<PAGE>

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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

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

                                   FORM 10-K

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

  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                 OR

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
   EXCHANGE ACT OF 1934

                       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.)
</TABLE>

                 820 FLYNN ROAD, CAMARILLO, CALIFORNIA, 93012
                   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

        ISSUER'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
                               (TITLE OF CLASS)

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

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

  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 this Form 10-K
or any amendment to this Form 10-K. [_]

  At March 27, 1998 the aggregate market value of the outstanding shares of
voting stock held by non-affiliates of the registrant was $47,853,665.

  At March 27, 1998 the registrant had 7,807,481 shares of Common Stock, par
value $0.001 per share, outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

  The registrant's Proxy Statement relating to its 1998 Annual Meeting of
Stockholders is incorporated by reference into Part III, Items 11, 12 and 13
of this Annual Report.

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<PAGE>

                                    PART I

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

  BioSource International, Inc. ("BioSource" or the "Company") develops,
manufactures, markets and distributes products used worldwide in disease
related biomedical research and clinical diagnostics. The core technologies of
the Company involve expertise in the fields of immunology and molecular
biology. The Company's products include ELISA assay test kits, clinical
diagnostic kits, bioactive proteins (cytokines, chemokines, growth factors and
adhesion molecules), antibodies, DNA and related products. The Company's
products are instrumental in the development of new medical diagnostic methods
and pharmaceutical products. The products offered by BioSource enable
scientists to study and better understand the biochemistry, immunology and
cell biology of the human body. Such examples would include certain diseases
such as cancer, aging, arthritis and other inflammatory diseases, AIDS and
certain other infectious diseases.

  The Company was originally incorporated as a California corporation in
October, 1989, and was reincorporated as a Delaware corporation on May 19,
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 its acquisition of TAGO in May of 1993, BioSource has concentrated on
internal development of new products, and currently offers over 1,700 products
to more than 2,300 medical laboratories and research centers in universities,
government institutions and pharmaceutical and biotechnology companies. In
November 1995, BioSource further expanded its product lines by acquiring
Keystone Laboratories, Inc. ("Keystone"), enabling it to manufacture
oligonucleotides (DNA) both as a new product line and for use in the
production of cytokines and its ELISA test kits.

  BioSource formed a wholly-owned subsidiary, BioSource Europe, S.A.
("BioSource Europe") which, on June 5, 1996, acquired certain assets and
assumed selected liabilities of Medgenix Diagnostics, S.A. ("Medgenix"),
located in Fleurus, Belgium, related to the Medgenix in vitro diagnostic
business (the "Medgenix Business"). The Medgenix assets consisted of certain
product lines which are similar to those of the Company, focusing on the
manufacture, sales and distribution of research and clinical assay test kits,
customer accounts, laboratory and animal facilities, real property leasehold
interests and an existing employee base, all of which were used in the
Medgenix Business. BioSource Europe is incorporated under Belgian law with
subsidiaries in France, Germany, Italy and the Netherlands. Since the
acquisition, BioSource Europe has continued to manufacture and sell its
existing product line, in addition to distributing the BioSource product line
to its European customer base and other worldwide locations.

INDUSTRY OVERVIEW

  The biomedical research industry has recently 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 such research in creating new health care products
depends upon the availability of biological reagents, including various
biological proteins, antibodies, serums and immunoassay kits, such as those
manufactured and sold by the Company.

  The biomedical research industry 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
concentrated their efforts on the development of human therapeutics and high
volume diagnostic tests

                                       2
<PAGE>

and smaller specialized biotechnology company's which focus on specific areas
of research or product development for FDA approval. BioSource supplies such
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.
BioSource's products are used by thousands of physicians and 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 competitors.

STRATEGY

  The Company's primary business strategy has been 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. The Company's strategy includes the
following elements:

  Develop Broad Product Lines. The Company offers over 1,700 products in four
major product lines in an effort to effectively serve a diverse and fragmented
industry. The Company believes that its many and diverse products more fully
address the needs of researchers, thereby offering them the ability and
convenience of obtaining research products from a single source, which will
encourage the researcher to look first to the Company to satisfy their needs.

  Focus on Product Research. The Company's continued success, in part, depends
on staying abreast of new trends and technologies in the medical research
industry. The Company's business development team uses 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, trade show
attendance and scientific meetings which discuss new research technologies and
collaborations with the scientific community. In addition, the Company's sales
force, who have educational backgrounds and have been trained in the
biological sciences, discuss and receive immediate feedback from the Company's
customer base or potential customers for many of the new products under
consideration.

  Commitment to Product Development. During 1997, 1996 and 1995, the Company
has invested $2.1 million, $1.4 million and $1.1 million, respectively, in
research and development and plans to increase its research and development
expenses in the future. The company uses its internal research and development
scientists to develop new products in its core product lines of ELISA assays
and other biomedical research reagents, both in Camarillo, California and
Fleurus, Belgium. The Company employs 15 professionals with Ph.D. degrees in
the life sciences. The Company believes it was the first to introduce certain
ELISA test kits to measure several different human interleukins (a type of
cytokine) that researchers have associated with the immune system function. In
1997, the Company introduced its new product line of molecular assays, which
provide a method to both detect and measure viral DNA levels and
quantitatively measure the presence of cytokine genes in samples.

  Offer Products of Exacting Capability. The Company continually strives to
offer products with the greatest sensitivity, precision, accuracy and
reproducibility available on the market. For example, the Company's products
are generally capable of measuring picogram (one trillionth of a gram) levels
of a protein more quickly than products available from certain of its
competitors.

  Create Superior Value. The Company seeks to create superior value for its
customers. For instance, BioSource includes two ELISA test plates in most of
its ELISA test kit packages which allows for double the number of tests, at a
comparable price, compared to the test kits of most of its competitors,
thereby offering greater affordability and convenience to customers, and
fostering more economical and prolific research.

  Acquire Complementary Businesses, New Products and Technologies. The Company
evaluates potential acquisitions of complementary products and businesses from
time to time and has a proven track record of

                                       3
<PAGE>

profiting from its business acquisitions. In 1993, the Company acquired TAGO,
which added polyclonal and monoclonal antibodies to its product lines, in 1995
the Company acquired Keystone, which added oligonucleotides to its product
lines; and in 1996 the Company acquired the Medgenix Business which resulted
in further expansion of its product offerings and geographic distribution.

  Esprit de Corps. The Company seeks to create a team spirit among all of its
employees, foster awareness of the Company's objectives and strategies at all
levels within the Company, and reward meritorious performance with
compensation and other incentives. The Company believes this creates loyalty
to the Company and pride in its products, which translates into greater
quality and enhanced customer service.

PRODUCTS

  BioSource has over 1,700 different products in its inventory. The Company
groups its products into four principal product lines, DNA (oligonucleotides)
and related products, bioactive proteins (cytokines, chemokines, growth
factors and adhesion molecules), monoclonal and polyclonal antibodies, ELISA
test kits and clinical diagnostic radioimmunoassays (RIA).

  DNA (oligonucliotides) and related products. The acquisition of Keystone
expanded the Company's product line to include the manufacture of
oligonucleotides as a custom service for investigators doing molecular
biology. An oligonucleotide is a synthesized polymer made up of the same
building blocks which form DNA. Synthetic oligonucleotides have been used in
molecular biology for over twenty years, basically to act as primers and
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 biology and cell biology departments of major
universities, and biomedical companies developing gene therapy products.

  In 1997, the Company's product portfolio further expanded with the
introduction of the CytoXpress kit line which combine the oligonucleotide and
ELISA technologies. These assays quantify mRNA copies of various cytokines in
blood, cultered cells or tissues. Products of similar design have been
introduced which allow investigators to quantitate the amount of viral DNA
present in two specific viruses, cytomegalovirus (CMV) and Epstein-Barr virus
(EBV). Both virus infections create a latent carrier state in humans and
create significant risk of morbidity and mortality among immunocompromised
patients.

  Bioactive Proteins (Cytokines, Chemokines, Growth Factors and Adhesion
Molecules). Through recombinant DNA technology, BioSource has developed a
broad offering of these regulatory molecules, which control growth and
differentiation of cells. The development of 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 and as
such, large scale and highly purified proteins are in demand. Cytokines and
other similar growth factors and adhesion molecules are instrumental in the
body's defense against cancer, AIDS and other life-threatening disorders.

  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. BioSource has produced not only the human
cytokines, but also the equivalent proteins from mice, rats, swine and
monkeys.

  Chemokines are specific proteins which regulate the recruitment and
activation of leukocytes and other cells at sites of infllammation. 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 pathogenesis of HIV, the causative agent of AIDS.

                                       4
<PAGE>

  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 synthesis. They are classified according to their
mode of action. In vivo, secreted antibodies circulate in the blood and serve
as the effects of humoral immunity by searching out and neutralizing or
eliminating foreign antigens. Antibodies are also used in in vitro for
neutralization studies in bioassay systems. Antibodies are generally produced
by injecting a particular antigen 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, Inmunohistochemistry and Flow Cytometry.

  The TagoImmunologics (TAGO) product line provides researchers and
biotechnology companies with a broad array of secondary antibodies. These are
highly purified antibodies raised in goats to another species of antibody.
These products are used in the development of analytical signals in various
assays such as ELISA. Many other companies use the TAGO products as a
component of their kits.

  BioSource internally develops the majority of its own antibodies when it is
able to do so. Where the Company perceives a need for a specific antibody that
it is unable to produce internally, it licenses from a third party a cell line
specific to that antibody (hybridoma cells) which permits the Company to
obtain and purify the antibody from the secretions of the hybridoma cell line.
In some cases, the Company will purchase bulk antibodies directly.

  ELISA Test Kits. Biosource has 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 immobilized or "bound" on a microtiter 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.

  Kits exist 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. BioSource offers over 70 types of ELISA
kits and is the leader in rat cytokine ELISA kits.

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

SALES AND MARKETING

  The Company's sales force hold biological sciences undergraduate degrees and
undergo training in the nature and application of BioSource's products and
proven selling techniques. BioSource believes that by investing in the
scientific training of its sales force, it is able to determine the needs of
researchers and scientists in the biomedical community. Its sales force is
used not only as a traditional marketing branch of the Company, but also to
provide valuable feedback for the Company's product development.

  The principal markets for BioSource products are in the United States, Japan
and Western Europe. Domestic sales are achieved through the use of a direct
sales force strategically located in major metropolitan areas in the United
States, advertising in various scientific trade journals and catalog
distribution to all current and potential customers. The use of a direct sales
force also provides the Company with an opportunity to discuss directly with
researchers and scientists new developments and trends in the industry. The
international markets are serviced directly through BioSource Europe and the
use of highly respected international distributors which specifically target
the foreign medical market, advertising and catalog distribution.

                                       5
<PAGE>

  Marketing. BioSource has a comprehensive and integrated marketing program
which utilizes advertisements in key journals, direct mail, trade show
exhibits, press releases, and other forms of advertisement to provide exposure
to potential end users of BioSource products.

  The Company's journal advertisements emphasize BioSource's innovative
products and attempt to depict pictorially its competitive strengths. The
Company generally uses direct mail to support a new product launch. The direct
mail campaign is coordinated with advertisement programs in an effort to
achieve maximum product exposure. The Company's direct mail literature is
targeted to specific end user groups believed to have the highest potential
for immediate purchase of the specified product.

  Sales. BioSource effects sales to end users through a direct sales force
based in the U.S. and Western Europe in addition to a network of international
distributors. Domestic sales are made through several field territories with a
direct sales representative located in the east, midwest and western parts of
the United States. The European sales force is located in Belgium, France,
Germany, and Holland. Each representative is responsible for the maintenance
of existing accounts as well as the generation of new business.
Representatives are paid a base salary and commissions. The commissions are
based upon sales growth over previous years' sale levels.

  The Company requires that all field representatives have a degree in a
biological science or direct sales experience to biomedical accounts, and
either molecular or immunological laboratory research experience. This
laboratory experience allows them to understand end user applications and
match BioSource product benefits to specific needs. All representatives are
required to attend professional selling skills courses and, in most cases, are
given supplemental selling skills training each year at the Company's expense.
The Company monitors sales performance on a weekly basis in an effort to
ensure the quality and quantity of customer contacts.

  BioSource's network of international distributors can be exclusive or non-
exclusive, but BioSource generally grants exclusive distribution rights only
where the distributor maintains direct field representatives proportionate to
the potential for BioSource product sales in a defined geographical area, and
is subject to mutually acceptable annual sales goals. All BioSource
distributors are required to limit their primary sales focus to the biomedical
research market. The Company offers all of its distributors annual training to
enhance their knowledge of product applications, solicit requests for new
products and ultimately to increase sales.

RESEARCH AND DEVELOPMENT

 General

  The Company funds the majority of its own research and development costs.

  Commencing in late 1994, BioSource began to dramatically expand its research
and development efforts, and to focus its efforts in the area of molecular
biology. The Company's molecular biology group focuses its efforts on cloning
and expressing cytokine genes from a variety of species.

  Recent advances in genetic sequencing and molecular biology are enabling
novel new methods for rapid diagnosis and monitoring of treatment for human
infectious and genetic diseases. Leveraging on the Company's core technology,
and the guidance of its Scientific Advisory Board, the Company has developed
unique molecular assay kits that may allow it to enter the human diagnostics
market. These novel assays, provide the user with a methodology to
quantitatively and qualitatively measure various markers in clinically
relevant samples.

  The company also continues its research and development for the expansion of
its core product lines: ELISA kits, clinical diagnostic kits, bioactive
proteins, antibodies, DNA and related products. In addition, the Company
monitors its production processes to ensure high levels of quality and maximum
economy.

                                       6
<PAGE>

AVAILABILITY OF RAW MATERIALS

  The principal raw materials for the oligonucleotides manufactured by the
Company are the nucleotides that comprise DNA which are available from
numerous sources. The Company's oligonucleotides are used to produce genes.
Genes are then used to manufacture cytokines, which are in turn used to make
antibodies. The Company also purchases some cytokines and antibodies from
third party suppliers to offer the customer a full array of products.

  ELISA test kits are manufactured from antibodies, proteins, enzymes and
various buffers, and utilize plastic test well plates. The Company develops
most of its cell lines internally, and obtains licenses to various cell lines
that are necessary to the manufacture of key components of its product lines,
on an as needed basis. The Company believes that it maintains adequate
supplies of materials on hand to allow it to continue to manufacture products
and meet customer demand, and that those materials that it does not produce
internally are readily available from multiple sources.

SEASONALITY OF BUSINESS

  The Company typically does not experience material seasonality of sales.
However, the Company does 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 total revenues during the
years 1997, 1996 or 1995.

COMPETITION

  The Company is engaged in a segment of the health care products industry
that is highly competitive. The Company's primary competitors include
biotechnology companies, such as Techne Corporation, Genzyme Corporation,
Southern Biotechnology, Endogen, Inc., Jackson Labs, Dako Corporation and
Genosys Biotechnologies. Many of its competitors have been involved in the
health care industry significantly longer than BioSource and benefit from
greater name recognition. In addition, many of these companies 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.

  BioSource believes that by offering a very broad and complete product line
which enables the end user to obtain many of its product needs from one source
it gains a competitive advantage. In addition, BioSource competes by producing
high quality products with exacting capabilities at reasonable prices, and by
maintaining an aggressive marketing and sales effort. BioSource believes that
the biomedical research market is highly fragmented, and that neither
BioSource nor any of its competitors has a dominant share of any of the market
segments.

PATENTS AND TRADEMARKS

  The Company does not own any patents and does not believe that patent
protection is available for any of its processes. The Company licenses a
number of products from companies that are incorporated in certain BioSource
products resulting in BioSource receiving quasi or derivative patent
protection therefor.

  The Company claims "TAGOImmunologicals," "CYTOscreen," "PRIMESCREEN,"
"ICSCREEN," "CYTOSETS," and "DYNAMIX" as trademarks, although the Company
believes such trademarks are of limited importance to its business. The
Company has generally sought to protect its interests by treating its
technologies and know how as trade secrets and by requiring all employees to
execute invention and assignment agreements with the Company, including
confidentiality provisions. The Company believes that its processes can only
be understood from direct observation and are not ascertainable by examination
of the end product. However, there

                                       7
<PAGE>

can be no assurance that others will not independently develop the same or
similar information, obtain unauthorized access to the Company's proprietary
information or misuse information to which the Company has granted access.

GOVERNMENT REGULATION

  Approval by the FDA is not required for the sale of any of the Company's
research products in the United States because the products have been marketed
and sold for research use only. Therefore, the Company's research products are
not currently required to comply with the lengthy FDA approval process
associated with diagnostics or therapeutics. The Company is subject to
governmental regulations under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, and other
similar laws of general application, to all of which the Company believes
itself to be in material compliance.

  BioSource Europe clinical products are produced in ISO 9001 facilities and
are eligible to be used as clinical diagnostics and 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 which include testing,
control and documentation requirements enforced by periodic site inspections.

EMPLOYEES

  As of December 31, 1997, the Company employed 144 individuals including 3 on
a part time basis.

FOREIGN AND DOMESTIC OPERATIONS

  The information required by this item is incorporated herein by reference to
the financial statements listed in Note 11 in the Notes to Consolidated
Financial Statements.

ITEM 2. PROPERTIES

DESCRIPTION OF PROPERTIES

  The Company's executive offices and manufacturing facilities, consisting of
approximately 29,000 square feet located on 63,162 square feet of land, are
located in Camarillo, California. The Company purchased this property on March
28, 1996 and owns it subject to a first trust deed mortgage (the "First
Mortgage") which was made by the lender pursuant to the Small Business
Administration's Loan Guarantee Program. At the date of purchase, the First
Mortgage had an original principal of $745,000 and is due on April 1, 2006.
The principal amount of the loan is being amortized over twenty years.
Pursuant to the First Mortgage, the Company is obligated to make monthly
payment of $6,896, which includes interest at 9.4% per annum. Yield
maintenance charges will be assessed on any prepayment of the principal amount
of the loan which results in a loss to the lender due to a decrease in the
interest rate. The balance due at maturity, assuming no prepayments by the
Company, will be $535,178.

  The property is subject to a second trust deed loan (the "Second Mortgage")
with the California Statewide Development Corp. with an original principal
balance of $616,000. The Second Mortgage is subject to a fixed interest rate
of approximately 7.6% per annum, payable and amortized over a period of 20
years, due approximately June 1, 2016, with monthly payments of principal and
interest of $5,369.

  Payments by the Company under the First Mortgage and the Second Mortgage are
unconditionally guaranteed by James H. Chamberlain, Chairman of the Board of
the Company.

  In 1996, the Company renovated the Camarillo facilities to provide for
additional ELISA development and manufacturing, marketing and sales offices,
and refrigerated storage space for inventory.

                                       8
<PAGE>

  The Company leases facilities in Menlo Park, California, which consist of
approximately 1,500 square feet of laboratory space.

  BioSource Europe leases approximately 30,000 square feet of manufacturing,
laboratory and office space in Fleurus, Belgium. The lease in Fleurus, Belgium
expires on March 31, 1998. In January 1998, the Company entered into a new
lease for approximately 30,000 square feet of manufacturing, laboratory and
office space located in Nivelles, Belgium which is approximately 20 miles from
its current location. The lease term in Nivelles begins on April 1, 1998 and
expires on March 31, 2007. BioSource Europe subsidiary sales offices are
leased in Ratingen, Germany, Rungis, France, and Amersfoort, Holland.

  The Company believes that its facilities are adequately covered by insurance
and will be adequate for its occupancy needs in the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

  The Company is not a party to nor is any of its 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 the Company's security holders during
the fourth quarter of the Company's 1997 fiscal year.

                                       9
<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, certain high and low
bid information of the Common Stock as reported by IDD/Tradeline until
December 31, 1997 and certain high and low sale prices of the Common Stock as
reported by the NASDAQ National Market beginning April 29, 1996. Prices before
April 29, 1996 reflect inter-dealer prices, without retail mark-up, mark-down
or commissions and may not necessarily reflect actual transactions.

<TABLE>
<CAPTION>
                                                             HIGH      LOW
                                                             ----      ---
     <S>                                                     <C>       <C>
     YEAR ENDED DECEMBER 31, 1996
       First Quarter........................................ $  7      $4 3/4
       Second Quarter.......................................  13 1/4    5 7/8
       Third Quarter........................................   9 1/2    5 3/4
       Fourth Quarter.......................................   9 1/8     6
<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
</TABLE>

  On March 27, 1998 the last reported sales price of the Common Stock as
reported on the NASDAQ National Market was $6.56 per share. As of March 27,
1998 there were 630 holders of record of the Common Stock.

                                      10
<PAGE>

                                DIVIDEND POLICY

  The Company has never paid cash dividends on its Common Stock and does not
currently anticipate that it will do so in the foreseeable future. The Company
plans to retain earnings to finance the Company's operations.

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                       SELECTED STATEMENT OF OPERATIONS DATA
                                        FOR THE YEARS ENDED DECEMBER 31,(1)
                                      -----------------------------------------
                                       1997   1996(3)(4)  1995  1994(2)   1993
                                      ------- ---------- ------ -------  ------
                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
     <S>                              <C>     <C>        <C>    <C>      <C>
     Revenue......................... $20,572  $15,913   $8,608 $7,367   $6,113
     Gross profit....................  13,642   10,345    5,612  4,234    3,555
     Net income (loss)...............   3,186    2,767    1,160   (210)     513
     Net income (loss) per share:
       Basic.........................    0.38     0.38     0.20  (0.04)    0.12
       Diluted.......................    0.36     0.35     0.20  (0.04)    0.11
<CAPTION>
                                      SELECTED BALANCE SHEET DATA AT DECEMBER
                                                       31,(1)
                                      -----------------------------------------
                                       1997      1996     1995   1994     1993
                                      ------- ---------- ------ -------  ------
                                                   (IN THOUSANDS)
     <S>                              <C>     <C>        <C>    <C>      <C>
     Working capital................. $24,430  $18,088   $4,996 $3,485   $3,518
     Total assets....................  33,157   33,795    7,388  5,968    5,446
     Long-term debt..................   1,292    1,314       64    150       72
     Net stockholders' equity........  28,658   28,161    5,897  4,673    4,252
</TABLE>
--------
(1) The data reflects the acquisitions of TAGO, effected on May 19, 1993, and
    Keystone, effected on November 21, 1995, each of which was accounted for
    as a pooling of interests.

(2) The Company 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 be 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, the Company 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 1993, 1994 and 1995.

(3) The Company acquired certain assets and selected liabilities of Medgenix
    which occurred concurrently with the completion of a second primary
    offering of Common Stock (See Item 1. Description of Business for purchase
    of "Medgenix Business.")

(4) As adjusted to reflect the sale of 2,362,000 shares of Common Stock in
    connection with the Company's secondary public offering and the
    application of the net proceeds therefrom.

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

OVERVIEW

  BioSource develops, manufactures, markets and distributes products that are
widely used in biomedical research and are instrumental in the development of
new medical diagnostic methods and pharmaceutical products. The Company's
products enable scientists to better understand the biochemistry, immunology
and cell biology of the human body, aging and certain diseases such as cancer,
arthritis and other inflammatory diseases, AIDS and certain other infectious
diseases. The Company's products include immunological reagents, including
bioactive proteins (cytokines, chemokines, growth factors and adhesion
molecules) and monoclonal and polyclonal antibodies. The Company also
develops, manufactures, markets and distributes oligonucleotides and ELISA
test kits, and uses recombinant DNA technology to produce cytokines and other
proteins. Because the Company's products are currently sold only to the
research market, the Company is not subject to regulation by the FDA, and
therefore undertakes none of the risks associated with the research and
development of new drugs.

                                      11
<PAGE>

  BioSource maintains manufacturing, laboratories and its executive offices in
Camarillo, California. The Company manufactures oligonucleotides at its
laboratory facilities located in Menlo Park, California.

  BioSource Europe, the Company's wholly owned subsidiary, is incorporated
under Belgian law and maintains manufacturing laboratories and administrative
offices in Fleurus, Belgium. BioSource Europe also has wholly owned
subsidiaries in France, Germany, Italy and the Netherlands. On May 31, 1997
BioSource Europe shut down its Italian sales office located in Milan, Italy
replacing the direct sales force with a direct distributor.

 Revenue

  Revenue increased $4.7 million during 1997 or 29.6% to $20.6 million from
$15.9 million when compared to the year ended December 31, 1996. BioSource
domestic revenue increased $1.7 million during 1997 or 17% when compared to
$10.0 million for the year ended December 31, 1996. BioSource Europe revenue
increased $3 million during 1997, or 50.8%, when compared to $5.9 million for
the year ended December 31, 1996. Approximately 37% of the increase in
domestic revenue for the year 1997 was attributed to the growth in ELISA
immunoassay test kit (Cytoscreen) sales. Sales of BioSource Europe assay kits
for the year 1997 amounted to 86.1% of its revenue, which includes both
Radioimmunoassays (RIA) and ELISA immunoassays. The remaining revenue was
generated by the sales of the BioSource U.S. product line. Revenue for
Keystone of $1.1 million for the year 1997, increased 10% when compared to
$1.0 million for the year ended 1996.

  Revenue increased $7.3 million during 1996 or 84.9% to $15.9 million from
$8.6 million when compared to 1995. Revenue for BioSource Europe from the date
of acquistion of June 5, 1996, which was accounted for as a purchase, amounted
to $5.9 million for the year ended December 31, 1996, which accounted for
80.9% of the increase in consolidated revenue for the year. Biosource domestic
revenue increased $1.4 million during 1996 or 16.2% when compared to domestic
revenue of $8.6 million for the year ended December 31, 1995. Approximately
38% of the increase in domestic revenue for 1996 was attributed to the growth
in ELISA immunoassay test kit (Cytoscreen) sales. Sales of assay test kits,
which includes Radioimmunoassasy (RIA) and ELISA immunoassays, by BioSource
Europe for the year 1996 amounted to 100% of its revenue. Revenue for Keystone
of $1.0 million for 1996, increased slightly when compared to $976,744 for
1995. While the quantity of oligonucleotides manufactured has nearly doubled,
pricing in this market has decreased by 50% or more causing the revenue to
remain relatively flat during 1996.

 Gross margins

  Gross margins as a percentage of revenue for fiscal 1997 were 66.3%, an
increase of 1.3%, when compared to 65% for fiscal 1996. Domestic gross margins
were 69% in 1997 and 1996. The Company continually examines ways to control
costs while optimizing production and inventory levels. BioSource Europe
margins for fiscal 1997 were 54% a decrease of 1.5% when compared to 56.6% for
1996. BioSourse Europe recognizes lower margins due to the higher costs
associated with the manufacturing of RIA kit assays and higher labor and fixed
costs when compared to that of the United States.

  Gross margins as a percentage of revenue, of 65% for fiscal 1996 remained
relatively unchanged when compared to 65.2% for fiscal 1995. The primary
factor for this was the inclusion of BioSource Europe. BioSource Europe
margins for fiscal 1996 were 56.5%. The lower margins in Europe are a result
of higher costs associated with the RIA assays components, and higher labor
and fixed costs when compared to that of the U.S. Domestic margins for
BioSource for fiscal 1996 of 69% increased by 3.8% when compared to 65.2% for
fiscal 1995. This increase was primarily a result of increased margins in the
ELlSA kits and antibody manufacturing due to efficiencies in production from
increasing production volumes and the expansion of in-house production of
products versus out-sourcing, thereby lowering costs.

 Research and Development

  The Company's research and development expenses were $2.1 million for 1997,
an increase of $656,766, or 46.2% when compared to $1.4 million for 1996. A
majority of the increase was due to the incremental

                                      12
<PAGE>

expenses associated with the acquisition of Biosource Europe. The Company also
recognized additional expenses domestically due to the continued development
of its core product lines including new ELISA assays and other biomedical
research reagents. The Company is also continuing its research and product
development efforts in the area of molecular assays which include quantitative
and qualitative assay kits.

  The Company's research and development expenses were $1.4 million for 1996,
an increase of $347,182, or 32.3% when compared to $1.1 million for 1995. The
increase in expenses was primarily due to the continued increased expenses
relating to the development of new products, including new and improved assay
test kits, antibodies, proteins and other related products. In fiscal 1996, 14
new cytokine kits were introduced and 14 bioactive proteins, including 4 novel
cytokines. Included in the increased expenditures for fiscal 1996 was
BioSource Europe research and development expenses of $614,667. The Company
will continue to focus on the development of new and unique assay test kits,
in addition to other related biomedical research and diagnostic products.

 Sales and marketing

  Sales and marketing expenses were $4.0 million for 1997, an increase of $1.2
million, or 46.4% as compared to $2.8 million for 1996. For fiscal 1997, the
major increase in sales and marketing expenses is attributed to the
incremental expenditures related to BioSource Europe. Domestically, the
increased expenses were in the areas of additional sales marketing staff,
sales promotion expenditures, which include advertising, catalog expenses,
mailings and trade show attendance. In May 1997, management made the decision
to close the Italian subsidiary of BioSource Europe and sell through a direct
distributor in the Italian market. This resulted in a lowering of marketing
expenses for BioSource Europe for the remainder of 1997 due to the savings of
expenses associated with the Italian sales office and sales staff.

  Sales and marketing expenses were $2.8 million for 1996, an increase of $1.5
million, or 114%, as compared to $1.3 million for 1995. For fiscal 1996, the
majority of the increase was due to the incremental expenses related to
BioSource Europe. BioSource Europe and its subsidiaries, located in strategic
locations in Western Europe, includes 11 full-time sales representatives and a
network of distributors throughout the world. With this increased customer
base the Company is in a position to more effectively penetrate the biomedical
research market and gain direct access to customers in Western Europe.
Domestically, the increased expenses related to added personnel and expenses
relating to increased advertising and trade show attendance.

 General and administrative

  General and administrative expenses were $3.6 million for 1997, an increase
of $880,210, or 32.6% as compared to $2.7 million for 1996. The majority of
the increase relates to the incremental expenses associated with BioSource
Europe. Management continues to monitor and control expenses in Europe, of
which an example would include the closure of the Italian sales office in
early 1997, while moving the sales stream to an Italian distributor which
offset the expenses. Domestically, general and administrative expenses
increases were predominately in the areas of added personnel and related
expenses which were required to support the growth of the Company.

  General and administrative expenses were $2.7 million for 1996, an increase
of $1.1 million, or 65.4%, as compared to $1.6 million for 1995. The primary
increase in general and administrative expenditures related to the additional
expenses relating to BioSource Europe. The Company made a strategic effort to
keep costs associated with BioSource Europe under control and on budget post
acquisition. Domestically, the Company's general and administrative expenses
for fiscal 1996 of $1.7 million, remained relatively unchanged, when compared
to $1.6 million for fiscal 1995.

 Provision for income taxes

  The provision for income taxes for fiscal 1997 were provided at the
effective tax rate of 31% of consolidated pretax earnings. Federal taxes
reflect the reduction in the effective tax rate from the benefit of a foreign
sales

                                      13
<PAGE>

corporation. In addition, federal and state income taxes have been reduced due
to the tax benefits of increasing research and development expenses. State
taxes reflect the tax reduction due to the California manufacturers tax credit
for increasing capital expenditures in the area of biotechnology. Foreign
income taxes rates have been provided for at 28% of pretax earnings from the
Company's Belgium and German operations, partially offset by a tax benefit as
a result of losses in France and Italy.

  The provision for income taxes for fiscal 1996 were provided at the
effective tax rate of approximately 20% of consolidated pretax earnings.
Income taxes were reduced to reflect the reduction of $607,000 in the
valuation allowance. Management reviewed the recoverability of deferred income
tax assets and determined that it is more likely than not that the deferred
tax asset will be fully realized through future taxable earnings in the United
States. Federal income taxes have been reduced as a result of tax exempt
interest income and the benefit of the foreign sales corporation, established
in September, 1996. Federal and state income taxes have been reduced to
reflect credits for increasing research and development expenditures.

  The provision for income taxes for fiscal 1995 were provided at the
effective tax rate of 28% of consolidated pretax earnings. Federal income
taxes were reduced as a result of recognition of net operating loss
carryforwards. Both federal and state income taxes were reduced to reflect
credits for increasing research and development expenditures.

YEAR 2000

  The Company has developed a plan to address issues related to the impact on
its computer systems of the year 2000. Financial and operational systems have
been assessed and plans have been developed to address systems modification
requirements which are expected to be completed in 1999. The financial impact
of making the required systems changes is not expected to be material to the
Company's consolidated financial position, results of operations or cash
flows.

LIQUIDITY AND CAPITAL RESOURCES

  At December 31, 1997, the Company's current ratio was 8.6 to 1 compared to
5.2 to 1 at December 31, 1996. Cash generated from operating activities
decreased to $1.8 million as compared to $2.0 million for 1996. At December
31, 1997 cash, cash equivalents, short and long term investments in marketable
securities amounted to $14.4 million as compared to $14.9 million at December
31, 1996. The Company invests its cash on hand in low risk short and long term
commercial paper and U.S. treasury strips. The Company'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 business, products or technologies.

  Management of the Company expects to be able to meet its future cash and
working capital requirements for operations and capital additions through
currently available funds and cash generated from operations.

 Cash flows from operating activities

  The Company generated $1.8 million, $2.0 million and $853,000 in cash from
operations in fiscal 1997, 1996 and 1995, respectively. The majority of cash
generated from operating activities in all three years resulted from an
increase in net earnings after adjustment for noncash expenses, partially
offset by increases in total current assets and the increase or decrease in
current liabilities from year to year.

 Cash flows from investing activities

  Capital expenditures were $659,000, $2.3 million and $212,000 in fiscal
1997, 1996 and 1995, respectively. Included in fiscal 1996 was the purchase of
the Company's corporate headquarters and manufacturing facilities located in
Camarillo, California. Capital expenditures in fiscal 1996 also included
$412,000 of building improvements in the Camarillo headquarters of additional
laboratory, sales and marketing offices. The remaining

                                      14
<PAGE>

capital additions in fiscal 1997, 1996 and 1995 were for laboratory,
manufacturing and computer equipment. Total capital additions for equipment
and leasehold improvements planned for fiscal 1998 are expected to be
approximately $650,000. All capital additions are expected to be financed
through currently available cash, cash generated from operations and
maturities of short-term investments.

  The Company invested $23.0 million and $20.0 million to purchase short-term
investments in fiscal 1997 and 1996, respectively. Maturities of short-term
investments were $29.4 million and $8.6 million for fiscal 1997 and 1996,
respectively. The Company's policy is to obtain the highest possible return,
maintain liquidity in its investments, provide working capital and have the
ability to react to future potential long term investment opportunities in
complimentary business, products or technologies.

 Cash flow from financing activities

  The Company received $212,000, $200,000 and $64,000 for the exercise of
options and warrants for 112,044, 111,665 and 32,278 shares of common stock in
fiscal 1997, 1996 and 1995, respectively.

  In April 1997, the Board of Directors authorized the Company to repurchase
up to 200,000 shares of its outstanding common stock at market price. In
December 1997, the Board of Directors authorized the Company to repurchase up
to 1,000,000 additional shares of the outstanding common stock at market
price. As of December 31, 1997 the Company had purchased 283,300 shares of
Company common stock for $1.7 million.

  Repayments to banks were in the amounts of $29,000, $721,000 and $188,000
for fiscal 1997, 1996 and 1995, respectively. Payments of capital lease
obligations were made in the amounts of $2,000, $23,000 and $36,000 for fiscal
1997, 1996 and 1995, respectively.

  The Company has never paid dividends and has no plans to do so in fiscal
1998. The Company's earnings will be retained for reinvestment in the
business.

                                 RISK FACTORS

  An investment in shares of Common Stock of the Company involves a high
degree of risk. 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 before purchasing any shares of Common Stock of the
Company.

  GROWTH STRATEGY AND EXPANSION. The Company has and will continue to seek to
increase sales and profitability primarily through the acquisition or internal
development of new product lines, additional customers and new business. The
Company's historical revenue growth is primarily attributable to the Company's
acquisitions and new product development and, to a lesser extent, to increase
revenues from the Company's existing products. The ability of the Company to
achieve its expansion objectives and to manage its growth effectively depends
upon a variety of factors, including (i) the ability to internally develop new
products, (ii) the ability to make profitable acquisitions, (iii) the
integration of new facilities into existing operations, (iv) the hiring,
training and retention of qualified personnel, (v) the establishment of new
relationships or expansion of existing relationships with suppliers, (vi) the
identification and lease of suitable premises on competitive terms and (vii)
the availability of capital. In addition, the implementation of the Company's
growth strategy will place significant strain on the Company's administrative,
operational and financial resources and increased demands on its systems and
controls. The Company's ability to manage its growth successfully will require
it to continue to improve and expand such systems and controls. If the
Company's management is unable to manage growth effectively, the Company's
operating results could be adversely affected. In addition, the Company
competes for acquisition and expansion opportunities with companies which have
significantly greater financial and

                                      15
<PAGE>

management resources than those of the Company. There can be no assurance that
suitable acquisition or investment opportunities will be identified, that any
such transaction can be consummated, or that, if acquired, such new business
can be integrated successfully and profitably into the Company's operations.
Moreover, there can be no assurance that the Company's historic rate of growth
will continue to successfully expand, or that growth or expansion will result
in profitability.

  NEW PRODUCT DEVELOPMENT; GOVERNMENT REGULATION. The Company anticipates that
in addition to its currently planned research and development expenses, it
will spend additional significant amounts during fiscal 1998 and 1999 to fund
research and development of certain technologies related to the area of
molecular diagnostics. This effort will be directed towards the development of
medical products which will be used to detect or diagnose disease at a
molecular level. See "Item 1--Research and Development." There can be no
assurance that any such diagnostic products will be successfully developed or
that if developed, will be commercially successful. Unlike the Company's
current products, which are offered exclusively for research uses, such new
products would be offered for the detection of diseases in human and animals.
Prior to any such use, the Company will be required to have such products
approved by the FDA following extensive clinical trials, Management believes
that it may invest up to $1 million in these products which should be
sufficient to cover the development of these products and necessary clinical
trials; however, there can be no assurance that this level of investment will
be sufficient. Furthermore, the Company's investment will be made with no
assurance that development efforts or clinical trials will be successful, or
that the FDA will approve such products. In the event that the Company is
unable to develop a commercialized product from its research and development
efforts, or the FDA does not permit the Company to manufacture and sell such
products, or the Company is unable or unwilling to allocate amounts beyond the
$1 million investment, the Company could lose its entire investment in
products.

  COMPETITION. The Company is engaged in a segment of the health care products
industry that is highly competitive. Competitors in the United States and
elsewhere are numerous and include major pharmaceutical, chemical and
biotechnology companies, many of which have substantially greater capital
resources, marketing experience, research and development staffs and
facilities than the Company. These companies may succeed in developing
products competitive with those of the Company that are more effective than
any that have been or may be developed by the Company and may also be more
successful than the Company in producing and marketing their products. See
"Item 1--Competition."

  INTERNATIONAL SALES. International sales accounted for approximately 64% and
57% of the Company's revenues in 1997 and 1996, respectively. The Company
believes that there is large demand for its products internationally and is
aggressively pursuing such sales. While the Company expects that international
sales will increase as a percentage of revenue in future periods, particularly
as a result of the acquisition of Medgenix Business, the Company may not be
successful in expanding its international sales. The products of the Company
may not continue to meet with the same market acceptance as they currently
receive, other competitive products may be more attractive to international
customers and the cost of selling the Company's products overseas may result
in a competitive disadvantage. In addition, international sales are 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. The Company continues to depend on
third party distributors for a material portion of its international sales.
Certain of the Company's third party distributors may also act as reseller for
competitors of the Company and could devote greater effort and resources to
marketing competitive products. The loss of, or other significant reduction in
sales to, certain of these third party distributors could have a material
adverse effect on the Company's business and results of operations.

  A large portion of the Company's international sales are invoiced in non-
Belgian currencies through the subsidiaries of BioSource Europe which are
primarily German and French. The Company's gross margins from international
sales, may, therefore, be materially adversely affected by significant
exchange rate fluctuations between the Belgian franc and these other
currencies. In addition, because international sales are not made in U.S.
dollars, currency exchange rate fluctuations could materially impact the
Company's results of operations.

                                      16
<PAGE>

Although the Company may be able to hedge against all or a portion of these
currency exchange rate exposures, the Company does not currently have plans to
do so and, if the Company chooses to do so, there can be no assurance that the
Company will be able to do so successfully.

  DEPENDENCE ON KEY MANAGEMENT. The Company's success will continue to depend
to a significant extent on the members of its management and scientific staff,
particularly its Chief Executive Officer, James H. Chamberlain. The Company
has an employment contract with Mr. Chamberlain, which expires at the end of
1998. The Company maintains "key man" life insurance on Mr. Chamberlain in the
amount of $1 million, of which the Company is the sole beneficiary but there
can be no ASSURANCE that the proceeds will be sufficient to offset the loss to
the Company in the event of his death. The Company does not maintain any
insurance on the lives of its other senior management or scientific staff. As
the Company continues to grow, it will continue to hire, appoint or otherwise
change senior management and members of its scientific staff. There can be no
assurance that the Company will be able to retain its executive officers and
key personnel or attract additional qualified members to management in the
future. The loss of services of Mr. Chamberlain, or any key could have a
material adverse effect upon the Company's business. See "Part III."

  VOLATILITY OF STOCK PRICE. Until April 29th 1996, the Company's Common Stock
was quoted on the NASDAQ small Cap Market, and there was substantial
volatility in the market price of such 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 the Company or its 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 the common stock of many
technology companies in particular and which have at times been related to
operating performance of the specific companies whose stock is affected. In
addition, in the past the Company has not experienced significant trading
volume in its Common Stock, has not been actively followed by stock market
analysts and has had limited market-making support from broker-dealers. If
market-making support does not continue at present or greater levels and/or
the Company does not continue to receive analyst coverage, the average trading
volume in the Company's Common Stock may not increase or even sustain its
current levels, in which case, there can be no assurance that an adequate
trading market will exist to sell large positions in the Company's Common
Stock. See "Part 11--Price Range of Common Stock."

  POTENTIAL ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS. The
Company's Certificate of Incorporation authorizes the issuance of 1,000,000
shares of Preferred Stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors, without any
further vote or action by the stockholders. The rights of the holders of the
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company, thereby delaying, deferring or
preventing a change in control of the Company. Furthermore, such Preferred
Stock may have other rights, including economic rights senior to the Common
Stock, and as a result, the issuance of such Preferred Stock could have a
material adverse affect on the market value of the Common Stock. Although the
Company has no present intention to issue any shares of its Preferred Stock.
There can be no assurance that the Company will not do so in the future. These
provisions, as well as other provisions contained in the Company's Certificate
of Incorporation, also may have the effect of discouraging, delaying or
preventing a change in control of the Company.

                                      17
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          -----
<S>                                                                       <C>
Report of KPMG Peat Marwick LLP, Independent Auditors....................   F-1
Consolidated Balance Sheets at December 31, 1997 and 1996................   F-2
Consolidated Statements of Operations for the Years Ended December 31,
 1997, 1996 and 1995.....................................................   F-3
Consolidated Statements of Stockholders' Equity for the Years Ended
 December 31, 1997, 1996 and 1995........................................   F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
 1997, 1996 and 1995.....................................................  F5-6
Notes to Consolidated Financial Statements for the Years Ended December
 31, 1997, 1996 and 1995................................................. F7-16
</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

  Information concerning the directors of the Company is incorporated by
reference to the section entitled "Election Of Directors" in the Company's
definitive Proxy Statement with respect to the Company's 1998 Annual Meeting
to be filed with the Securities and Exchange Commission within 120 days of
December 31, 1997.

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

<TABLE>
<CAPTION>
                  NAME                AGE               POSITION
                  ----                ---               --------
   <C>                                <C> <S>
   James H. Chamberlain..............  50 Chairman of the Board, President and
                                           Chief Executive Officer
   Anna M. Anderson..................  42 Chief Financial Officer, Executive
                                           Vice President--Finance
   Gus E. Davis......................  50 Chief Operating Officer, Executive
                                           Vice President--Sales and Marketing
   Leonard M. Hendrickson*...........  50 Director
   David J. Moffa, Ph.D.*............  55 Director
   John R. Overturf, Jr.**...........  37 Director
   Robert D. Weist .**...............  58 Director
   Key Employees
   Richard O. Buford.................  50 Vice President--Human Resources
   Cirilo D. Cabradilla, Jr., Ph.D. .  50 Vice President--Molecular Biology
   Kevin J. Reagan, Ph.D. ...........  46 Vice President--Immunology Products
   Edward Sapp, Jr. .................  54 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 was 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.

  ANNA M. ANDERSON became Executive Vice President--Finance and Chief
Financial Officer of the Company in 1994 and has served as corporate
controller and Chief Accounting Officer of the Company and its predecessor,
BioSource Industries, Inc., since June 1991. From January 1984 to May 1991,
Ms. Anderson was the Tax and Accounting Manager for El Camino Management
Company, a private investment management company. From 1978 to 1984, Ms.
Anderson was employed as tax and audit staff with Mulford and Tignino
Accountancy Corporation, Brickman & Brickman, Certified Public Accountants and
Temkin, Zisken, Kahn and Matzner, Certified Public Accountants. Ms. Anderson
is a Certified Public Accountant and holds a Bachelor of Science degree in
Business Administration from California State University, Northridge.

                                      19
<PAGE>

  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
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 a 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.

                                      20
<PAGE>

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 administrative management positions with Schwabacher/Frey, and
office supply distribution unit of Hanson Industries, most recently as
Director of Finance & Administration from 1984-1989. Mr. Buford received a
Bachelors 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, Immunobiology 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.

  EDWARD SAPP, JR. became General Manager of BioSource Europe, S.A. in June,
1996. From 1994 to 1996 Mr. Sapp was the International Sales Manager for
ASOMA, a company engaged in producing x-ray fluorescence equipment. From 1984
to 1994 Mr. Sapp held positions in international sales with various companies
aiding in developing their market efficiently. From 1981 to 1984, Mr. Sapp was
employed by Lancer Diagnostic, Inc., a company engaged in manufacturing
diagnostic products and laboratory supplies, where he was Director of
Marketing and later promoted to General Manager. From 1966 to 1981, Mr. Sapp
was employed with Amersham Corporation of Chicago where he held various
positions such as: Sales Representative, Sales Manager and Manager of the
Radiochemical Division. Mr. Sapp received his Bachelor of Science degree from
Penn State University, College of Chemistry and Physics and Masters of
Business Administration from Northwestern University.

ITEM 11. EXECUTIVE COMPENSATION

  Information relating to executive compensation is contained in the Company's
Proxy Statement for its 1997 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 1997 Annual Stockholders meeting 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 1997 Annual Stockholders meeting is hereby
incorporated by reference.

                                      21
<PAGE>

                                    PART IV

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 Auditor's Report

    Consolidated Balance Sheets--December 31, 1997 and 1996

    Consolidated Statements of Operations--Years ended December 31, 1997,
  1996, and 1995

    Consolidated Statements of Stockholders' Equity--Years ended December 31,
  1997, 1996, and 1995

    Consolidated Statements of Cash Flows--Years ended December 31, 1997,
  1996, and 1995

    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:

    No report on Form 8-K was filed during the quarter ended December 31,
  1997.

                                       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: March 31, 1998                               /s/ Anna Anderson
                                          By: _________________________________
                                                      Anna Anderson
                                                 Chief Financial Officer

Date: March 31, 1998                           /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                      March 31, 1998
____________________________________
       Leonard M. Hendrickson

   /s/ David J. Moffa, Ph.D.         Director                      March 31, 1998
____________________________________
       David J. Moffa, Ph.D.

   /s/ John R. Overturf, Jr.         Director                      March 31, 1998
____________________________________
       John R. Overturf, Jr.

      /s/ Robert D. Weist            Director                      March 31, 1998
____________________________________
          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, 1997 and 1996 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, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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, 1997 and 1996 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997 in conformity with generally
accepted accounting principles.

Los Angeles, California
February 20, 1998

                                      F-1
<PAGE>

                 BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                         1997         1996
                                                      -----------  -----------
<S>                                                   <C>          <C>
                       ASSETS
Current assets:
  Cash and cash equivalents.......................... $ 9,477,453  $ 3,606,904
  Short-term investments.............................   4,968,684    5,766,905
  Accounts receivable, less allowance for doubtful
   accounts of $203,000 in 1997 and $49,000 in 1996..   3,459,482    4,286,237
  Inventories (note 3)...............................   7,883,402    7,228,918
  Prepaid expenses and other current assets..........   1,599,353    1,316,416
  Deferred income taxes (note 9).....................     248,000      202,000
                                                      -----------  -----------
    Total current assets.............................  27,636,374   22,407,380
Investments..........................................         --     5,561,669
Property and equipment, net (note 4).................   4,560,113    4,788,404
Other assets.........................................     737,583      712,374
Deferred income taxes (note 9).......................     223,000      325,000
                                                      -----------  -----------
                                                      $33,157,070   33,794,827
                                                      ===========  ===========
        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current maturities of notes payable (note 5)....... $    34,511  $    28,510
  Accounts payable...................................   1,446,332    1,895,310
  Accrued expenses...................................   1,472,661    2,318,284
  Income taxes payable...............................     252,846       77,767
                                                      -----------  -----------
    Total current liabilities........................   3,206,350    4,319,871
                                                      -----------  -----------
Notes payable, less current maturities (note 5)......   1,292,414    1,314,359
Commitments and contingencies (notes 5 and 12)
Stockholders' equity (notes 6, 7 and 8):
  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 8,431,015 shares in 1997
   and 8,318,971 shares in 1996......................       8,431        8,319
  Additional paid-in capital.........................  29,048,905   28,837,102
  Retained earnings (accumulated deficit)............   2,506,539     (679,824)
  Treasury stock at cost, 283,300 shares in 1997.....  (1,744,469)         --
  Cumulative translation adjustment..................  (1,161,100)      (5,000)
                                                      -----------  -----------
    Total stockholders' equity.......................  28,658,306   28,160,597
                                                      -----------  -----------
                                                      $33,157,070  $33,794,827
                                                      ===========  ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-2
<PAGE>

                 BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                            1997         1996         1995
                                         -----------  -----------  ----------
<S>                                      <C>          <C>          <C>
Revenue................................. $20,571,835  $15,913,274  $8,608,447
Cost of goods sold......................   6,930,131    5,567,989   2,996,103
                                         -----------  -----------  ----------
    Gross profit........................  13,641,704   10,345,285   5,612,344
                                         -----------  -----------  ----------
Operating expenses:
  Research and development..............   2,077,681    1,420,915   1,073,733
  Sales and marketing...................   4,043,077    2,761,601   1,289,939
  General and administrative............   3,582,687    2,702,477   1,633,649
                                         -----------  -----------  ----------
    Total operating expenses............   9,703,445    6,884,993   3,997,321
                                         -----------  -----------  ----------
    Operating income....................   3,938,259    3,460,292   1,615,023
                                         -----------  -----------  ----------
Other income (expense):
  Interest expense......................    (136,394)     (97,455)    (26,301)
  Interest income.......................     763,800      372,129      32,837
  Other.................................      80,698     (271,768)    (10,180)
                                         -----------  -----------  ----------
    Total other income (expense)........     708,104        2,906      (3,644)
                                         -----------  -----------  ----------
    Income before income taxes..........   4,646,363    3,463,198   1,611,379
Provision for income taxes (note 9).....   1,460,000      696,000     451,000
                                         -----------  -----------  ----------
    Net income.......................... $ 3,186,363   $2,767,198  $1,160,379
                                         ===========  ===========  ==========
Net income per share:
  Basic................................. $       .38         $.38        $.20
  Diluted...............................         .36          .35         .20
                                         ===========  ===========  ==========
Weighted average number of shares
 outstanding:
  Basic.................................   8,317,995    7,271,848   5,826,962
  Diluted...............................   8,965,165    8,008,485   5,945,900
                                         ===========  ===========  ==========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                 BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                            COMMON STOCK                RETAINED      TREASURY STOCK
                          ---------------- ADDITIONAL   EARNINGS   ---------------------  CUMULATIVE        NET
                          NUMBER OF         PAID-IN   (ACCUMULATED NUMBER OF              TRANSLATION  STOCKHOLDERS'
                           SHARES   AMOUNT  CAPITAL     DEFICIT)    SHARES     AMOUNT     ADJUSTMENT      EQUITY
                          --------- ------ ---------- ------------ --------- -----------  -----------  -------------
<S>                       <C>       <C>    <C>        <C>          <C>       <C>          <C>          <C>
Balance at December 31,
 1994...................  5,813,028 $5,813  9,274,477  (4,607,401)      --   $       --          --      4,672,889
Exercise of stock
 options................     32,278     32     64,007         --        --           --          --         64,039
Net income..............        --     --         --    1,160,379       --           --          --      1,160,379
                          --------- ------ ----------  ----------   -------  -----------  ----------    ----------
Balance at December 31,
 1995...................  5,845,306  5,845  9,338,484  (3,447,022)      --           --          --      5,897,307
Issuance of common
 stock..................  2,362,000  2,362 19,299,014         --        --           --          --     19,301,376
Exercise of stock
 options................     80,665     81    140,142         --        --           --          --        140,223
Exercise of warrants....     31,000     31     59,462         --        --           --          --         59,493
Foreign currency
 translation adjustment.        --     --         --          --        --           --       (5,000)       (5,000)
Net income..............        --     --         --    2,767,198       --           --          --      2,767,198
                          --------- ------ ----------  ----------   -------  -----------  ----------    ----------
Balance at December 31,
 1996...................  8,318,971  8,319 28,837,102    (679,824)      --           --       (5,000)   28,160,597
Exercise of stock
 options................     77,044     77    147,088         --        --           --          --        147,165
Exercise of warrants....     35,000     35     64,715         --        --           --          --         64,750
Purchases of treasury
 stock..................        --     --         --          --    283,300   (1,744,469)        --     (1,744,469)
Foreign currency
 translation adjustment.        --     --         --          --        --           --   (1,156,100)   (1,156,100)
Net income..............        --     --         --    3,186,363       --           --          --      3,186,363
                          --------- ------ ----------  ----------   -------  -----------  ----------    ----------
Balance at December 31,
 1997...................  8,431,015 $8,431 29,048,905   2,506,539   283,300  $(1,744,469) (1,161,100)   28,658,306
                          ========= ====== ==========  ==========   =======  ===========  ==========    ==========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                 BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                             1997         1996         1995
                                         ------------  -----------  ----------
<S>                                      <C>           <C>          <C>
Cash flows from operating activities:
  Net income............................ $  3,186,363  $ 2,767,198  $1,160,379
  Adjustments to reconcile net income to
   net cash provided by operating
   activities:
   Depreciation and amortization........      711,979      457,643     258,045
   Net (gain) loss on sale of property
    and equipment.......................       (6,324)      57,464         --
   Gain on sale of investments..........          --        (9,019)        --
   Other................................     (109,922)      (5,000)        --
  Changes in assets and liabilities, net
   of effects of acquisition:
   Accounts receivable..................      413,026     (229,988)   (360,930)
   Inventories..........................   (1,177,341)  (1,155,861)   (592,581)
   Prepaid expenses and other assets....     (407,187)    (809,867)     (7,961)
   Deferred income taxes................      (56,000)    (501,000)     36,781
   Accounts payable.....................     (318,874)     704,115     168,927
   Accrued expenses.....................     (581,322)   1,025,891    (151,636)
   Income taxes payable.................      193,982     (264,409)    342,176
                                         ------------  -----------  ----------
    Net cash provided by operating
     activities.........................    1,848,380    2,037,167     853,200
                                         ------------  -----------  ----------
Cash flows from investing activities:
  Purchase of property and equipment....     (659,041)  (2,349,618)   (211,809)
  Purchase of Medgenix Business.........          --    (6,868,000)        --
  Proceeds from sale of property and
   equipment............................       21,400          --          --
  Purchases of investments..............  (23,027,995) (19,954,775)        --
  Proceeds from sale of investments.....   29,387,885    8,635,220         --
                                         ------------  -----------  ----------
    Net cash provided by (used in)
     investing activities...............    5,722,249  (20,537,173)   (211,809)
                                         ============  ===========  ==========
</TABLE>

                                                                     (continued)

                                      F-5
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)

<TABLE>
<CAPTION>
                                              1997         1996         1995
                                           -----------  -----------  ----------
<S>                                        <C>          <C>          <C>
Cash flows from financing activities:
  Proceeds from issuance of common stock.  $       --   $19,301,376  $      --
  Proceeds from the exercise of options..      147,165      140,223      64,039
  Proceeds from the exercise of warrants.       64,750       59,493         --
  Borrowings from bank...................          --     1,957,000      28,000
  Repayments to bank.....................      (28,512)    (721,274)   (188,212)
  Payments on capital lease obligations..       (2,351)     (23,000)    (35,886)
  Payments to acquire treasury stock.....   (1,744,469)         --          --
                                           -----------  -----------  ----------
    Net cash provided by (used in) fi-
     nancing activities..................   (1,563,417)  20,713,818    (132,059)
                                           -----------  -----------  ----------
    Net increase in cash and cash equiva-
     lents...............................    6,007,212    2,213,812     509,332
Effect of exchange rates on cash and cash
 equivalents.............................     (136,663)         --          --
Cash and cash equivalents at beginning of
 year....................................    3,606,904    1,393,092     883,760
                                           -----------  -----------  ----------
Cash and cash equivalents at end of year.  $ 9,477,453    3,606,904   1,393,092
                                           ===========  ===========  ==========
Supplemental disclosure of cash flow in-
 formation:
  Cash paid during the year for:
   Interest..............................  $   136,394  $    97,455  $   26,301
   Income taxes..........................    1,477,690    1,109,323      87,063
                                           ===========  ===========  ==========
</TABLE>

  During 1997, the Company financed the acquisition of certain office
equipment totaling approximately $15,000 through the issuance of a capital
lease.

  The fair value of the assets acquired in connection with the 1996 purchase
of the Medgenix Business was approximately $8,399,000, including goodwill of
approximately $200,000. Liabilities assumed were approximately $1,531,000.


         See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       DECEMBER 31, 1997, 1996 AND 1995

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 Description of Business

  BioSource International, Inc. (the Company) is engaged in the licensing,
development, manufacture, marketing and distribution of immunological
reagents, test kits and oglionucleotides used in biomedical research and human
diagnostics. The types of products supplied by the Company include a range of
bioactive proteins, enzymes, substrates, antibodies, human cytokines, growth
factors and a variety of assay systems for the detection of biological
molecules. These products focus on areas of research such as immunology, cell
biology, AIDS and cancer. The Company focuses its sales efforts on academic,
industrial and governmental laboratories.

 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

  The Company accounts for its investments using Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." At December 31, 1997, the Company has investments
in U.S. Treasury securities that are classified in the consolidated balance
sheet as short term (mature in more than 91 days but less than one year).
These investments are categorized as held to maturity when purchased and are
carried at cost as the Company has both the intent and the ability to hold
these investments until they mature.

 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 due to the short-term nature of these instruments. The
recorded values of the Companys long-term debt instruments approximate fair
value as their rates are similar to those currently available to the Company
for debt with similar terms and remaining maturities.

 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.

 Property and Equipment

  Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives which range from
three to seven years. Leasehold improvements are amortized using the straight-
line method over the estimated useful life or the lease term, whichever is
shorter.

                                      F-7
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


 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, 1997 and 1996 was approximately
$152,000 and $103,000, respectively.

 Revenue Recognition

  Revenue and related cost of goods sold are recognized upon shipment of
products.

 Research and Development Costs

  Research and development costs are charged to expense as incurred.

 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.

 Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

  Long-lived assets and certain identifiable intangibles are reviewed for
impairment in value based upon undiscounted future operating cash flows, and
appropriate losses are recognized whenever circumstances indicate that the
carrying amount of an asset may not be recoverable.

 Accounting for Stock Options

  The Company measures stock-based compensation for employees using the
intrinsic-value method which assumes that options granted at market price at
the date of grant have no intrinsic value. In accordance with SFAS No. 123 --
"Accounting for Stock-Based Compensation," pro forma net income and net income
per share are presented in note 7 as if the fair value method had been
applied.

 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.

 Foreign Currency Translation

  The assets and liabilities of the Companys 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.

                                      F-8
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


 New Accounting Standards

  In June 1997, SFAS No. 130--"Reporting Comprehensive Income" and SFAS No.
131--"Disclosures about Segments of an Enterprise and Related Information"
were issued and are effective for periods beginning after December 15, 1997.
SFAS No. 130 establishes standards for reporting comprehensive income and its
components. SFAS No. 131 establishes standards for reporting financial and
descriptive information regarding an enterprise's operating segments. These
standards increase disclosure in the financial statements and will be complied
with during 1998.

 Reclassifications

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

(2) BUSINESS COMBINATIONS

  On November 21, 1995, the Company issued 500,000 shares of its common stock
in exchange for all of the outstanding common stock of Keystone Laboratories,
Inc. (Keystone). The business combination was accounted for as a pooling-of-
interest combination, and accordingly, the Company's consolidated financial
statements for periods prior to the combination were restated to include the
accounts and results of operations of Keystone.

  Total expenses of approximately $116,000 related to the business combination
were included in 1995 operations.

  On June 5, 1996, the Company acquired certain assets and assumed selected
liabilities of Medgenix Diagnostics, S.A. (Medgenix), located in Fleurus,
Belgium, related to its in vitro diagnostic business (the Medgenix Business).
The Medgenix Business is involved in the development, manufacture, marketing
and distribution of immunological reagents and test kits used in biomedical
research and human diagnostics.

  The acquisition was accounted for as a purchase, and accordingly, operating
results of this business subsequent to the date of acquisition are included in
the Company's consolidated financial statements. The purchase price for the
Medgenix Business was approximately $6.9 million. The purchase price, payable
in cash, was funded from a portion of the net proceeds of a second primary
offering of the Company's common stock which closed concurrently with the
closing of the Medgenix acquisition. The purchase price was allocated based on
estimated fair values at the date of acquisition.

  On the basis of an unaudited pro forma consolidation of the results of
operations as if the acquisition had taken place at the beginning of 1996, the
Company would have reported revenue of $20,450,000, net income of $2,333,000,
basic earnings per share of $.32 and diluted earnings per share of $.29 for
fiscal 1996.

(3) INVENTORIES

  Inventories at December 31, 1997 and 1996 are summarized as follows:

<TABLE>
<CAPTION>
                                                              1997       1996
                                                           ---------- ----------
   <S>                                                     <C>        <C>
   Raw materials.......................................... $1,217,976 $  767,378
   Work in process........................................  3,209,674  3,243,766
   Finished goods.........................................  3,455,752  3,217,774
                                                           ---------- ----------
                                                           $7,883,402 $7,228,918
                                                           ========== ==========
</TABLE>

                                      F-9
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


(4) PROPERTY AND EQUIPMENT

  Property and equipment at December 31, 1997 and 1996 are summarized as
follows:

<TABLE>
<CAPTION>
                                                             1997       1996
                                                          ---------- ----------
   <S>                                                    <C>        <C>
   Land.................................................. $  360,000 $  360,000
   Building and improvements.............................  1,913,751  1,832,602
   Machinery and equipment...............................  2,899,486  2,797,638
   Office furniture and equipment........................  1,115,000    975,258
   Leasehold improvements................................     19,473     19,473
                                                          ---------- ----------
                                                           6,307,710  5,984,971
   Less accumulated depreciation and amortization........  1,747,597  1,196,567
                                                          ---------- ----------
                                                          $4,560,113 $4,788,404
                                                          ========== ==========
</TABLE>

(5) NOTES PAYABLE

  The Company leases approximately $15,000 of certain equipment under a
capital lease. The capital lease obligation is payable in monthly installments
through February 2001, including interest at approximately 6%. Accumulated
depreciation related to this equipment was approximately $2,200 at December
31, 1997.

  Long-term debt at December 31, 1997 and 1996 consists of the following:

<TABLE>
<CAPTION>
                                                             1997       1996
                                                          ---------- ----------
   <S>                                                    <C>        <C>
   9.4% first mortgage note payable in monthly install-
    ments of $6,896, including interest, with final pay-
    ment of $535,178 due April 2006.....................  $  720,904 $  735,155
   7.6% second mortgage note payable due June 2016, pay-
    able in monthly installments of $5,369, including
    interest............................................     593,453    607,714
   6.0% capital lease obligation payable in monthly in-
    stallments of $290, including interest, with final
    payment due February 2001...........................      12,568        --
                                                          ---------- ----------
                                                           1,326,925  1,342,869
   Less current portion.................................      34,511     28,510
                                                          ---------- ----------
                                                          $1,292,414 $1,314,359
                                                          ========== ==========
</TABLE>

  Maturities of the notes payable as of December 31, 1997 are:

<TABLE>
   <S>                                                                <C>
   Year ending December 31:
     1998............................................................ $   34,511
     1999............................................................     37,257
     2000............................................................     40,250
     2001............................................................     42,159
     2002............................................................     43,588
     Thereafter......................................................  1,129,160
                                                                      ----------
                                                                      $1,326,925
                                                                      ==========
</TABLE>

  Payments under the first and second mortgage notes are guaranteed by the
chairman of the board of the Company.


                                     F-10
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(6) COMMON STOCK AND TREASURY STOCK

  On June 5, 1996, the Company completed a second primary offering of
2,362,000 shares of its common stock. A portion of the net proceeds of $19.3
million 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 the Company to repurchase
up to 200,000 shares of the outstanding common stock at market prices. In
December 1997, the Board of Directors authorized the Company to repurchase up
to 1,000,000 additional shares of the outstanding common stock at market
prices. The timing of stock purchases is made at the discretion of management.
As of December 31, 1997, the Company has repurchased 283,300 shares of the
Companys common stock.

(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, options may be granted to full-time employees, part-
time employees, directors and consultants of the Company to purchase a maximum
of 1,500,000 shares of common stock. Options granted under the 1993 Plan are
exercisable at the rate of 25% beginning one year from date of grant and an
additional 1/48 vest at the beginning of each month thereafter.

  Stock options granted under the 1993 Plan and other stock option agreements
are granted with an exercise price equal to the fair market value of the
Company's shares on the date of grant. The stock options generally expire ten
years from the date of grant.

  The per share weighted average fair value of stock options granted during
1997, 1996 and 1995 was $5.17, $2.40 and $1.14, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:1997--expected dividend yield 0%, risk-free interest rate
of 6.4%, expected volatility of 60% and an expected life of 9 years; 1996--
expected dividend yield 0%, risk-free interest rate of 6.4%, expected
volatility of 30% and an expected life of 9 years; 1995--expected dividend
yield of 0%, risk-free interest rate of 6.4%, expected volatility of 30% and
an expected life of 9 years.

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

<TABLE>
<CAPTION>
                                                   1997       1996       1995
                                                ---------- ---------- ----------
   <S>                                          <C>        <C>        <C>
   Net income:
     As reported............................... $3,186,363 $2,767,198 $1,160,379
     Pro forma.................................  2,774,629  2,321,588    980,647
                                                ========== ========== ==========
   Net income per share:
     As reported:
      Basic.................................... $      .38 $      .38 $      .20
      Diluted..................................        .36        .35        .20
     Pro forma:
      Basic....................................        .33        .32        .17
      Diluted..................................        .31        .29        .16
                                                ========== ========== ==========
</TABLE>


                                     F-11
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  Pro forma net income reflects only options granted in 1997, 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options
vesting period of four years and compensation cost for options granted prior
to January1, 1995 is not considered.

  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, 1994............  746,525      $1.73
   Options granted.....................................  384,000       2.54
   Options exercised...................................  (32,278)      1.98
   Options canceled.................................... (269,142)      1.84
                                                        --------      -----
   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
                                                        ========      =====
</TABLE>

  At December 31, 1997, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $1.28--$9.06 and 8.8
years, respectively.

  At December 31, 1997, 1996 and 1995, the number of options exercisable was
592,435, 412,632 and 259,876, respectively, and the weighted average exercise
price of those options was $4.57, $2.59 and $1.97, respectively.

  As discussed previously, the Company has several stock option agreements
with certain officers. The outstanding agreements expire from May 2003 through
June 2005.

                                     F-12
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


  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, 1994.............. 100,000     $2.34
   Options granted....................................... 155,000      1.54
   Options exercised.....................................     --        --
   Options canceled......................................     --        --
                                                          -------     -----
   Options outstanding at December 31, 1995.............. 255,000      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
                                                          =======     =====
</TABLE>

  At December 31, 1997, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $1.50--$6.44 and 7
years, respectively.

  At December 31, 1997, 1996 and 1995, the number of options exercisable was
330,884, 265,000 and 255,000, respectively, and the weighted average exercise
price of those options was $3.13, $2.03 and $1.85, 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 shares purchased with Company
matching contributions after two years. The Company's matching expense for the
years ended December 31, 1997, 1996 and 1995 was approximately $10,000, $3,000
and $1,000 respectively.

(8) COMMON STOCK WARRANTS

  On June 5, 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.

  On September 23, 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.

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


                                     F-13
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  On January 17, 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.

  On May 19, 1993, the Company granted warrants to purchase 60,000 shares of
the Company stock to Immunoplex, Inc. with an exercise price of $1.85 per
share and an expiration date of May 19, 1998. Concurrently, 25,000 warrants
were exercised with the Company's June 1996 second primary offering, and the
remaining 35,000 warrants were exercised on August 26, 1997.

  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) INCOME TAXES

  The provision for income taxes is as follows:

<TABLE>
<CAPTION>
                                                    1997       1996       1995
                                                 ----------  ---------  --------
   <S>                                           <C>         <C>        <C>
   Current:
     Federal.................................... $1,092,000  $ 885,000  $332,000
     State and local............................    172,000    222,000    82,000
     Foreign....................................    140,000     90,000       --
   Deferred:
     Federal....................................     61,000   (508,000)   27,000
     State and local............................     (5,000)     7,000    10,000
                                                 ----------  ---------  --------
                                                 $1,460,000  $ 696,000  $451,000
                                                 ==========  =========  ========
</TABLE>

  The primary components of temporary differences which give rise to deferred
taxes at December 31, 1997 and 1996 are:

<TABLE>
<CAPTION>
                                                                1997     1996
                                                              -------- --------
   <S>                                                        <C>      <C>
   Deferred tax assets:
     Accruals................................................ $112,000 $ 94,000
     Reserves................................................   53,000   27,000
     Net operating loss carryforwards........................  400,000  481,000
                                                              -------- --------
   Total deferred tax assets................................. $565,000  602,000
                                                              ======== ========
   Deferred tax liability--depreciation...................... $ 94,000 $ 75,000
                                                              ======== ========
</TABLE>

  Management has reviewed the recoverability of deferred income tax assets and
has determined that it is more likely than not that the deferred tax assets
will be fully realized through future taxable earnings.

                                     F-14
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


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

<TABLE>
<CAPTION>
                                                1997        1996       1995
                                             ----------  ----------  ---------
   <S>                                       <C>         <C>         <C>
   Computed "expected" tax expense.......... $1,580,000  $1,177,000  $ 548,000
   Nondeductible items......................      9,000      21,000     74,000
   State taxes (net of Federal benefit).....    110,000     151,000     61,000
   Reduction of valuation allowance.........        --     (607,000)  (115,000)
   Tax credits..............................   (111,000)    (40,000)  (135,000)
   Tax-exempt interest......................        --      (36,000)       --
   Tax effect resulting from foreign
    activities..............................    (63,000)     63,000        --
   Other....................................    (65,000)    (33,000)    18,000
                                             ----------  ----------  ---------
       Total................................ $1,460,000  $  696,000  $ 451,000
                                             ==========  ==========  =========
</TABLE>

  As of December 31, 1997, the Company has a net operating loss (NOL)
carryforward of approximately $1,175,000 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.

(10) 401(k) BENEFIT PLAN

  The Company has a 401(k) profit sharing plan (the 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 1997, 1996 or 1995.

(11) DOMESTIC AND FOREIGN OPERATIONS

  The Company is engaged in a single industry, the licensing, development,
manufacture, marketing and distribution of immunological reagents, test kits
and oglionucleotides 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 the Company's sales.

  Information related to domestic and foreign operations is as follows:

<TABLE>
<CAPTION>
                                                 1997        1996        1995
                                              ----------- ----------- ----------
   <S>                                        <C>         <C>         <C>
   Revenue:
     United States:
      Domestic............................... $ 7,452,126 $ 6,791,443 $6,201,339
      Export.................................   4,220,709   3,213,827  2,407,108
                                              ----------- ----------- ----------
       Total United States...................  11,672,835  10,005,270  8,608,447
     Europe..................................   8,899,000   5,908,004        --
                                              ----------- ----------- ----------
       Consolidated.......................... $20,571,835 $15,913,274 $8,608,447
                                              =========== =========== ==========
   Operating income:
     United States........................... $ 3,244,676 $ 3,137,886 $1,615,023
     Europe..................................     693,583     322,406        --
                                              ----------- ----------- ----------
       Consolidated.......................... $ 3,938,259 $ 3,460,292 $1,615,023
                                              =========== =========== ==========
   Identifiable assets at end of year:
     United States........................... $24,259,070 $23,643,827 $7,387,603
     Europe..................................   8,898,000  10,151,000        --
                                              ----------- ----------- ----------
       Consolidated.......................... $33,157,070 $33,794,827 $7,387,603
                                              =========== =========== ==========
</TABLE>


                                     F-15
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(12) COMMITMENTS AND CONTINGENCIES

  The Company leases certain of its facilities and equipment under various
noncancelable operating leases expiring through December 2000. Total rental
expense was approximately $385,000, $303,000 and $200,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.

  At December 31, 1997, the future minimum payments under these leases are as
follows:

<TABLE>
   <S>                                                                  <C>
   Year ending December 31:
     1998.............................................................. $142,000
     1999..............................................................   69,000
     2000..............................................................   10,000
                                                                        --------
                                                                        $221,000
                                                                        ========
</TABLE>

(13) EARNINGS PER SHARE

  In 1997, the Financial Accounting Standards Boards issued SFAS No. 128,
Earnings per Share (EPS). SFAS No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options. Diluted earnings per share is very similar to the
previously reported earnings per share. All earnings per share amounts for all
periods have been restated to conform to SFAS No. 128 requirements.

  The reconciliations of the numerators and denominators of the basic and
diluted earnings per share computations are as follows:

<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                  -----------------------------------------------------------------------------------------------------------
                                 1997                                1996                                1995
                  ----------------------------------- ----------------------------------- -----------------------------------
                    INCOME       SHARES     PER SHARE   INCOME       SHARES     PER SHARE   INCOME       SHARES     PER SHARE
                  (NUMERATOR) (DENOMINATOR)  AMOUNT   (NUMERATOR) (DENOMINATOR)  AMOUNT   (NUMERATOR) (DENOMINATOR)  AMOUNT
                  ----------- ------------- --------- ----------- ------------- --------- ----------- ------------- ---------
<S>               <C>         <C>           <C>       <C>         <C>           <C>       <C>         <C>           <C>
Computation of
 basic EPS net
 income.........  $3,186,363    8,317,995      .38     2,767,198    7,271,848      .38     1,160,379    5,826,962      .20
Effect of
 dilutive
 securities:
Stock options...         --       630,014      --            --       706,902      --            --       105,300      --
Warrants........         --        17,156      --            --        29,735      --            --        13,638      --
                                ---------                           ---------                           ---------
Computation of
 diluted EPS net
 income.........  $3,186,363    8,965,165      .36     2,767,198    8,008,485      .35     1,160,379    5,945,900      .20
</TABLE>

  Options and warrants to purchase 325,950 shares of common stock at prices
ranging from $7.50 to $11.10 were outstanding during 1997, but were not
included in the computation of diluted EPS at December 31, 1997 because the
option and warrant exercise prices were greater than the average market price
of the common shares.

                                     F-16
<PAGE>

                 BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                      BALANCE AT PROVISION  DEDUCTIONS-- BALANCE
                                      BEGINNING   CHARGED     ACCOUNTS    AT END
                                       OF YEAR   TO INCOME  WRITTEN OFF  OF YEAR
                                      ---------- ---------  ------------ --------
<S>                                   <C>        <C>        <C>          <C>
1997
Allowance for doubtful accounts......  $49,000   $154,000      $  --     $203,000
                                       =======   ========      ======    ========
1996
Allowance for doubtful accounts......  $29,000   $ 20,000      $  --     $ 49,000
                                       =======   ========      ======    ========
1995
Allowance for doubtful accounts......  $30,000   $ (1,000)     $  --     $ 29,000
                                       =======   ========      ======    ========
</TABLE>
<PAGE>

                                 EXHIBIT INDEX
               FOR FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                                                   SEQUENTIALLY
 EXHIBIT                                                             NUMBERED
 NUMBER                        DESCRIPTION                             PAGE
 -------                       -----------                         ------------
 <C>     <S>                                                       <C>
  2.1    Asset Purchase Agreement dated April 30, 1996, by and
          among Registrant, Nordion International, Inc. and
          Medgenix Diagnostics, S.A.(7)
  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, 1996(7)
 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   Loan Modification Agreement dated as of June 22, 1994,
          by and between Registrant and Silicon Valley Bank(4)
 10.18   Loan Modification Agreements dated as of May 31, 1995,
          September 30, 1995 and December 31, 1995, by and
          between Registrant and Silicon Valley Bank(5)
 10.19   Registrant's Employee Stock Purchase Plan(8)
</TABLE>
<PAGE>

                          EXHIBIT INDEX--(CONTINUED)

<TABLE>
<CAPTION>
                                                            SEQUENTIALLY
 EXHIBIT                                                      NUMBERED
 NUMBER                     DESCRIPTION                         PAGE
 -------                    -----------                     ------------
 <C>     <S>                                                <C>
 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>
 <C>  <S>
 23.1 Consent of KPMG Peat Marwick LLP
 27   Financial Data Schedule
</TABLE>
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(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.