<PAGE>
 
--------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-K

                            _______________________

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the Fiscal Year Ended December 31, 1998

                       Commission File Number 000-21930
                            _______________________

                         BIOSOURCE INTERNATIONAL, INC.

            (Exact name of Registrant as specified in its charter)

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

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

      Registrant's telephone number, including area code:  (805) 987-0086
                            _______________________
                                        
   Securities registered pursuant to Section 12(b) of the Exchange Act: None

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

                        Common Stock, $0.001 par value
                        Preferred Stock purchase rights

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

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

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

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

                      DOCUMENTS INCORPORATED BY REFERENCE

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

--------------------------------------------------------------------------------
<PAGE>
 
                                    PART I

Item 1. Description of Business

Overview

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

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

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

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

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

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

Industry Overview

          The biomedical research industry has seen major advances in the
understanding of physiological processes at the cellular and molecular level.
New research technologies require the use of qualitative and quantitative
analysis to monitor the way in which tissues and cells communicate with each
other and how cells respond when stimulated. Biomedical researchers around the
world are constantly in search of specialty research products, which are
necessary to conduct both basic and clinical research. This research is
conducted in settings that range from university and medical school laboratories
to pharmaceutical and biotechnology research and development groups. The success
of this type of research depends upon the availability of biological reagents,
including the types of biological proteins, antibodies, serums and immunoassay
kits that we manufacture and sell.
<PAGE>
 
     Biomedical research is a large and growing segment of the biotechnology
industry. The biotechnology industry consists of large and highly capitalized
biotechnology and pharmaceutical companies which have concentrated their efforts
on the development of human therapeutics and high volume diagnostic tests as
well as smaller specialized biotechnology company's which focus on specific
areas of research or product development for FDA approval. We supply these
companies with the tools to assist them in achieving their scientific goals.

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

Strategy

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sales and Marketing

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

     Our sales people hold biological sciences undergraduate degrees and
undergo training in the nature and application of our products and proven
selling techniques. We believe that by investing in the scientific training of
our sales force, we are able to determine the needs of researchers and
scientists in the biomedical community. Our sales force is used not only as a
traditional marketing group, but also to provide valuable feedback for product
development.
<PAGE>
 
          Our network of international distributors are both exclusive and non-
exclusive, but we generally grant exclusive distribution rights only where the
distributor maintains direct field representatives proportionate to the
potential for sales of our products in a defined geographical area.  We also try
to establish mutually acceptable annual sales goals. All of our distributors are
required to limit their primary sales focus to the biomedical research market.
We offer all of our distributors annual training to enhance their knowledge of
our products as well as their respective applications, solicit requests for new
products and ultimately to increase sales.

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

Availability of Raw Materials

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

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

Seasonality of Business

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

Significant Customers

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

Competition

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

          We believe that by offering a very broad and complete product line
that enables the end user to obtain many of products from one source we gain a
competitive advantage. In addition, we compete by producing high quality
products with exacting capabilities at reasonable prices, and by maintaining an
aggressive marketing and sales effort.  We also believe that the biomedical
research market is highly fragmented, and that  no one has a dominant share of
any of the market segments.
<PAGE>
 
Patents and Trademarks

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

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

Government Regulation

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

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

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

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

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

Employees

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

Business Segments

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



Item 2. Properties

Description of Properties

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

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

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

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

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

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

Item 3. Legal Proceedings

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

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

          No matter was submitted to a vote of our security holders during the
fourth quarter of our last year.
<PAGE>
 
                                    PART II

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

                          PRICE RANGE OF COMMON STOCK

          The Company's Common Stock commenced trading on the NASDAQ National
Market on April 29, 1996 under the symbol "BIOI". Prior to that time, the
Company's Common Stock traded on the NASDAQ Small Cap Market under the same
symbol. The following table sets forth, for the periods indicated, the high and
low closing sales prices of the common stock on the Nasdaq National Market as
reported by the National Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
 
                                                                          High         Low
                                                                        --------     --------
<S>                                                                     <C>          <C>
Year Ended December 31, 1997
 First Quarter ..................................................      $  9 1/8      $  6 5/8
 Second Quarter .................................................         8 1/8         6 5/8
 Third Quarter ..................................................         7 1/8         5 5/8
 Fourth Quarter .................................................         7 15/16       4 13/16
 
<CAPTION> 
                                                                          High         Low
                                                                        --------     --------
<S>                                                                     <C>          <C>
Year Ended December 31, 1998
 First Quarter ..................................................      $  7           $ 5 7/16
 Second Quarter .................................................         7             5 1/2
 Third Quarter ..................................................         6 1/4         3 1/16
 Fourth Quarter .................................................         3 7/8         2 13/32
</TABLE>

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


                                DIVIDEND POLICY

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

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

Item 6. Selected Financial Data
<TABLE>
<CAPTION>
 
                                                          Selected Statement of Operations Data for the Years
                                                                     Ended December 31, (1) (4)
                                                         ------------------------------------------------------
                                                          1998(5)      1997       1996       1995      1994(2)
                                                         --------    --------   --------   --------   ---------
(In thousands, except per share amounts)
<S>                                                      <C>         <C>        <C>        <C>        <C>         
Net sales                                                $21,859     $20,572    $15,913    $ 8,608    $  7,367
Gross profit                                               8,670      13,642     10,345      5,612       4,234
Net income (loss)                                         (5,136)      3,186      2,767      1,160        (210)
Net income (loss) per share:
     Basic                                                 (0.68)       0.38       0.38       0.20       (0.04)
     Diluted                                               (0.68)       0.36       0.35       0.20       (0.04)
</TABLE> 
<PAGE>
 
<TABLE> 
<CAPTION> 
                                                          Selected Statement of Operations Data for the Years
                                                                     Ended December 31, (1) (4)
                                                         ------------------------------------------------------
                                                          1998         1997       1996       1995      1994(2)
                                                         --------    --------   --------   --------   ---------
                                                                            (In thousands)
<S>                                                      <C>         <C>        <C>        <C>        <C>          
Working capital                                          $ 8,239     $24,430    $18,088    $ 4,996    $  3,485
Total assets (3)                                          41,400      33,157     33,795      7,388       5,968
Long-term debt                                            13,666       1,292      1,314         64         150
Total stockholders' equity(4)                             17,696      28,658     28,161      5,897       4,673
</TABLE>

(1)  The data reflects the acquisition of Keystone, effected on November 21,
     1995, which was accounted for as a pooling of interests. Additionally,
     Quality Controlled Biochemicals (QCB) was acquired as of December 10, 1998
     and assets of Biofluids, Inc. were acquired as of December 15, 1998. Both
     QCB and Biofluids were accounted for as purchase transactions and,
     accordingly, their results are reflected in BioSource's results subsequent
     to the acquisition dates. See Note 2 of the Notes to Consolidated Financial
     Statements for further discussion.
(2)  BioSource recognized compensation expense of $577,452 in 1994 related to
     the release from escrow of 469,180 shares of common stock held by
     directors, officers and others deemed to the able to affect the financial
     results of the Company. No expense was recognized with respect to 635,763
     shares of common stock held by other stockholders which were also released
     from escrow. In addition, BioSource incurred a one-time charge in 1994 of
     $312,000 in connection with the closure of its Northern California
     facility. These charges affect the comparability of operating results
     during 1994 and 1995.
(3)  Certain assets and liabilities of Medgenix were acquired concurrently with
     the completion of a second primary offering of BioSource common stock.
(4)  Reflects the sale in 1996 of 2,362,000 shares of common stock in connection
     with the secondary public offering and the application of proceeds received
     from the offering. See Note 6 of the Notes to Consolidated Financial
     Statements for further discussion.
(5)  BioSource incurred a one-time charge in 1998 of $4,222,000 in connection
     with the purchase of In-process technology related to the acquisition of
     Quality Controlled Biochemicals. See Note 2 of the Notes to Consolidated
     Financial Statements for further discussion.


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

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

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

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

  Product Sales in Japan were $2,634,700 in 1998, an increase of $181,300 or
7.4% over the prior year. The increase in sales was driven primarily by
increases in sales of our ELISA kits to both new and existing Japanese
customers. However, Japanese sales in the December 1998 quarter were affected by
the current economic climate in Asia. We expect this issue to impact sales to
Japan throughout 1999. Product sales in Japan were $2,453,400 in 1997, an
increase of $1,301,400 or 113.0% over the prior year.  The increase in sales was
due to the acquisition of new distributors in Japan and an aggressive expansion
of our product lines into the Japanese markets.
<PAGE>
 
  A large portion of our sales are derived from foreign sales, representing
59.5%, 63.8% and 57.3% of our net sales in 1998, 1997 and 1996, respectively.
Although the percentage of domestic sales to total net sales has remained
relatively constant, domestic sales volume has increased by 18.7%, 9.7% and 9.5%
in 1998, 1997 and 1996, respectively, as compared to the prior year.

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

Operating expenses:

Research and development - Research and development expense for the years ended
December 31, 1998, 1997 and 1996 amounted to $2,648,300, $2,077,700 and
$1,420,900, respectively. The increased research and development expense of
$570,600 in 1998 as compared to 1997 is primarily due to increased staffing
costs, expenditures related to the development of new product lines and
additions to current product lines, a reduction in grant funds received in the
current fiscal year and research and development expenditures related to QCB for
the month of December 1998. The increased research and development costs of
$656,800 in 1997 as compared to 1996 was due primarily to incremental expenses
associated with our acquisition of BioSource Europe. Additionally, we also
recognized incremental expenses in 1997 in the United States in connection with
the expansion of our core product lines including new ELISA assay test kits, and
other biomedical research and clinical diagnostic products.

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

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

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

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

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

Provision for (benefit from) income taxes - The income tax benefit for the year
ended December 31, 1998 was $1,534,600. The provisions for income taxes for the
years ended December 31, 1997 and 1996 were  $1,460,000 and $696,000,
respectively. The income tax benefit recorded in 1998 is primarily due to the
book versus tax timing differences relating to the inventory valuation reserves
and purchased in-process technology charges recorded in 1998 for financial
statement purposes but will be deductible on our tax returns in future periods.
The increase in the income tax provision in 1997 as compared to 1996 relates to
both increased pre-tax income in 1997 and a reduction of a valuation reserve in
1996 which provided a tax benefit in 1996.

Trends and Uncertainties:

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

Year 2000:

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

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

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

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

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

Stockholder Rights Plan:

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

Recently Issued Accounting Standards:

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

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

Liquidity and Capital Resources:

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

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

  In April 1997, the Board of Directors authorized us to repurchase up to
200,000 shares of our outstanding common stock at market price.  In December
1997, the Board of Directors authorized us to repurchase up to 1,000,000
additional shares of its outstanding common stock at market price and in August
1998 we were authorized to repurchase up to an additional 250,000 shares of the
outstanding common stock at market price.  During the year ended December 31,
1998, we have repurchased 996,200 shares of the Company's common stock for
$6,309,800, an average price of $6.33. As of December 31, 1998, we have
repurchased a total of 1,279,500 shares of the Company's common stock for
$8,054,300, an average price of $6.29 per share since the inception of the
repurchase program in April 1997.

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

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

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

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

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

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

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

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

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

     We Depend on Key Management.  Our success will continue to depend to a
significant extent on the members of our management team and, in particular, on
our Chief Executive Officer, James H. Chamberlain. As is the case with any
company, we may not be able to retain the services of our executive officers and
key personnel or attract additional qualified members to management in the
future.  The loss of 
<PAGE>
 
services of Mr. Chamberlain, or of any key employee, could have a material
adverse effect upon our business.

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

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

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

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

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

Item 8. Financial Statements and Supplementary Data
                                                                                                Page
                                                                                                -----
<S>                                                                                             <C>
Report of KPMG LLP, Independent Auditors .....................................................   F-1
Consolidated Balance Sheets at December 31, 1998 and 1997 ....................................   F-2
Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996....   F-3
Consolidated Statements of Stockholders' Equity for the Years Ended
     December 31, 1998, 1997 and 1996.........................................................  F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996....  F5
Notes to Consolidated Financial Statements for the Years Ended
     December 31, 1998, 1997 and 1996.........................................................  F6-17
Schedule II  Valuation and Qualifying Accounts................................................  F-18
</TABLE>
<PAGE>
 
Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

     None

                                   PART III

Item 10. Directors and Executive Officers of the Registrant

     The current directors, executive officers and key employees of the Company
are as follows:
<TABLE>
<CAPTION>
 
          Name                    Age                    Position
          ----                    ---                    --------
<S>                               <C>  <C>
 
James H. Chamberlain              51   Chairman of the Board, President and 
                                       Chief Executive Officer
Larry A. May                      49   Chief Financial Officer, Executive
                                       Vice President - Finance
Gus E. Davis                      51   Chief Operating Officer, Executive Vice
                                       President - Sales and Marketing
Leonard M. Hendrickson*           51   Director
David J. Moffa, Ph.D.*            56   Director
John R. Overturf, Jr.**           38   Director
Robert D. Weist**                 59   Director
 
Key Employees
 
Richard O. Buford                 50   Vice President  Human Resources,
                                       Secretary
Cirilo D. Cabradilla, Jr., Ph.D.  50   Vice President  Molecular Biology
Kevin J. Reagan, Ph.D.            46   Vice President  Immunology Products
Jordan B. Fishman, Ph.D.          41   Vice President  Cellular Biology
Jef Vangenechten, Ph.D.           44   General Manager  BioSource Europe, S.A.
</TABLE>

*    Member of the Compensation Committee
**   Member of the Audit Committee

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

     Larry A. May became Executive Vice President  Finance and Chief Financial
Officer of the Company on June 1, 1998. Prior to joining BioSource, Mr. May
served in various capacities at Amgen, the world's largest biotechnology
company, from 1983 to May, 1998. From 1997 to May 1998, Mr. May served as
Treasurer of Amgen, and from 1988 to 1997, served as its Corporate
Controller/Chief Accounting Officer, and from 1983 to 1988, Mr. May served as
Corporate Controller of Amgen. Mr. May has also served as Vice President of
Finance  West Coast Operations for IDC Services, a company providing payroll and
accounting services to major advertising agencies, motion picture and television
production companies (1978-1983). Mr. May holds a Bachelor of Science degree in
Business Administration and Accounting from the University of Missouri.
<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 Director of the Company since April 1996. Mr. Weist has
been President of Weist Associates (a management consulting firm) since April
1992. From January 1986 through April 1992, Mr. Weist was a consultant to and
Senior Vice President, Administration, General Counsel and Secretary of Amgen,
Inc., having served as Vice President, General Counsel and Secretary from March
1982 through January 1986. Mr. Weist holds a Juris Doctor degree from New York
University and a Masters in Business Administration from the University of
Chicago.


Key Employees

The Company also considers the following individuals to be key to its
operations.
<PAGE>
 
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, an
office supply distribution unit of Hanson Industries, most recently as Director
of Finance and Administration from 1984-1989. Mr. Buford received a Bachelor of
Arts and a Masters degree in English from the University of California at Santa
Barbara.

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

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

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

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

Item 11. Executive Compensation

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

Item 12. Security Ownership of Certain Beneficial Owners and Management

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

Item 13. Certain Relationships and Related Transactions
<PAGE>
 
     Information relating to certain transactions is contained in the Company's
Proxy Statement for its 1999 Annual Stockholders meeting is hereby incorporated
by reference.

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

     (a)(1) The financial statements listed below are included as part of this
report:
          Independent Auditors' Report
          Consolidated Balance Sheets  December 31, 1998 and 1997
          Consolidated Statements of Operations  Years ended December 31, 1998,
          1997, and 1996
          Consolidated Statements of Stockholders' Equity  Years ended December
          31, 1998, 1997 and 1996
          Consolidated Statements of Cash Flows  Years ended December 31, 1998,
          1997, and 1996
          Notes to Consolidated Financial Statements
 
     (a)(2) The following schedule supporting the financial statements of the
Company is included herein:
          Schedule II  Valuation and Qualifying Accounts

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

     (a)(3) Exhibits
          See Exhibit Index immediately following signature page.

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

          Filed as an exhibit to the Company's Current Report on Form 8-K dated
          December 24, 1998, and incorporated herein by reference.
<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:   April 13, 1999          By:  /s/ LARRY A. MAY
                                 --------------------------------
                                     Larry A. May
                                Executive Vice President  Finance,
                                     Chief Financial Officer

Date:   April 13, 1999          By:  /s/ JAMES H. CHAMBERLAIN
                                 --------------------------------
                                     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:

 
               Signature           Title          Date
               ---------           -----          ----
 
/s/      LEONARD M. HENDRICKSON   Director   April 13, 1999
---------------------------------
         Leonard M. Hendrickson
 
/s/      DAVID J. MOFFA, Ph.D.    Director   April 13, 1999
---------------------------------
         David J. Moffa, Ph.D.
 
/s/      JOHN R. OVERTURF, JR.    Director   April 13, 1999
---------------------------------
         John R. Overturf
 
/s/      ROBERT D. WEIST          Director   April 13, 1999
---------------------------------
         Robert D. Weist
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT

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

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

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

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

                                                KPMG LLP
 

Los Angeles, California
March 26, 1999

                                      F-1
<PAGE>
                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                          December 31, 1998 and 1997
        (Amounts in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>

                                                                                     1998             1997
                                                                                 ------------     ------------
<S>                                                                               <C>              <C>     
                                    ASSETS
Current assets:
            Cash and cash equivalents                                            $  7,076.9       $  9,477.5
            Short-term investments                                                     -             4,968.7
            Accounts receivable, less allowance for doubtful accounts
              of $301.0 at December 31, 1998 and $203.0 at December 31, 1997        4,381.0          3,459.5
            Inventories, net (note 3)                                               4,970.6          7,883.4
            Prepaid expenses and other current assets                                 726.2          1,599.3
            Deferred income taxes (note 10)                                         1,123.4            248.0
                                                                                 ----------       ----------
                                Total current assets                               18,278.1         27,636.4

Property and equipment, net (note 4)                                                5,513.6          4,560.1
Intangible assets, net of $125.8 of accumulated amortization at December 31,       14,451.2            429.3
            1998 and $30.7 at December 31, 1997 (note 2)
Other assets                                                                        1,318.0            308.3
Deferred income taxes (note 10)                                                     1,839.2            223.0
                                                                                 ----------       ----------
                                                                                 $ 41,400.1       $ 33,157.1
                                                                                 ==========       ==========

                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
            Accounts payable                                                     $  1,643.0       $  1,446.4
            Accrued expenses                                                        4,143.9          1,472.7
            Notes payable to banks, current portion (note 5)                        3,024.2             34.5
            Deferred income                                                           625.9             -
            Income tax payable                                                        601.7            252.8
                                                                                 ----------       ----------
                                Total current liabilities                          10,038.7          3,206.4

Notes payable to banks, less current portion (note 5)                              13,665.6          1,292.4
                                                                                 ----------       ----------
                                Total liabilities                                  23,704.3          4,498.8

Commitments and contingencies (notes 5 and 13)
Stockholders' equity:
            Preferred stock, $.001 par value. Authorized 1,000,000 shares;            -                -
              none issued or outstanding
            Common stock, $.001 par value. Authorized 20,000,000
              shares: issued 7,469,925 shares and outstanding 7,178,925 
              shares at December 31, 1998 and 8,147,715 shares
              at December 31, 1997                                                      7.2              8.1
             Additional paid-in capital                                            21,186.8         27,304.8
             Retained earnings (accumulated deficit)                               (2,629.3)         2,506.5
             Accumulated other comprehensive loss                                    (868.9)        (1,161.1)
                                                                                 ----------       ----------
                                Net stockholders' equity                           17,695.8         28,658.3
                                                                                 ----------       ----------
                                                                                 $ 41,400.1       $ 33,157.1
                                                                                 ==========       ==========
</TABLE> 
The accompanying notes are an integral part of these consolidated financial
statements.

                                      F-2

<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 Years ended December 31, 1998, 1997 and 1996
                 (Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
                                                          
                                                            1998           1997           1996
                                                         ------------   ------------   ------------
<S>                                                       <C>        <C>            <C>
Net sales                                                $21,858.6      $20,571.8      $15,913.3
Cost of sales                                             13,188.6        6,930.1        5,568.0
                                                         ------------   ------------   ------------
    Gross profit                                           8,670.0       13,641.7       10,345.3
                                                         ------------   ------------   ------------

Operating expenses:
    Research and development                               2,648.3        2,077.7        1,420.9
    Sales and marketing                                    4,337.5        4,043.0        2,761.6
    General and administrative                             4,468.9        3,552.0        2,702.5
    Purchased In-process technology                        4,222.0             -              -
    Amortization of intangibles                               95.1           30.7             -
                                                         ---------      ---------      --------- 
         Total operating expenses                         15,771.8        9,703.4        6,885.0
                                                         ---------      ---------      ---------
Operating income (loss)                                   (7,101.8)       3,938.3        3,460.3

Interest income, net                                         297.5          627.4          274.7
Other income (expense), net                                  133.9           80.6         (271.8)
                                                         ---------      ---------      ---------
Income (loss) before income taxes                         (6,670.4)       4,646.3        3,463.2
Provision for (benefit from) income taxes (note 10)       (1,534.6)       1,460.0          696.0
                                                         ---------      ---------      ---------
        Net income (loss)                                $(5,135.8)     $ 3,186.3      $ 2,767.2
                                                         ==========    ==========      =========

Net income (loss) per share:
    Basic                                                $   (0.68)     $    0.38      $    0.38
                                                         ---------      ---------      ---------
    Diluted                                              $   (0.68)     $    0.36      $    0.35
                                                         ---------      ---------      ---------
Shares used to compute net income (loss) per share:
    Basic                                                  7,508.8        8,318.0        7,271.8
                                                         ---------      ---------      ---------
    Diluted                                                7,508.8        8,965.2        8,008.5
                                                         ---------      ---------      ---------

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

</TABLE>

                                      F-3
<PAGE>



                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>

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

</TABLE>
                                      F-4
<PAGE>

                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>

                                                                       1998         1997          1996
                                                                   ----------------------------------------
<S>                                                                 <C>            <C>          <C>
Cash flows from operating activities:
   Net income (loss)                                                $(5,135.8)    $ 3,186.3     $ 2,767.2
   Adjustments to reconcile net income (loss) to net
      cash provided by operating activities:
      Depreciation and amortization                                     959.8         712.0         457.6
      Net (gain) loss on sale of property and                            -             -             -
      equipment                                                          31.5          (6.3)         57.5
      Gain on sale of investments                                        -             -             (9.0)
      Purchased In-process technology                                 4,222.0          -             -
      Non-cash stock compensation                                       110.4          -             -
      Non-cash write-down of inventory                                4,966.0
      Other                                                              28.0        (110.0)         (5.0)
   Changes in assets and liabilities, net of effects
      of acquisition:
      Accounts receivable                                              (386.1)        413.0        (230.0)
      Inventories                                                    (1,048.3)     (1,177.3)     (1,155.9)
      Prepaid expenses and other current assets                         888.0        (549.7)       (476.1)
      Deferred income taxes                                          (2,491.6)        (56.0)       (501.0)
      Other assets                                                   (1,001.1)        142.5        (333.8)
      Accounts payable                                                  (62.0)       (318.9)        704.1
      Accrued expenses                                                2,592.3        (581.3)      1,025.9
      Deferred income                                                     3.9          -             -
      Income taxes payable                                              348.9         194.0        (264.4)
                                                                   ---------------------------------------
              Net cash provided by operating activities               4,025.9       1,848.3       2,037.1
                                                                   ----------------------------------------

Cash flows from investing activities:
   Purchase of property and equipment                                (1,390.0)       (659.0)     (2,349.6)
   Purchase of Medgenix Business                                         -             -         (6,868.0)
   Purchase of Quality Controlled Biochemicals                      (15,193.9)         -             -
   Purchase of net assets from Biofluids                             (2,822.5)         -             -
   Proceeds from sale of property and equipment                           3.1          21.4          -
   Purchases of investments                                          (7,614.8)    (23,028.0)    (19,954.7)
   Proceeds from sale of investments                                 12,583.5      29,387.9       8,635.2
                                                                    ---------------------------------------
              Net cash provided by (used in) investing activities   (14,434.6)      5,722.3     (20,537.1)
                                                                    ---------------------------------------

Cash flows from financing activities:
   Proceeds from issuance of common stock                                -             -         19,301.4
   Proceeds from the exercise of options                                 60.0         147.2         140.2
   Proceeds from the exercise of warrants                                -             64.8          59.5
   Borrowings from bank                                              14,000.0          -          1,957.0
   Repayments to bank                                                   (31.1)        (28.5)       (721.3)
   Payments on capital lease obligations                                 (3.0)         (2.3)        (23.0)
   Payments to acquire treasury stock                                (6,309.8)     (1,744.5)         -
                                                                   ---------------------------------------- 
     Net cash provided by (used in) financing activities              7,716.1      (1,563.3)     20,713.8
                                                                   ----------------------------------------

      Net increase (decrease) in cash and cash equivalents           (2,692.6)      6,007.3       2,213.8
Effect of exchange rates on cash and cash equivalents                   292.0        (136.7)         -

Cash and cash equivalents at beginning of year                        9,477.5       3,606.9       1,393.1
                                                                   --------------------------------------- 
Cash and cash equivalents at end of year                            $ 7,076.9     $ 9,477.5     $ 3,606.9
                                                                    =========     =========     =========

Supplemental disclosure of cash flow information:
   Cash paid during the year for:
      Interest                                                      $   117.2     $   136.4     $    97.5
      Income taxes                                                    1,117.6       1,477.7       1,109.3
                                                                    =========     =========     =========
</TABLE>

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

                                      F-5

<PAGE>
 
                BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1998, 1997 and 1996


1. Summary of Significant Accounting Policies

  Description of Business

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

  Principles of Consolidation

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

  Cash and cash equivalents

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

  Investments

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

  Financial Instruments

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

  Inventories

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

  Depreciation and Amortization

     Property and equipment are stated at cost. Depreciation and amortization of
property and equipment and goodwill is provided using the straight-line method
over the estimated useful lives of the related assets which generally range from
three to fifteen years. Real property is depreciated over thirty nine years.
Leasehold 

                                      F-6
<PAGE>
 
improvements are amortized using the straight-line method over their estimated
useful lives or the lease term, whichever is shorter.

  License Agreements

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

  Revenue Recognition

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

  Research and Development Costs

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

  Income Taxes

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

  Long-Lived Assets 

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

  Stock Compensation

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

  Comprehensive Income

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

                                      F-7
<PAGE>
 
  Business Segment Reporting

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

  Use of Estimates

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

  Concentrations of Credit Risk

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

  Foreign Currency Translation 

     The assets and liabilities of BioSource's foreign subsidiary, whose
functional currency is Belgian francs, are translated at the rate of exchange at
the balance sheet date, and related revenues and expenses are translated at the
average exchange rate in effect during the period. Resulting translation
adjustments are recorded as a component of stockholders' equity. Gains and
losses from foreign currency transactions are included in net income. Foreign
currency translation gain (loss) was $(39,400), $59,600 for 1998 and 1999,
respectively and was immaterial for 1996.

  Reclassifications

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

2. Business Combinations

     On December 10, 1998, BioSource acquired Quality Controlled Biochemicals,
Inc. (QCB). QCB is a leading manufacturer of phosphopeptides, phosphorylation
state-specific antibodies, custom peptides and custom antibodies. The
transaction was accounted for as a purchase. The results of operations of QCB
are included in the accompanying financial statements from the date of
acquisition. The purchase price was $15,193,900, including related acquisition
costs, and was financed through cash on hand and bank borrowings. The purchase
price exceeded the fair value of net assets acquired by approximately
$16,034,500 of which $4,222,000 was allocated to in-process technology. The
remaining $11,812,500, which is included in intangible assets in the
consolidated balance sheet at December 31, 1998, was allocated to identifiable
intangible assets and goodwill with useful lives ranging from 5 to 15 years and
is summarized as follows:
<TABLE> 
                   <S>                          <C> 
                   Developed technology         $ 7,655,400
                   Core technology                  665,300
                   Assembled workforce              408,100
                   Tradename                        257,000
                   Goodwill                       2,826,700
                                                -----------
                                                 11,812,500
                                                ===========
</TABLE> 

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

     The acquisition of Quality Controlled Biochemicals (QCB) has added a 
portfolio of antibodies that are specifically engineered to bind to proteins 
when they are in specific states of phosphorylation. Phosphorylation is the 
process of adding or removing molecules of phosphate from a protein that turns 
on or off many of the key molecules within cells. These molecules control most, 
if not all, of the key processes that regulate the inner workings of all cells 
as well as their interaction(s) with other cells. Disease states such as 
cancer, Alzheimer's Disease, and many other pathological conditions have been 
shown to be at least in part due to the malfunctioning of key molecules within 
cells, in many cases due to alterations in their activity through 
phosphorylation. At the date of acquisition QCB had approximately 100 unique 
phoshphorylated antibodies under development, most of these antibodies were in 
the final phase of development. We estimate that on a overall basis these 
antibodies are approximately 75% complete. The balance of the development work 
to be completed is primarily outside testing. We expect the development of these
products will be complete by the end of 1999. Since the acquisition date 
approximately 6 antibodies have been introduced into the market. The expected 
cost to complete the development of these products will range between $100,000 
and $200,000.
        
     On December 15, 1998, BioSource purchased certain assets and liabilities of
Biofluids, Inc. for $2,822,500 in cash, including related acquisition costs.
Biofluids is involved in the manufacture and sale of sera, media and buffers
utilized in biomedical research. The acquisition was accounted for as a
purchase. Accordingly, the assets and liabilities of the acquired business are
included in the consolidated balance sheet as of December 31, 1998. The results
of Biofluids operations from the date of the acquisition to December 31, 1998
were not significant. The acquisition was financed through cash on hand and bank
borrowings. The excess purchase price over the fair value of net assets acquired
of $2,355,300 represents goodwill, is being amortized over a 15 year period, and
is included in intangible assets in the consolidated balance sheet at December
31, 1998.

                                      F-8
<PAGE>
 
     The following summarized unaudited pro forma financial information assumes
the acquisitions of QCB and Biofluids, Inc. had occurred on January 1 of each
year:

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

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

3. Inventories

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

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

4. Property and Equipment

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

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

5. Notes Payable to Banks

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

                                      F-9
<PAGE>
 
before interest, taxes, depreciation and amortization to debt service costs. We
are also required to comply with certain non-financial covenants. At December
31, 1998, BioSource was in compliance or had obtained waivers with regard to
these covenants.

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

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

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

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

<TABLE>
<CAPTION>
                                                             Amount
                                                         Outstanding at
     Type of loan    Maturity Date      Interest Rate   December 31, 1998
     ------------    -------------      -------------   -----------------
     <S>             <C>                <C>             <C>
     Term loan       January 31, 2002        8.75%          $  123,300
     Term loan       April 17, 1999          8.75%              53,500
     Term loan       April 17, 2003          8.75%             385,700
     Term loan       August 22, 2000         9.00%              66,700
     Line of credit  December 31, 1999       8.75%             562,000
     Line of credit  April 17, 1999          8.75%             203,500
                                                            ----------
                                                            $1,394,700   
                                                            ==========
</TABLE>
     Under the terms of the MetroWest Bank loan agreement, BioSource must meet
certain financial covenants which include, a minimum tangible net worth
covenant, debt to tangible net worth, current ratio covenant, and other non
financial covenants. BioSource was in compliance or had obtained temporary
forbearance relating to these covenants through July 1, 1999.

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

     Maturities of the notes payable outstanding as of December 31, 1998 are:
                                
<TABLE>
     <S>                                                            <C>
     Year ending December 31:
        1999......................................................  $ 3,024,200
        2000......................................................    2,199,500
        2001......................................................    2,169,000
        2002......................................................    2,135,700
        2003......................................................    2,076,900
        Thereafter................................................    5,084,500
                                                                    -----------
                                                                    $16,689,800
                                                                    ===========
</TABLE>

6. Common Stock and Treasury Stock

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

                                     F-10
<PAGE>
 
     In April 1997, the Board of Directors authorized us to repurchase up to
200,000 shares of our outstanding common stock at market price. In December
1997, the Board of Directors authorized us to repurchase up to 1,000,000
additional shares of its outstanding common stock at market price and in 1998 we
were authorized to extend the repurchase program up to 1,500,000 shares of the
Company's stock. During the year ended December 31, 1998, we have repurchased
996,200 shares of the Company's common stock for $6,309,800, an average price of
$6.33. As of December 31, 1998, we have repurchased a total of 1,279,500 shares
of the Company's common stock for $8,054,300, an average price of $6.29 per
share since the inception of the repurchase program in April 1997.

7. Stock Option and Purchase Plans

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

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

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

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

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

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

<TABLE>
<CAPTION>
(in thousands, except per share data)
                                              1998          1997         1996
                                           ------------------------------------
<S>                                        <C>            <C>          <C>
Net income (loss):
  As reported                              $(5,135.8)     $3,186.3     $2,767.2
  Pro forma                                $(6,135.0)     $2,774.6     $2,321.6

Net income (loss) per share:
  As reported     
    Basic                                  $   (0.68)     $   0.38     $   0.38
    Diluted                                    (0.68)         0.36         0.35
  Pro forma    
    Basic                                  $   (0.82)     $   0.33     $   0.32
    Diluted                                    (0.82)         0.31         0.29
                                           ====================================
</TABLE>

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

                                     F-11
<PAGE>
 
     To the extent that BioSource derives a tax benefit from options exercised
by employees, such benefit is credited to additional paid-in capital when
realized on the Company's income tax return. Tax benefits realized totaling
$20,500, $0 and $0 were credited to additional paid-in capital in fiscal 1998,
1997 and 1996, respectively.

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

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

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

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

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

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

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

     At December 31, 1998, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $1.50 - $6.44 and 6 years,
respectively.
        
                                     F-12
<PAGE>
 
     At December 31, 1998, 1997 and 1996, the number of options exercisable was
365,259, 330,884 and 265,000, respectively, and the weighted average exercise
price of those options was $3.13, $3.13 and $2.03, respectively.

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

8. Common Stock Warrants

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

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

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

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

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

9. Stockholder Rights Plan

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

10. Income Taxes

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

                                     F-13
<PAGE>
 
<TABLE>
<CAPTION>
                                                          1998             1997               1996
                                                  ----------------   -------------    -----------------
<S>                                                         <C>           <C>             <C>
Current:

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

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

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

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

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

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

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

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

                                     F-14
<PAGE>
 
11. 401(k) Benefit Plan

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

12. Business Segments

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

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

                                     F-15
<PAGE>
 
Sales-from Segments:            

<TABLE>
<CAPTION>
                                           1998          1997          1996
                                         ---------     ---------     ---------
<S>                                      <C>           <C>           <C>
Net sales to external customers from:
  United States:
    Domestic                             $ 8,844.1     $ 7,452.1     $ 6,791.5 
    Export                                 4,270.3       4,220.7       3,213.8 
                                         ---------     ---------     ---------
      Total United States                 13,114.4      11,672.8      10,005.3 
  Europe                                   8,744.2       8,899.0       5,908.0 
                                         ---------     ---------     ---------
      Consolidated                       $21,858.6     $20,571.8     $15,913.3 
                                         =========     =========     =========

Operating income (loss):
  United States                          $(4,459.4)    $ 3,244.7     $ 3,137.9 
  Europe                                  (2,642.4)        693.6         322.4 
                                         ---------     ---------     ---------
      Consolidated                       $(7,101.8)    $ 3,938.3     $ 3,460.3
                                         =========     =========     =========

Net interest expense (income):
  United States                          $  (315.6)    $   575.0     $   274.7
  Europe                                      18.1          52.4           -
                                         ---------     ---------     ---------
      Consolidated                       $  (297.5)    $   627.4     $   274.7
                                         =========     =========     =========

Depreciation and amortization:
  United States                          $   502.3     $   371.7     $   251.6
  Europe                                     457.5         340.3         206.0
                                         ---------     ---------     ---------
      Consolidated                       $   959.8     $   712.0     $   457.6
                                         =========     =========     =========

Capital expenditures:
  United States                          $   608.2     $   398.3     $ 2,203.4 
  Europe                                     781.8         260.7         146.2
                                         ---------     ---------     ---------
      Consolidated                       $ 1,390.0     $   659.0     $ 2,349.6 
                                         =========     =========     =========

Identifiable assets at end of year:
  United States                          $33,762.7     $24,259.1
  Europe                                   7,637.4       8,898.0
                                         ---------     ---------     
      Consolidated                       $41,400.1     $33,157.1
                                         =========     =========     
</TABLE>

Sales-to Segments:

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

13. Commitments and Contingencies

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

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

                                     F-16
<PAGE>
 
<TABLE>
<S>                       <C>
Year ending December 31:
  1999                    $  629.8
  2000                       558.1
  2001                       415.3 
  2002                       338.9
  2003                       285.5
Thereafter                   786.7
                          --------
                          $3,014.3
                          ========
</TABLE>

14. Earnings Per Share

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

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

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

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

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

                                     F-17
<PAGE>
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                 Years Ended December 31, 1998, 1997 and 1996
<TABLE> 
<CAPTION> 
                                                 Balance at         Provision           Deductions          Balance of     
                                                 Beginning           Charged             Accounts             End of
                                                  of Year           to Income           Written off            Year   
                                               -----------         ------------        -------------       ------------
<S>                                            <C>                 <C>                  <C>                <C>   
1998                             

Allowance for doubtful accounts                $     203.0         $     178.3          $     80.3         $    301.0           
Inventory reserve                                    347.7             5,240.8             1,748.3            3,867.2   

1997

Allowance for doubtful accounts                $      49.0         $     154.0          $      -           $    203.0          
Inventory reserve                                     65.5               309.2                 -                374.7

1996

Allowance for doubtful accounts                $      29.0         $      20.0          $      -           $     49.0        
Inventory reserve                                     95.0                 -                  29.5               65.5
</TABLE> 


                                     F-18
<PAGE>
 
                                 EXHIBIT INDEX
              FOR FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE> 
<CAPTION> 

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

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

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

 3.1    Certificate of Incorporation of Registrant(1)

 3.2    Bylaws of Registrant(1)

10.1    Registrant's 1992 Stock Incentive Plan(1)

10.2    Registrant's 1993 Stock Incentive Plan(4)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>
 
                           EXHIBIT INDEX-(Continued)

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

21          Subsidiaries of the Company:

<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

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

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

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

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

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

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

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

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

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

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

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