992, as amended.

 (2) Incorporated by reference to the Company's Form 10KSB for the year ended
     December 31, 1992.

 (3) Incorporated by reference to the Company's Form 10KSB for the year ended
     December 31, 1993.

 (4) Incorporated by reference to the Company's Form 10KSB for the year ended
     December 31, 1994.

 (5) Incorporated by reference to the Company's Form 10KSB for the year ended
     December 31, 1995.

 (6) Incorporated by reference to the Company's Current Report on Form 8-K
     filed with the Securities and Exchange Commission on August 15, 1994.

 (7) Incorporated by reference to the Company's Registration Statement on Form
     SB-2 (SEC No. 333-3336) as filed with the Securities and Exchange
     Commission on May 31, 1996, as amended.

 (8) Incorporated by reference to the Company's Registration Statement on Form
     S-8 (SEC No. 33-91838) as filed with the Securities and Exchange
     Commission on May 4, 1995.

 (9) Incorporated by reference to the Company's Current Report on Form 8-K/A
     filed with the Securities and Exchange Commission on February 19, 1999.

(10) Incorporated by reference to the Company's Current Report on Form 8-A
     filed with the Securities and Exchange Commission on March 1, 1999.

(11) Incorporated by reference to the Company's Form 10-K for the year ended
     December 31, 1998 filed with the Securities and Exchange Commission on
     April 15, 1999.

(12) Incorporated by reference to the Company's Form 10-K for the year ended
     December 31, 1998 filed with the Securities and Exchange Commission on
     April 15, 1999.

(13) Incorporated by reference to the Company's Form 10-K for the year ended
     December 31, 1998 filed with the Securities and Exchange Commission on
     April 15, 1999.