SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                                   FORM 10-KSB

                             Annual Report Pursuant
                          to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                            For the fiscal year ended
                                December 31, 1999

                             Commission file number
                                     0-26694

                 SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)


                 Delaware                             93-0945003
      (State or other jurisdiction of       (IRS Employer Identification No.)
              incorporation)

   585 West 500 South, Bountiful, Utah 84010           (801) 298-3360
   (Address of principal executive offices)     (Registrant's telephone number,
                                                     including area code)

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

          Title of each class         Name of each exchange on which registered
          -------------------         -----------------------------------------
     Common Stock, $.02 Par Value                     None

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

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

         The issuer's revenues for its most recent fiscal year were $4,850,947.

         The aggregate  market value of the voting stock held by  non-affiliates
(i.e.,  does  not  include   directors,   executive   officers  or  ten  percent
stockholders  identified  in Item 11 hereof) of the issuer as of April 12,  2000
was approximately $8,029,262.

<PAGE>

                SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.

                       TABLE OF CONTENTS TO ANNUAL REPORT
                                 ON FORM 10-KSB
                          YEAR ENDED DECEMBER 31, 1999

                                     PART I

Item 1.    Description of Business ..........................................3
Item 2.    Description of Properties .......................................14
Item 3.    Legal Proceedings ...............................................14
Item 4.    Submission of Matters to a Vote of Security Holders .............14

                                     PART II

Item 5.    Market for Common Equity and Related Stockholder Matters ........15
Item 6.    Management's Discussion and Analysis or Plan of Operation .......16
Item 7.    Financial Statements ............................................23
Item 8.    Changes In and Disagreements With Accountants on Accounting
           and Financial Disclosure ........................................23

                                    PART III

Item 9.    Directors and Executive Officers of the Registrant ..............24
Item 10.   Executive Compensation ..........................................26
Item 11.   Security Ownership of Certain Beneficial Owners and
           Management ......................................................29
Item 12.   Certain Relationships and Related Transactions ..................30
Item 13.   Exhibits and Reports on Form 8-K ................................31

                                       2
<PAGE>

PART I

Item 1. Description of Business

General

         Specialized  Health  Products  International,  Inc.  through its wholly
owned   subsidiaries,   Specialized   Health  Products,   Inc.,  Safety  Syringe
Corporation,  Specialized Cooperative Corporation and Iontophoretics Corporation
(except  where the context  clearly  indicates  otherwise,  these  entities  are
collectively  referred  to as  the  "Company")  is  engaged  principally  in the
development  of  cost-effective,  disposable,  proprietary  healthcare  products
designed  to  reduce  the  incidence  of  accidental  injury  in the  healthcare
industry,  and thus  reduce the spread of  disease.  The  Company  has created a
portfolio  of  proprietary  healthcare  products  that are in various  stages of
pre-production,  development and research.  At present,  the Company is focusing
its resources and activities  principally on completing  development of products
under current  licensing and  development  arrangements,  developing  new safety
medical device  products and  identifying  marketing  partners for the Company's
safety medical  needle  products and concepts,  sharps  containers and other new
safety medical devices.  The Company's  products are designed to reduce the risk
of  acquiring  HIV/AIDS,  hepatitis  B and other  blood-borne  diseases  through
accidental needlesticks.

         In November 1999, the Company and Kendall Healthcare  Products Company,
a division of Tyco  Healthcare  Group LP ("Kendall")  entered into a Development
and License Agreement (the "Kendall  Agreement")  relating to one application of
the Company's  needle  technology in the  production of a line of safety medical
needle  products,  including  six syringe  products and five other safety needle
products.  The  effective  date of the Kendall  Agreement was subject to certain
approvals  that were obtained on March 29, 2000. On April 12, 2000,  the Company
received a $1,500,000  payment less $35,044  representing the Company's share of
certain  patent  filing  costs.  The  Company  will also  receive an  additional
$1,000,000  upon the sale of  commercial  quantities of products in exchange for
the Company assigning to Kendall the FlexLoc(R) and ReLoc(TM) trademarks and two
related patents.  The assignment of the patent rights to Kendall is subject to a
preexisting  license agreement and the retention by the Company of an exclusive,
royalty free  worldwide  license in a number of  strategic  product  areas.  The
Kendall Agreement also provides for the Company to receive  development fees and
ongoing royalties, including a $500,000 advance royalty payment upon the sale of
commercial   quantities  of  products.  It  is  anticipated  that  Kendall  will
manufacture all products that are subject to the Kendall Agreement. There can be
no assurance  that products will be launched as  anticipated or that the Company
will realize revenues under the Kendall Agreement.

         In December  1997, the Company  entered into a Development  and License
Agreement (the "JJM Agreement") with Johnson & Johnson Medical,  Inc. ("JJM") to
commercialize  two  applications  of  the  safety  needle  technology.  The  JJM
Agreement  provides  that the  Company  and JJM will seek to  commercialize  two
products using safety medical needle technology.  The JJM Agreement provides for
monthly development  payments by JJM, sharing of field related patent costs, the
possibility  of payments  for initial  periods of low volume  manufacturing,  an
ongoing  royalty  stream and a JJM investment in molds,  assembly  equipment and
other  capital  costs  related to  commercialization  of each  product.  The JJM
Agreement  also provides for an ongoing joint  cooperative  program  between the
Company and JJM which  derives  future  funding  directly  from sales of Company
created products,  the possibility of low volume  manufacturing  revenue for the
Company and an ongoing  royalty stream for additional  safety products which are
jointly approved for development.  The Company anticipates that JJM will perform
substantially all of the manufacturing  under the JJM Agreement during 2000. The
Company  and JJM also  entered  into  arrangements  whereby  they  are  pursuing
development  and  commercialization  of four additional  products..  The Company
anticipates  that the sale of one product under the JJM Agreement  will begin in
the year 2000 with  additional  products  scheduled  for  introduction  into the
market in 2001.  There is no assurance  that the Company  will realize  revenues
under  the JJM  Agreement  or that any of these  products  will be  launched  as
anticipated. All product introductions are scheduled and controlled by JJM.

         In May 1997,  the Company  entered into an agreement (the "BDIT License
Agreement") with Becton Dickinson and Company Infusion Therapy Division ("BDIT")

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<PAGE>

relating to a single  application  of the Company's  ExtreSafe(R)  safety needle
technology  (the  "Technology").  Pursuant  to the  terms  of the  BDIT  License
Agreement,  BDIT made  payments of  $4,000,000  to the  Company.  Of these total
payments,  $3,750,000 was for advanced  royalties and $250,000 was for a product
development  fee. In June 1999,  BDIT and the Company  amended the BDIT  License
Agreement. The amendment provides that the $3,750,000 previously paid by BDIT to
the Company will not be credited against future earned royalties and the Company
will  have no  further  obligation  of any kind to BDIT  with  respect  to these
payments. Accordingly, the $3,750,000 of deferred royalty revenue was recognized
as revenue during 1999. BDIT has exclusivity related minimum royalty obligations
to the Company beginning in 2004. The Company will not be manufacturing  product
in connection with the BDIT License Agreement.

         BDIT  previously  told the Company at various times that it expected to
begin  selling the product  that is the subject of the BDIT  License  Agreement.
BDIT has indicated  that it is unsure if or when product will be introduced  and
sold in the market under the BDIT License  Agreement.  BDIT has not provided the
Company  with  current  information  regarding  the market  introduction  of the
product.

         The Company has an ongoing  program for  developing  products using its
ExtreSafe(R)  medical needle  technology and other medical needle  technologies.
These technologies allow a contaminated  needle to be protected without exposure
of the healthcare worker to the contaminated needle.  Products under development
that incorporate  these safety medical needle  technologies  include  phlebotomy
devices,   catheter  inserters  and  several  different  syringe   applications.
Prototypes of the phlebotomy devices,  catheter inserters and syringes have been
completed. The Company is developing other medical safety devices.

Company Background

         Specialized  Health Products,  Inc. ("SHP"),  a Utah  corporation,  was
incorporated  in November  1993.  On July 28,  1995,  SHP became a wholly  owned
subsidiary  of  Specialized  Health  Products  International,  Inc.  ("SHPI"  or
"Registrant"),  a Delaware  corporation,  through a merger with a subsidiary  of
SHPI (the "Acquisition").

         The  Registrant  was  incorporated  as a Utah  corporation in 1986. The
Company's corporate domicile was changed to the State of Delaware,  and its name
was changed to Russco,  Inc., effective December 20, 1990, by merger into a then
newly created Delaware corporation. The Company had no operations until the date
of the  Acquisition.  On that date the Company  changed its name to "Specialized
Health  Products  International,  Inc." The  persons  serving  as  officers  and
directors of SHP immediately  prior to the  consummation of the Acquisition were
elected to the same offices with SHPI and retained their  positions as directors
and  officers of SHP. In  addition,  the  outstanding  securities  of SHP became
outstanding  securities of SHPI. Prior to the  Acquisition,  neither SHP nor any
affiliate of SHP had an ownership interest in Russco, Inc.

Products

         Sharps Containers

         SHP owns a patented sharps container system designed to reduce the risk
of accidental  needlesticks  and exposure to  contaminated  needles,  blades and
instruments  when disposing of such devices (the "Safety  Cradle(R)"  line). The
self-closing Safety Cradle(R) sharps containers allow for the disposal of sharps
in  containers  that  incorporate a  self-closing  sharps  containment  flap and
incorporate  both a temporary  and a  permanent  locking  mechanism.  Especially
adapted for alternate  site use  (alternate  sites include  emergency  vehicles,
in-home and insurance testing), the Company's Safety Cradle(R) sharps containers
provide   convenience   and  safety  for  home  healthcare  and  other  portable
applications.  In addition,  each of the Company's sharps containers is designed
such that it can be used as a shipping  container  for the  transport of medical
products.  The containers can then be readily  converted at the user's site into
safe and efficient sharps disposal containers.  Made of polypropylene  material,
the Safety Cradle(R) sharps container's novel, single injection  molded-part lid
fits three sizes of  containers,  allowing  the Company to offer

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<PAGE>

products for a broad  spectrum of sharps  containment  applications,  especially
alternate  site use. In  addition  to molds for three sizes of Safety  Cradle(R)
sharps containers, the Company owns patents to a new single injected molded-part
Safety  Cradle(R)  sharps container and a unimold wall mount sharps container as
well as a method patent for sharps containers designed to be shipping containers
for new medical devices being sent to customers.  Each Safety  Cradle(R)  sharps
container can then be utilized by the customer for sharps disposal.

         While the Company has entered into several  marketing and  distribution
arrangements  relating  to its  sharps  container  products  in the  past,  such
arrangements  were not  successful  and no such  arrangements  are  currently in
effect.  The Company is actively seeking to enter into  distribution,  marketing
and/or  licensing  arrangements.  The Company has been  unsuccessful in entering
into such an  arrangement  in the past and there  can be no  assurance  that the
Company will be successful in entering into such  arrangements,  or that if such
arrangements  are  consummated  that they will be on terms that are favorable to
the Company.

Products Under Development

         General

         The Company  currently has seven sharps container  patents covering its
Safety Cradle(R), unimold and transporter technologies. The Company also has two
lancet  patents  and other  patents in progress  covering  its single use safety
lancet and undercut lancet  technologies.  As its primary focus, the Company has
had sixteen patents granted which protect its safety needle technologies.  These
lancet and needle  patents  support the  Company's  fourteen  technologies  that
provide  the basis for a wide range of safety  lancet and needle  products.  The
following products are currently under development.

         Safety Lancets

         Lancets  are  small  devices  containing  needles  or  blades  used  to
penetrate  the  skin,  usually  a  finger,  to  obtain a few  drops of blood for
analysis.  Lancets are used by healthcare workers on patients and by individuals
on themselves, such as by diabetics using insulin. The same safety concerns that
exist with handling needles exist with the handling of lancets,  because lancets
become contaminated after coming into contact with blood.

         The Company has two disposable safety lancet patents. One patent is for
a new single use safety  lancet and the other is for a new  undercut  technology
which  yields  good  blood flow with a small skin  incision.  In the  opinion of
management,  the blade and blade  actuation  mechanism of the  Company's  safety
lancets have  revolutionary  designs.  Management  also believes that the safety
lancet's undercut design makes it less painful than nail type lancets,  although
no formal comparison testing has been conducted.  It is also noteworthy that the
part of the  lancet in  contact  with the  patient's  skin  prior to  lancing is
sterile until contaminated by the procedure. The Company is currently developing
one safety lancet device for the market.

         Safety Phlebotomy Devices

         The present  method for drawing  larger  amounts of blood from patients
for blood tests involves  insertion of a needle,  which is attached to a barrel,
into a blood  vessel.  Blood is then  obtained by way of vacuum  pressure,  most
often into a small evacuated  tube-like container inserted into the barrel. (The
barrel is commonly known as a Vacutainer(R); Vacutainer(R) is not a trademark of
the  Company.)  After blood is drawn,  the needle is manually  removed  from the
patient.  While the healthcare  worker continues  attending to the patient,  the
Vacutainer(R),  barrel  and  needle are often  placed on a tray,  bed,  table or
otherwise set aside. Afterward,  the needle is usually unscrewed from the barrel
and discarded into a sharps container, while the barrel is often used again with
another patient (which increases the risk of cross  contamination).  The Company
has applied  five of its  technologies  to  phlebotomy  designs.  These  designs
include safety

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needle  retraction,  automatic  and  manual  safety  needle  retraction,  needle
shielding and rear needle protection.  Two safety phlebotomy device products are
currently being developed for market.

         Safety Steel Needles

         Generally,  safety  steel  needle  products  are used for small  needle
access for fluid infusion and blood collection. Safety steel needle products are
often  referred to as winged  infusion or blood  collection  devices.  Commonly,
those safety steel needle products currently  commercially available require two
hands to  encase  a  needle  after  use.  The  Company  has  applied  two of its
technologies to safety steel needle product  design.  Both  technologies  permit
single handed needle retraction.  Two products are currently being developed for
market, a blood collection device and a fluid infusion device.

         Safety Catheter Inserters

         Catheter  inserters  are devices  that insert  catheters  into veins or
other  areas of the body using a  catheter  insertion  needle to allow  blood or
other  fluids  to  be  removed  from  or  delivered  into  the  patient's  body.
Contemporary  catheter use has problems similar to those faced in drawing blood.
Inserting  a  catheter  involves  a  percutaneous   (i.e.,   through  the  skin)
needlestick  followed by threading the catheter over the needle into a patient's
vein or artery.  This  method  can be unsafe in two  respects.  First,  when the
needle is pulled out of the catheter,  there is often a discharge of blood which
could contaminate the healthcare worker.  Second,  inadvertent  needlesticks can
occur when the needle is withdrawn from the catheter because, in most instances,
the needle is  temporarily  left  exposed  while the patient is tended to by the
healthcare  worker.  The Company has applied three of its technologies to safety
catheter  inserters.  These designs include safety needle retraction,  automatic
and manual safety needle retraction and needle shielding.

         Safety Syringes

         Another  area where there is  significant  risk of  needlesticks  is in
syringe  use.  Generally,  use of a  needle  for a  medical  procedure  involves
removing a needle  cap just  prior to  performing  the  procedure.  In the past,
medical personnel  attempted to achieve protection from accidental  needlesticks
by replacing  the needle cap after  performing  a  procedure,  but the volume of
accidental  needlesticks  related to needle  cap  replacement  resulted  in such
practice being  prohibited.  Medical  personnel began using needles and syringes
having  sheaths  which  could  be  extended  over  the  exposed  needle  after a
procedure. The Company has applied seven of its technologies to safety syringes.
These  designs  include  safety needle  retraction,  automatic and manual safety
needle  retraction  and  needle  shielding.  The first of the  Company's  safety
syringe products is currently being developed for market.

         Other Medical Safety Devices

         The Company has an ongoing  program for developing  additional  medical
safety devices including  specialty  needles.  Such devices would include huber,
biopsy, dental, apherisis,  laparoscopy,  opthalmic, epidural, spinal, radiology
and  cariology  needles.  The Company has applied  five of its  technologies  to
safety  specialty  needle  devices.  These designs  include manual safety needle
retraction and needle shielding.

         Filmless Digitized Imaging Technology

         In October  1995,  SHP entered into a joint  venture with Zerbec,  Inc.
("Zerbec"),  whereby  Quantum  Imaging  Corporation  ("QIC")  was  organized  to
develop,  manufacture,  distribute and market products and technologies  using a
patented,  solid  state,  filmless  digitized  imaging  technology.  The Company
currently owns  approximately  seventeen percent of the outstanding common stock
of QIC.

         The filmless digitized imaging technology involves a method of directly
producing an  electrical  signal from an image  recorded on an x-ray plate.  The
signal is instantly digitized and stored on a CD-ROM and the

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same x-ray plate is then  available  for  subsequent  procedures.  The  filmless
digitized imaging technology eliminates film as the x-ray image recording medium
and enables x-ray images to be  translated to a CD-ROM format to simplify  their
storage,  retrieval  and  handling.  The Company  believes  that QIC's  filmless
digitized  imaging  technology  can improve  the way in which  x-ray  images are
obtained,  interpreted  and stored,  while also providing  clearer images having
higher   resolutions  that  are  more  easily   interpreted  than  x-ray  films.
Furthermore,  the Company  believes that this technology could be applicable for
use in x-ray  facilities in mobile  medical  emergency  units which has not been
achieved to date in part because of the necessity of carrying  chemical handling
equipment  required  for film  processing.  Formal  development  of the filmless
digitized imaging technology is pending QIC raising additional funding.  QIC has
no funding arrangements in place and there can be no assurance that funding will
be available on reasonable terms, if at all.

Company Strategy

         The  Company's  primary  objective is to establish  itself as a leading
developer of safety medical  products.  The Company will seek to accomplish this
objective by capturing  significant  market share of targeted product  segments,
broadening  existing  product  lines and  developing  new  products  and seeking
additional  market  opportunities.  To achieve  these  objectives,  the  Company
expects to continue to focus on the following six types of arrangements.

         *        Continue pursuing license/royalty agreements with large global
                  medical product companies for high volume products in selected
                  market areas.  In such areas,  large sales  volumes  require a
                  substantial  investment in molds,  injection molding equipment
                  and  automated  production  equipment.  While income from such
                  agreements is generally  royalty based,  there is little or no
                  cost of continuing company support.

         *        Continue   to  pursue   combined   development/license/royalty
                  agreements  with global  medical  product  companies  for high
                  volume  products in selected  market  areas.  Such  agreements
                  include  joint  development  for a particular  product  and/or
                  continuing  development  subsidized  by a percentage of sales.
                  This continuing development revenue is dedicated to production
                  of future products resulting from continuing joint development
                  with compounding royalty income.

         *        Enter into joint venture arrangements,  wherein the Company is
                  responsible for the development of each safety product and the
                  joint venture partner provides capital for  manufacturing.  In
                  addition,  the joint venture  partner would be responsible for
                  manufacturing,   marketing  and  sales.  Under  this  type  of
                  arrangement the parties would share profits on a predetermined
                  basis.

         *        Seek joint venture and original  equipment  manufacture  (OEM)
                  structures  where the Company is responsible  for  development
                  and the partner is responsible for funding and  manufacturing.
                  The Company  would be  responsible  for marketing and sales to
                  the OEM. In this  situation the safety  product can be sold to
                  several OEM companies.

         *        Manufacture,  market  and  sell a  selected  group  of  safety
                  devices in niche  markets.  Implementation  of such a strategy
                  depends  upon  cost  and  time  of  implementation,   ease  of
                  distribution,  and profitability being greater than any of the
                  above listed options.  In such niche markets the Company plans
                  to  perform  low  volume  manufacturing  and sell  the  safety
                  products to medical product companies.

         *        Sell all rights to products  where income  projections  do not
                  warrant  any of the above  options.  In some cases the Company
                  may seek to  optimize  the  value  of the  safety  product  by
                  developing the product and getting regulatory  clearance prior
                  to sale.

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         Future Market Opportunities

         The Company intends to enter additional  markets where it believes that
it can gain  significant  market  share based on  proprietary  technology  or by
capitalizing on the sales and distribution channels it establishes.  There are a
number of possible future applications for the Company's  technology,  but there
can be no  assurance  that the Company  will  commence  development  of any such
products  or  that,  if  commenced,  such  development  will  be  successful  or
profitable.

Marketing and Sales

         The Company employs a limited number of sales and marketing  personnel.
These  individuals  are  principally  involved in  identifying  and working with
current and  potential  strategic  partners and  develping  marketing  and sales
strategies.  The Company is and will seek third parties to market and distribute
its products in the United States and selected  foreign  countries.  The Company
may enter into contracts, licensing agreements or joint ventures with such third
parties  whereby the Company would receive a licensing fee,  royalty  payment or
shared  profit  arrangement  based  on the  licensee's  revenues  from  licensed
products.  The Company would likely enter into such licensing  arrangements with
several companies based on geographical  regions or product types, but may enter
into exclusive arrangements with individual companies having a major presence in
the markets the Company seeks to penetrate.  There can be no assurance  that the
Company  will be able to  enter  into  contracts,  license  agreements  or joint
ventures with third parties in the future on terms  acceptable to the Company or
that the Kendall  Agreement,  JJM  Agreement or BDIT License  Agreement  will be
profitable for the Company.

         The Company  intends to support the marketing of its products by, among
other  things,  attending  trade shows and  participating  in  internet  website
promotions and links. The Company intends to distribute  samples of its products
free of charge to  various  healthcare  institutions  and  professionals  in the
United  States and in selected  foreign  countries to  introduce  and attempt to
create a demand for its products in the marketplace.

         The Company has an ongoing  program for  developing  products using its
fourteen medical needle  technologies and developing  additional  medical needle
technologies.  These  technologies  allow a contaminated  needle to be protected
without exposure of the healthcare worker to the contaminated  needle.  Products
under  development  that  incorporate  these safety medical needle  technologies
include phlebotomy devices, catheter inserters, safety steel needles and several
different syringe applications.  Prototypes of the phlebotomy devices,  catheter
inserters, safety steel needles and syringes have been completed. The Company is
developing other medical safety devices.

         The Company  currently intends to market and sell its other products in
the United States and selected  foreign  countries  through third  parties.  The
Company's plan for the sales and distribution of its products is to target major
segments of the respective markets for those products,  including major hospital
and  institutional  buying groups,  pharmaceutical  companies,  distributors and
wholesalers, and government and military agencies. The Company intends to market
and  distribute  its products  through one or more  companies  that have a major
presence in these major segments.  The Company will determine  whether or not it
will manufacture  products on a case by case basis depending on its arrangements
with marketing and distribution partners, if any. There can be no assurance that
such  arrangements  will be completed or if completed that they will be on terms
favorable to the Company.

         The  Company  is not  permitted  to sell  products  based on its safety
medical  needle  technologies  for  commercial  use in the United  States  until
regulatory approval is obtained.  The Company must also comply with the laws and
regulations  of the various  foreign  countries  in which the Company  sells its
products.  Certain  foreign  countries may only require that the Company  submit
evidence of the FDA's  pre-market  clearance of the relevant  products  prior to
selling those products in such countries.  However,  some foreign  countries may
require additional testing and approval. See "--Government Regulation."

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Industry

         Market

         Healthcare is one of the largest  industries  in the world.  Healthcare
worker and patient  safety  continue to be high priority,  high profile  issues.
User  efficiency and cost effective  solutions are being sought with  increasing
demand. The Company's products target this market segment.  Non-safety  products
today compete primarily on price. Although the Company's strategy includes being
price  competitive with other safety devices,  the Company also seeks to compete
on the basis of healthcare worker safety, ease of use, reduced cost of disposal,
patient  comfort  and  compliance  with  OSHA  regulations  while  paying  close
attention to  manufacturing  cost.  The Company  believes that when all indirect
costs (needle disposal,  testing, labor savings and costs, treatment and workers
compensation  expense)  are  considered,  the  Company's  products  will compete
effectively both with "traditional" products and with the safety products of the
Company's competitors.

         Recent  safety  regulations  and  legislation  have also  increased the
demand for and exposure of safety medical devices.  Five U.S. states have passed
safety  legislation  requiring  use of safety  needle  products.  OSHA  issued a
national directive in November 1999 requiring  healthcare workers to use needles
and other  sharps  that have  engineering  controls  to provide  user safety and
prevent  accidental  needlestick  injuries.  Also, in November,  the Centers for
Disease Control and National Institute for Occupational Health and Safety issued
safety alerts urging healthcare  workers to use safety devices having engineered
controls.

         Although  these  events  have  reduced  risk  relative  to  design  and
development of safety products, there is no assurance that state legislation and
the national OSHA  directive  will be enforced or that  healthcare  workers will
follow guidelines as set forth in the safety alerts.  There is no assurance that
additional  safety  legislation  on state or national  levels will be enacted or
implemented.

         Accidental Needlestick Injuries

         Needles  for  hypodermic   syringes,   phlebotomy   sets,   intravenous
catheters,  safety  steel  needles and  specialty  medical  needles are used for
injecting  drugs and other fluids into the body and for drawing  blood and other
fluids from the body.  Hypodermic  needles are used for the  injection of drugs,
phlebotomy sets are used for the drawing of blood, catheters,  butterfly needles
and  specialty  needles  are used for  access to  patient  vessels.  There is an
increasing  awareness of the potential  danger of infections  and illnesses that
result from accidental  needlesticks and of the need for safer needle devices to
reduce the number of accidental needlesticks that occur.

         Infections  contracted  as a result of  accidental  needlesticks  are a
major concern to healthcare  institutions,  healthcare  workers,  sanitation and
environmental  services  workers and  certain  regulatory  agencies.  Accidental
needlesticks may result in the spread of infectious diseases such as hepatitis B
and C, HIV  (which may lead to AIDS),  diphtheria,  gonorrhea,  typhus,  herpes,
malaria,  rocky mountain spotted fever, syphilis and tuberculosis.  According to
the International Healthcare Worker Safety Center at the University of Virginia,
"the  average  rate of reported  sharp-object  injuries  is 30 injuries  per 100
occupied hospital beds per year. The total annual percutaneous and mucocutaneous
exposures to blood or at-risk  biological  substances in the U.S., based on 1996
Epinet data, was 786,885." Also, "in the two categories of devices that pose the
greatest  risk for  transmission  of  blood-borne  pathogens,  IV catheters  and
blood-drawing  needles,  only 28% of devices used and less than 10% of hospitals
have  switched to safety  technology,  respectively."  While  recent  government
regulations  are  projected  to  dramatically  increase  conversions  to  safety
products  over the next three years,  the  greatest  obstacle to  conversion  is
projected to be adequate supply and  availability of safety products as a result
of enormous and sudden demand.  The Company  believes that recent pressures from
the  government  and  private  sectors  for the  healthcare  industry to develop
medical devices that will provide a safer working environment for healthcare and
related workers and patients have increased considerably over the past year. The
Company's products attempt to address the demand for medical devices that reduce
the risk of  accidental  exposure  to  blood-borne  diseases.

                                       9
<PAGE>

The  majority  of  healthcare  workers'  adverse  exposures  to blood are either
product  related  (e.g.,  needlesticks)  or  could  be  prevented  by the use of
appropriate products.  The Company believes that pressure is increasing from the
government and private  sectors for the healthcare  industry to develop  medical
devices that will provide a safer working environment for healthcare and related
workers and patients.  The Company's  products attempt to address the demand for
medical  devices  that reduce the risk of  accidental  exposure  to  blood-borne
diseases.

Patents and Proprietary Rights

         The Company's policy is to seek patent protection for all developments,
inventions and  improvements  that are patentable and which have potential value
to  the  Company  and  to  protect  as  trade  secrets  other  confidential  and
proprietary   information.   The  Company  intends  to  vigorously   defend  its
intellectual property rights to the extent its resources permit.

         The Company  owns seven  United  States  patents  and has other  patent
applications  pending (in the United  States and in other  countries)  which are
directly applicable to the Company's Safety Cradle(R) sharps container products.
The Company also owns two United States patents and allowed patent  applications
relating to its safety lancet technology, and fourteen United States patents and
allowed patent applications  relating to its safety medical needle technologies.
The Company has additional  United States and  international  patents and patent
applications  pending.  The  patents  referred to above begin to expire in April
2006.

         The future  success of the Company may depend upon the  strength of its
intellectual property. The Company believes that the scope of its patents/patent
applications  is  sufficiently  broad to prevent  competitors  from  introducing
devices of similar  novelty and design to compete with its current  products and
that such patents and patent  applications are or will be valid and enforceable.
There is no assurance, however, that if such patents are challenged, this belief
will prove correct. In addition,  patent applications filed in foreign countries
and patents granted in such countries are subject to laws,  rules and procedures
which  differ  from  those  in the  United  States.  Patent  protection  in such
countries may be different from patent protection  provided by U.S. laws and may
not  be  as  favorable  to  the  Company.  The  Company  plans  to  timely  file
international  patents in all  countries in which the Company is seeking  market
share.

         The Company is not aware of any patent  infringement claims against it.
Litigation  to enforce  patents  issued to the Company,  to protect  proprietary
information  owned by the  Company,  or to defend the  Company  against  alleged
infringement  by the Company of the rights of others may occur.  Such litigation
would be costly,  could  divert  resources  of the  Company  from other  planned
activities, and could have a material adverse effect on the Company's results of
operations and financial condition.

Manufacturing

         The  Company  has  designed,  paid for the  construction  of,  and owns
various molds and machinery  used to  manufacture  its Safety  Cradle(R)  sharps
containers.  Certain of the Company's  ExtreSafe(R)  Lancet Strip  manufacturing
assets were written off or reduced to their estimated  realizable  value.  Those
assets that were not written off are expected to be used in the Company's future
operations.  The Company's  other  products are in various stages of development
and are not currently  being  manufactured.  The  materials  used to produce the
Company's  products  are  generally  widely  available.  The  Company  does  not
anticipate  difficulty  in obtaining  such  materials.  At present,  there are a
number of manufacturers that could produce sharps containers, safety lancets and
safety  needle  products  and a number of suppliers  could supply the  necessary
parts and materials.

                                       10
<PAGE>

Competition

         The  healthcare  products  market  is highly  competitive.  Many of the
Company's  competitors  have longer  operating  histories and are  substantially
larger, better financed and better situated in the market than the Company.

         The  leading  suppliers  in the  sharps  container  market  are  Becton
Dickinson and Company,  Kendall  Healthcare  Products Company and Sage Products,
Inc. There are also numerous  smaller  suppliers.  A variety of sharps  disposal
products  have been  introduced  into the  marketplace.  Some of these  disposal
containers  accommodate  only the needle  while others  accommodate  the needle,
syringe and limited surgical instruments.  The majority of the sharps containers
on the market,  however,  allow  contaminated  instruments  to fall out when the
container  is  inverted.  Many of  these  other  products  are  unstable  if not
supported by wall supports or other apparatus. The Company believes its products
are more stable,  safer and more effective than competitively priced products on
the market. In addition,  to the best of the Company's  knowledge,  there are no
sharps disposable transporters on the market today.

         The leading  suppliers in the lancet  market are Becton  Dickinson  and
Company,  Surgicutt,  Inc.,  Miles,  Inc.,  Diagnostic  Corporation,  Boehringer
Mannheim,  Inc. and Kendall Healthcare Products Company. There are also numerous
smaller suppliers.  To the best of the Company's knowledge,  there are no safety
lancets on the market  today that operate in a manner  similar to the  Company's
safety lancets.

         The leading  suppliers  of standard  needles are Becton  Dickinson  and
Company,  Kendall  Healthcare  Products  Company,  B. Braun and  Terumo  Medical
Corporation  of Japan.  The leading  developers of safety medical needle devices
include  Med-Design  Company,   Bio-Plexus,   Inc.,  New  Medical  Technologies,
Retractable  Technologies,  Inc.  and Univec,  Inc.  The  Company has  conducted
in-house  studies and believes that its products are superior to those presently
being  marketed by its  competitors.  The leading  suppliers  in the IV catheter
market are Johnson and Johnson Medical and Becton Dickinson.  Other suppliers of
IV catheters  having minor  positions in this market include  Baxter  Healthcare
Corporation,  Arrow and Abbott  Laboratories.  The Company believes its products
are superior to any safety IV catheter products on the market today.

         The current  leading  suppliers in the blood  collection  needle market
(phlebotomy  needles) are Becton Dickinson,  Kendall  Healthcare and Terumo. The
Company  believes its products are superior to any safety products on the market
being sold by its competitors.

         While  traditional,  non-safety  products  in the market  segments  the
Company seeks to address  compete  primarily on the basis of price,  the Company
expects  to  compete  on the basis of  healthcare  worker  safety,  ease of use,
reduced cost of disposal, patient comfort, and compliance with OSHA regulations,
but not on the basis of price except with respect to comparable safety products.
However, the Company believes that when all indirect costs related to accidental
needlestick  injuries  are  considered,  the  Company's  products  will  compete
effectively both with "traditional" products and with the safety products of the
Company's competitors.  There can be no assurance, however, that purchasers will
be willing to purchase at prices over and above that of  traditional  non-safety
products  unless  mandated and enforced by applicable law such as those recently
passed in California,  Tennessee,  Texas, New  Jersey, Maryland  and by the 1999
OSHA directive.

Research and Development/Acquisition of Technology

         The  Company  has  devoted a  substantial  portion  of its  efforts  to
acquiring,  designing and  developing  healthcare  products.  Company  sponsored
research  activities  resulted in  expenses of $780,425 in 1999 and  $909,048 in
1998.  Customer sponsored research activities relating to the development of new
products,  services or  techniques  or the  improvement  of  existing  products,
services or techniques for which the Company earned  revenues were $1,100,947 in
1999 and  $1,028,934  in  1998.  The  Company  plans to  continue  research  and
development  on its current  products  and possible  new  products.  There is no
assurance  that the Company's  research and  development  activities  will prove
effective.

                                       11
<PAGE>

Government Regulation

         The Company and its  products  are  regulated  by the FDA,  pursuant to
various  statutes,  including the FD&C Act, as amended and  supplemented  by the
Medical Device  Amendments of 1976 (the "1976  Amendments") and the Safe Medical
Devices Act of 1990. Pursuant to the 1976 Amendments, the FDA classifies medical
devices  intended for use with humans into three classes,  Class I, Class II and
Class III. The controls applied to the different  classifications  are those the
FDA believes are necessary to provide reasonable assurance that a device is safe
and  effective.  Many  Class  I  devices  have  been  exempted  from  pre-market
notification requirements by the FDA. These products can be adequately regulated
by the same types of controls  the FDA has used on devices  since the passage of
the FD&C Act in 1938. These "general  controls"  include  provisions  related to
labeling,  producer registration,  defect notification,  records and reports and
good manufacturing  practices.  The good manufacturing  practice  regulation has
been  recently  replaced  by a  more  comprehensive  Quality  System  Regulation
("QSR"). QSRs include  implementation of quality assurance programs,  formalized
product  development  procedures,   written  manufacturing   specifications  and
processing  procedures,  written  distribution  procedures  and  record  keeping
requirements.  Class II devices are products  for which the general  controls of
Class I devices are deemed not sufficient to assure the safety and effectiveness
of the device and thus require special  controls.  Special controls for Class II
devices  include  performance  standards,   post-market  surveillance,   patient
registries and the use of FDA guidelines.  Standards may include both design and
performance  requirements.  Class III devices have the most restrictive controls
and require  pre-market  approval by the FDA.  Generally,  Class III devices are
limited to life-sustaining, life-supporting or implantable devices. No currently
proposed Company  products are believed to be to be Class III products.  The FDA
has further  established  three tiers or levels of  scientific  review - Tier 1,
Tier 2, and Tier 3 within each  class.  Submissions  for Tier 1 devices  receive
limited  review  while  submissions  for  Tier  2 and  3  devices  receive  more
comprehensive reviews.

         Section  510(k)  of the  FD&C Act  requires  individuals  or  companies
manufacturing medical devices intended for use with humans to file a notice with
the FDA at  least  90 days  before  introducing  a  product  not  exempted  from
notification   requirements   into  the  marketplace.   The  notice  (a  "510(k)
Notification")  must state the class in which the device is  classified  and the
actions taken to comply with performance  standards or pre-market approval which
may be needed if the device is a Class II or Class III device, respectively.  If
a company states the device is unclassified,  it must explain the basis for that
determination.

         In some cases obtaining  pre-market  approval for Class III devices can
take several years.  Product clearance pursuant to a 510(k)  Notification can be
obtained in much less time. In general, clearance of a 510(k) Notification for a
Class II device may be obtained if the Company can establish that the new device
is  "substantially  equivalent"  to another  device of that Class already on the
market.  This requires the new device to have the same intended use as a legally
marketed predicate device and have the same technological characteristics as the
predicate device. If the technological  characteristics  are different,  the new
device  can  still be  found to be  "substantially  equivalent"  if  information
submitted by the applicant  (including  clinical  data if requested)  supports a
finding  that the new  device  is as safe  and  effective  and  does  not  raise
questions of safety or efficacy that are different from the predicate device.

         The Company's  Safety  Cradle(R)  sharps  containers are subject to the
general controls of the FD&C Act and the additional controls applicable to Class
II devices. The Company has received a clearance on a second 510(k) Notification
for its sharps  containers which includes the Safety Cradle(R) sharps container.
The Company has received FDA clearance for a 510(k) notification on a phlebotomy
device.

         OSHA also  requires,  in part,  that  sharps  containers  be  closable,
disposable,  puncture-resistant,   leak  proof  on  the  sides  and  bottom  and
appropriately  labeled.  The Company's Safety Cradle(R) sharps containers are in
compliance with present OSHA regulations.  Future regulations,  however,  may be
imposed which could have a material adverse effect on the Company.

         The Company's  follow-on  products  (i.e.,  other products based on its
safety medical needle technologies,  intravenous flow gauge and blood collection
device) are still in the  development  stage.  In

                                       12
<PAGE>

March 1995, the FDA issued a draft guidance document on 510(k) Notifications for
medical devices with sharps injury  prevention  features,  a category that would
cover most of the  Company's  safety  medical  products.  The FDA  provisionally
placed this  category of  products  into Class II Tier 3 for  purposes of 510(k)
review,   meaning  that  such  products  will  be  subject  to  the  FDA's  most
comprehensive  and rigorous review for 510(k) products.  The draft guidance also
states that in most cases, FDA will accept, in support of a 510(k) Notification,
data  from  tests  involving  simulated  use of  such a  product  by  healthcare
professionals,  although in some cases the agency might require actual  clinical
data.

         The Company  expects its other follow-on  products  (i.e.,  intravenous
flow gauge and blood  collection  device) to be categorized as Class II devices.
The  Company  also  expects  that  these  follow-on  products  will not  require
pre-market  approval  applications but will be eligible for marketing  clearance
through  the  510(k)   Notification   procedure  based  upon  their  substantial
equivalence to previously marketed devices.

         Although  the  510(k)  Notification  clearance  process  is  ordinarily
simpler and faster than the pre-market approval application  process,  there can
be no assurance  that the Company will obtain 510(k)  Notification  clearance to
market its products, that the Company's products will be classified as set forth
above, or that, in order to obtain 510(k)  Notification  clearance,  the Company
will  not  be  required  to  submit  additional  data  or  meet  additional  FDA
requirements  which could  substantially  delay  sales and add to the  Company's
expenses.  Moreover,  any 510(k)  Notification  clearance,  if obtained,  may be
subject to conditions on the marketing or  manufacturing of the related products
which could impede the Company's ability to market or manufacture such products.

         In addition to the requirements  described above, the FD&C Act requires
that all medical device  manufacturers  and  distributors  register with the FDA
annually  and provide the FDA with a list of those  medical  devices  which they
distribute  commercially.  The FD&C Act also requires that all  manufacturers of
medical devices comply with labeling  requirements  and  manufacture  devices in
accordance with QSRs. QSRs require that companies manufacture their products and
maintain their documents in a prescribed  manner with respect to  manufacturing,
testing,  and quality  control.  The FDA's Medical Device  Reporting  regulation
requires  that  companies  provide  information  to the FDA on death or  serious
injuries alleged to have been associated with the use of their products, as well
as  product  malfunctions  that would  likely  cause or  contribute  to death or
serious injury if the malfunction  were to recur.  The FDA further requires that
certain  medical  devices not cleared  with the FDA for  marketing in the United
States  meet  specific  requirements  before they are  exported.  The Company is
registered as a  manufacturer  with the FDA. To date, no incidents have occurred
with Company  products that have  necessitated  submission  of a Medical  Device
Report to the FDA.

         The FDA inspects medical device manufacturers and distributors, and has
broad  authority  to order  recalls of medical  devices,  to seize  noncomplying
medical devices,  to enjoin and/or impose civil penalties on  manufacturers  and
distributors   marketing   non-complying  medical  devices,  and  to  criminally
prosecute  violators.  Noncompliance  with FDA regulations could have a material
adverse effect on the Company.

         In addition to the laws and  regulations  enforced by the FDA and OSHA,
the Company is subject to government  regulations  applicable to all businesses,
including,  among others, regulations related to occupational health and safety,
workers'  benefits  and  environmental  protection.   Moreover,  in  March  1999
Tennessee joined California in passing  legislation  requiring the use of safety
needles over conventional  needle products with the states of New Jersey,  Texas
and  Maryland  joining  shortly   thereafter.   Similar   legislation  is  under
consideration  in other  states  and  nationally  with OSHA  enacting  in 1999 a
directive related to the use of safety medical devices.

         Distribution  and sales of the  Company's  products in countries  other
than the United States is subject to regulations in those  countries.  There can
be no assurance that the Company will be able to obtain the approvals  necessary
to market its products outside the United States.

                                       13
<PAGE>

Seasonality of Business

         Sales of the Company's  products are not  anticipated  to be subject to
seasonal variations.

Backlog

         There is no backlog of unfilled orders of the Company's products.

Employees

         As of March 28,  2000,  the  Company  employed  15 people,  including 8
research  and  development   employees,  2  sales  and  marketing  employees,  4
accounting and administrative  employees and 1 quality assurance  employee.  The
Company does not expect to add  additional  employees in the next twelve months.
The Company's  employees are not represented by any labor union, and the Company
believes its relations with its employees are good.

Item 2. Description of Properties

         The  Company's  principal  offices  are  located at 585 West 500 South,
Bountiful,  Utah,  under  terms of a lease  with an  unaffiliated  lessor  which
expires on June 30,  2003,  subject to the  Company's  right to extend the lease
term for an additional  three-year term. The offices comprise 17,273 square feet
of space.  The Company has  subleased  approximately  3,300  square feet of this
space  for a term of  twelve  months  beginning  March 1, 2000 with an option to
renew for an additional  twelve  months.  The Company  believes that its current
office space will be adequate to meet the needs of current and  expected  growth
for the  foreseeable  future.  The  Company  may,  however,  require  additional
manufacturing  facilities  in the future  depending  upon the volume of products
sold and the manufacturing arrangements to which the Company is a party.

         The  Company  owns  production  molds for the Safety  Cradle(R)  sharps
containers and certain automated  assembly  equipment.  At present the molds and
automated  assembly equipment are not being utilized.  The Company  anticipates,
however, that it will utilize the molds and equipment in the future.

Item 3. Legal Proceedings

         None

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

         The Company  held its annual  meeting of  stockholders  on November 18,
1999, at which meeting  certain members of the Company's Board of Directors (the
"Board") were elected.  The Company's  Board is divided into three classes.  One
class of  directors  is elected at each  annual  meeting of  stockholders  for a
three-year  term.  Each year a  different  class of  directors  is  elected on a
rotating  basis.  The terms of David T.  Rovee and Robert R.  Walker  expired in
1999. The terms of David B. Hurley and Dr. Gale H. Thorne expire in 2000 and the
term of David A. Robinson expires in 2001.

         David T. Rovee and Robert R.  Walker  were  nominated  by the Board for
election  to the  class  whose  term  expires  at the  2002  annual  meeting  of
stockholders.  The stockholders then elected David T. Rovee and Robert R. Walker
by a vote of 7,827,087 for, 500 withheld authority and 7,500 abstained.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       14
<PAGE>

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

Dividend Policy

         To date,  the Company has not paid  dividends on its common stock.  The
payment of  dividends,  if any, is within the  discretion  of the Board and will
depend upon the  Company's  earnings,  its capital  requirements  and  financial
condition, and other relevant factors. See "Management's Discussion and Analysis
or Plan of Operation." The Board does not intend to declare any dividends in the
foreseeable future, but instead intends to retain all earnings,  if any, for use
in the Company's operations.

Share Price History

         The  Company's  common  stock  (the  "Common  Stock")  is traded in the
over-the-counter  market in what is commonly  referred to as the "Electronic" or
"OTC  Bulletin  Board" or the  "OTCBB"  under the  trading  symbol  "SHPI."  The
following  table sets forth the high and low bid information of the Common Stock
for the periods  indicated.  The price  information  contained  in the table was
obtained  from IDD  Information  Services,  Inc.  and other  sources the Company
considers reliable.  Note that such  over-the-counter  market quotations reflect
inter-dealer  prices,  without retail  mark-up,  mark-down or commission and the
quotations  may not  necessarily  represent  actual  transactions  in the Common
Stock.

                  Quarter Ended                    High              Low
                  -------------                    ----              ---
                  1998
                  ----
                  March 31.......................   $3.50            $1.63
                  June 30........................   $2.38            $1.44
                  September 30...................   $2.25            $1.19
                  December 31....................   $1.56            $0.94

                  1999
                  ----
                  March 31.......................   $1.18            $0.94
                  June 30........................   $1.13            $0.75
                  September 30...................   $0.84            $0.41
                  December 31....................   $1.16            $0.41


Holders of Record

         At April 12, 2000,  there were  approximately  315 holders of record of
the Company's  Common Stock.  The number of holders of record was  calculated by
reference to the Company's stock transfer agent's books.

Issuance of Securities

         In  1999,  the  Company  granted  to 4  non-executive  members  of  the
Company's  Board of Directors  stock options to acquire a total of 64,000 shares
of the  Company's  common  stock.  These  stock  options  were  granted in equal
quarterly  installments  at an  exercise  price of $2.00.  In 1999,  the Company
granted  employees  stock  options to  acquire a total of 190,000  shares of the
Company's  common  stock at an exercise  price of $2.00 per share.  The exercise
prices were greater than the quoted market prices of the

                                       15
<PAGE>

underlying common stock on the date of grant. The options expire five years from
the date of grant. The option grants were exempt from registration under Section
4(2) of the Securities Act of 1933 and pursuant to Rule 506 as promulgated under
the Securities Act of 1933.

Item 6. Management's Discussion and Analysis or Plan of Operation

         The  following  discussion  and  analysis  provides  information  which
management  believes is  relevant  to an  assessment  and  understanding  of the
Company's  consolidated  results of  operations  and  financial  condition.  The
discussion  should  be read  in  conjunction  with  the  consolidated  financial
statements and notes thereto.  Wherever in this discussion the term "Company" is
used,   it  should  be  understood  to  refer  to  SHPI  and  its  wholly  owned
subsidiaries,   SHP,  Safety  Syringe   Corporation,   Specialized   Cooperative
Corporation and  Iontophoretics  Corporation,  on a consolidated  basis,  except
where the context clearly indicates otherwise.

Overview

         From its inception, the Company has incurred losses from operations. As
of December 31, 1999, the Company had cumulative net losses applicable to common
shares totaling $16,063,783. To date, the Company's principal focus has been the
design,  development,  testing and evaluation of its sharps  containers,  safety
lancets,  safety needle  technologies,  intravenous flow gauge, blood collection
devices,  and other safety medical  products,  and the design and development of
various molds and production processes.

Financial Position

         The Company had  $180,425 in cash and cash  equivalents  as of December
31, 1999.  This  represented  a decrease of  $2,299,658  from December 31, 1998.
Working  capital as of December 31,  1999,  decreased to $230,138 as compared to
$2,877,205 at December 31, 1998.  These  decreases  were largely due to the fact
that during 1999 the Company  received  only $74,400 from  financing  activities
compared to receipt of $3,813,159 from financing activities during 1998.

Years Ended December 31, 1999 and 1998

         During  the year  ended  December  31,  1999,  the  Company  had  total
operating  revenues of  $4,850,947,  compared with total  operating  revenues of
$1,039,136 for the year ended December 31, 1998.  Prior to 1999, the Company had
$3,750,000 in deferred royalty revenue  relating to the BDIT License  Agreement.
In June 1999,  BDIT and the Company  amended  the BDIT  License  Agreement.  The
amendment  provides that the $3,750,000  previously  paid by BDIT to the Company
will not be credited  against future earned  royalties and the Company will have
no  further  obligation  of any kind to BDIT  with  respect  to these  payments.
Accordingly,  the  $3,750,000  of deferred  royalty  revenue was  recognized  as
revenue during 1999. During 1999, the Company also had $1,100,947 in development
fee revenues from JJM under the JJM Agreement.  Costs incurred to generate these
development  fees  totaled  $890,222.  During  1998,  $10,202  of the  Company's
revenues were from product sales of the Company's sharps container  products and
the remaining  $1,028,934  were  development fee revenues from JJM under the JJM
Agreement.  Costs incurred to generate these  development fees totaled $823,146.
As discussed  below, the Company will look to several other products and devices
for future sales revenues.

         In November 1999, the Company and Kendall Healthcare  Products Company,
a division of Tyco  Healthcare  Group LP ("Kendall")  entered into a Development
and License Agreement (the "Kendall  Agreement")  relating to one application of
the Company's  needle  technology in the  production of a line of safety medical
needle  products,  including  six syringe  products and five other safety needle
products.  The  effective  date of the Kendall  Agreement was subject to certain
approvals  that were obtained on March 29, 2000. On April 12, 2000,  the Company
received a $1,500,000  payment less $35,044  representing the Company's share of
certain  patent  filing  costs.  The  Company  will also  receive an  additional
$1,000,000  upon the sale of  commercial  quantities of products in exchange for
the Company assigning to Kendall the FlexLoc(R) and ReLoc(TM) trademarks and two
related patents.  The assignment of the patent rights to Kendall

                                       16
<PAGE>

         is subject to a preexisting  license agreement and the retention by the
Company of an exclusive, royalty free worldwide license in a number of strategic
product  areas.  The Kendall  Agreement also provides for the Company to receive
development  fees and ongoing  royalties,  including a $500,000  advance royalty
payment upon the sale of commercial  quantities of products.  It is  anticipated
that  Kendall  will  manufacture  all  products  that are subject to the Kendall
Agreement.  There  can  be no  assurance  that  products  will  be  launched  as
anticipated  or that  the  Company  will  realize  revenues  under  the  Kendall
Agreement.

         In December  1997,  the Company  entered into the JJM  Agreement  under
which the parties are seeking to  commercialize  two  applications of the safety
needle technology. The JJM Agreement provides that the Company and JJM will seek
to commercialize  two products using safety medical needle  technology.  The JJM
Agreement  provides for monthly  development  payments by JJM,  sharing of field
related patent costs,  the  possibility  of payments for initial  periods of low
volume  manufacturing,  an ongoing royalty stream and a JJM investment in molds,
assembly equipment and other capital costs related to  commercialization of each
product.  The JJM  Agreement  also  provides  for an ongoing  joint  cooperative
program  between the Company and JJM which derives future funding  directly from
sales of Company created products,  the possibility of low volume  manufacturing
revenue for the  Company and an ongoing  royalty  stream for  additional  safety
products which are jointly  approved for  development.  The Company  anticipates
that JJM will  perform  substantially  all of the  manufacturing  under  the JJM
Agreement  during  2000.  The Company  and JJM also  entered  into  arrangements
whereby they are pursuing  development and  commercialization of four additional
products.  The Company  anticipates  that the sale of one product  under the JJM
Agreement  will begin in the year 2000 with  additional  products  scheduled for
introduction  into the market in 2001.  There is no  assurance  that the Company
will realize revenues under the JJM Agreement or that any of these products will
be  launched  as  anticipated.  All  product  introductions  are  scheduled  and
controlled by JJM.

         In May  1997,  the  Company  entered  into the BDIT  License  Agreement
relating to a single  application  of the Company's  ExtreSafe(R)  safety needle
technology.  BDIT  previously told the Company that it expected to begin selling
the product that is the subject of the BDIT License  Agreement at various times.
BDIT has indicated  that it is unsure if or when product will be introduced  and
sold in the market under the BDIT License  Agreement.  BDIT has not provided the
Company with information regarding the market introduction of the product.

         The Company has an ongoing  program for  developing  products using its
fourteen medical needle  technologies and expects to develop  additional  safety
medical needle technologies.

         License and distribution  arrangements,  such as those discussed above,
create  certain  risks for the  Company,  including  (i)  reliance  for sales of
products  on  other  parties,  and  therefore  reliance  on the  other  parties'
marketing ability, marketing plans and credit-worthiness;  (ii) if the Company's
products are marketed under other parties' labels,  goodwill associated with use
of the  products may inure to the benefit of the other  parties  rather than the
Company;  (iii) the Company may have only  limited  protection  from  changes in
manufacturing  costs and raw materials costs; and (iv) if the Company is reliant
on other parties for all or  substantially  all of its sales, the Company may be
limited in its ability to negotiate with such other parties upon any renewals of
their agreements.  Further,  because such arrangements are generally expected to
provide the Company's  marketing  partners with certain  elements of exclusivity
with respect to the  products to be marketed by those  partners,  the  Company's
success will be highly dependent on the results obtained by its partners.

         Research and  development  ("R&D")  expenses were $780,425 for the year
ended December 31, 1999,  compared with $909,048 for the year ended December 31,
1998.  The  Company's  efforts  during 1999  focused on  development  of several
additional products utilizing the Company's medical safety needle  technologies.
The Company's  efforts during 1998 focused on development of several  additional
products utilizing the ExtreSafe(R) and FlexLoc(R) safety needle technology, the
safety single lancet  technology  and continued  development  work on a filmless
digitized imaging  technology (which was performed by QIC, but was funded by the
Company).  The 1998 R&D effort was expanded  beyond  development of ExtreSafe(R)
products to manually  actuated safety  sheathing  devices.  The decreases in R&D
expenses resulted  primarily

                                       17
<PAGE>

from (i) a reduction in the development  activities with respect to the filmless
digitized imaging technology, (ii) the termination of two development employees,
and  (iii)  a  reduction  in the  use of  outside  consultants  for  development
activities.

         Selling,  general and  administrative  expenses were $2,776,669 for the
year ended December 31, 1999, compared to $2,946,722 for the year ended December
31,  1998.  The  decrease  resulted  mainly from (i) the officers of the Company
taking  a  combined   thirty-three  percent  reduction  in  compensation,   (ii)
downsizing  which resulted in the termination of two  administrative  employees,
and (iii) reduction in financial advisory fees.

         The Company  wrote off $105,762 in  operating  assets in 1999 that were
comprised  primarily of the write down of certain  automation  equipment and the
write off of certain obsolete computer  equipment  abandoned or sold for nominal
amounts.  In 1998, the Company wrote off $754,803 in operating  assets that were
comprised primarily of molds,  production equipment and other assets relating to
the ExtreSafe(R)  Lancet Strip. These assets were written-off in connection with
the Company's  decision to abandon the further  manufacture and  distribution of
the ExtreSafe(R) Lancet Strip.

         Net other  income was  $61,362  for the year ended  December  31,  1999
compared with $205,064 for the year ended December 31, 1998. The decrease in net
other  income is  attributable  to interest  earned on lower  levels of funds on
deposit and short-term  interest  bearing  investments.  As funds on deposit and
interest  bearing  short-term  investments  have decreased,  so has the interest
income.

Liquidity and Capital Resources

         To date,  the Company has financed its operations  principally  through
private placements of equity securities,  advanced  royalties,  development fees
and proceeds from the exercise of common stock  options.  The Company  generated
$16,200,285 and $74,400 in net proceeds through private placements of equity and
exercise of common stock options from inception through December 31, 1999 and in
1999,  respectively.  The  Company  used net cash for  operating  activities  of
$2,340,118 during the year ended December 31, 1999. As of December 31, 1999, the
Company's  liabilities  totaled $125,675.  The Company had working capital as of
December 31, 1999 of $230,138.

         The Company's  working capital and other capital  requirements  for the
foreseeable future will vary based upon a number of factors, including the costs
to complete development and bring the safety medical needle technologies,  blood
collection devices and other products to commercial viability,  and the level of
sales of the new phlebotomy product due to launch in the fourth quarter of 2000.
At  December  31,  1999,  the Company  had not  committed  to spend any funds on
capital  expenditures.  The Company believes that existing funds,  including the
$1,500,000  received from Kendall,  development  fees from JJM and Kendall under
the  respective   agreements,   license   revenues  and  funds   generated  from
commencement of product royalties under current  agreements,  will be sufficient
to maintain operations through December 31, 2000. The Company has no contractual
arrangements  that guarantee that the Company will have adequate  funding during
2000 and there can be no assurance that additional  funding will be available on
commercially  reasonable  terms or at all. Any  inability  to obtain  additional
funding if needed will have a material adverse effect on the Company,  including
possibly requiring the Company to significantly curtail or cease its operations.

         From time to time the Company is presented  with new  opportunities  to
design,  develop,  acquire or manufacture  safety medical devices.  In the event
such opportunities arise,  management and the Board of Directors could determine
that the pursuit of such  opportunities  is in the best  interest of the Company
and its stockholders and may decide to raise additional funding through the sale
of securities.  The Company will also continue to pursue new  arrangements  with
strategic  partners  which could  generate  additional  development or licensing
fees.  There are no  contractual  arrangements  in place that would  provide for
additional  funding and there can be no assurance  that the Company will be able
to obtain additional funding if appropriate on commercially  reasonable terms or
at all.

         At April 12,  2000,  the Company had  3,609,787  Series D Warrants  and
775,000 other warrants (the "SHPI Warrants")  outstanding  which are exercisable
for the same number of shares of Common Stock of

                                       18
<PAGE>

the Company at $2.00 per share.  The Series D Warrants  expire on the earlier of
(a) two years from the date of effectiveness  of a registration  statement under
the Act  covering  the  sale of the  shares  of  Common  Stock  underlying  such
warrants,  which  period  shall be  extended  day-for-day  for any  time  that a
prospectus  meeting the  requirements  of the Act is not  available,  or (b) the
redemption  date if such  warrants  are  redeemed  (subject  to the right of the
holder to exercise  the warrants  within 20 days of notice of such  redemption).
The SHPI Warrants  expire on December 31, 2002. The exercise of all the Warrants
would result in an equity infusion to the Company of $8,769,574.  As of the date
hereof,  all of the  warrants are out of the money and there can be no assurance
that any warrants will ever be exercised.

         The Company has granted stock  options that are  currently  exercisable
for 1,964,500 shares of Common Stock at exercise prices ranging between $.39 and
$2.625 per share.  The exercise of all of such stock  options would result in an
equity  infusion  to the  Company  of  $4,054,514.  All but  18,000 of the stock
options are out of the money and there can be no assurance that any of the stock
options will be exercised.

         In June 1998, the Company entered into an Option to Purchase  Agreement
(the "Option Agreement") with the University of Texas System to purchase certain
patents and related  technology,  research and  development for a total purchase
price of  $2,400,000.  In  accordance  with the  Option  Agreement,  a  $240,000
non-refundable  payment was made in July 1998 with the balance of  $2,160,000 to
be paid  within 30 days of the  exercise  of the  purchase  option.  The Company
retained the exclusive  right to exercise the option and acquire the patents and
related  technology  for a period of one year from the date of the  execution of
the Option Agreement or within 14 days of notification of successful  completion
of animal toxicity studies. The Company received notice of successful completion
of the  toxicity  studies in February  1999 and  subsequently  entered into four
amendments  to the Option  Agreement  resulting  in  extensions  of the exercise
period through May 2000. The Company paid a total of $265,000 in extension fees.
The Company was reimbursed for the majority of these fees from a third party who
expressed an interest in acquiring the technology from the Company upon exercise
of the option.  Subsequent to December 31, 1999, the third party determined that
it would not complete the  acquisition.  As the Company was not in a position to
exercise  the  option,  the option was allowed to expire  effective  January 23,
2000.  The Company has no  obligation  to make  additional  cash payments to the
University of Texas System.

Inflation

         The Company does not expect the impact of inflation on operations to be
significant.

Year 2000

         The  Company had  developed  plans to address  the  possible  exposures
related to the impact on its computer  systems of the Year 2000.  Since entering
the Year 2000,  the Company has not  experienced  any major  disruptions  to its
business  nor is it  aware  of any  significant  Year  2000-related  disruptions
impacting  its  customers  and  suppliers.  Furthermore,  the  Company  did  not
experience  any  material  impact on business at calendar  year end. The Company
will continue to monitor its critical  systems over the next several  months but
does not anticipate any significant  impacts due to Year 2000 exposures from its
internal systems as well as from the activities of its suppliers and customers.

Forward-Looking Statements

         When used in this Form 10-KSB,  in filings by the Company with the SEC,
in the Company's  press releases or other public or stockholder  communications,
or in oral statements made with the approval of an authorized  executive officer
of the Company,  the words or phrases  "would be," "will  allow,"  "intends to,"
"will likely  result,"  "are expected to," "will  continue,"  "is  anticipated,"
"estimate,"   "project,"  or  similar   expressions  are  intended  to  identify
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation Reform Act of 1995.  Forward-looking statements specifically include,
but are not  limited  to, the dates  disclosed  herein  upon  which  sales of or
royalty  payments  from  the  Company's  various  products  are  anticipated  to
commence.

         The  Company  cautions  readers  not to  place  undue  reliance  on any
forward-looking  statements,  which speak only as of the date made, are based on
certain  assumptions and expectations  which may or may not be valid or actually
occur,  and which  involve  various risks and  uncertainties,  including but not
limited to risk of  product  demand,  market  acceptance,  economic  conditions,
competitive   products  and  pricing,   difficulties  in  product   development,
commercialization,   and  technology,   changes  in  the  regulation  of  safety
healthcare  products,  the  level of  marketing,  development  and  distribution
efforts of the Company's  partners and other risks.  Furthermore,  manufacturing
delays may result from  additional  mold

                                       19
<PAGE>

redesigns or delays may result from the failure to timely obtain FDA approval to
sell future products. In addition,  sales and other revenues may not commence as
anticipated  due to delays or  otherwise.  If and when product  sales  commence,
sales may not reach the levels  anticipated.  As a result,  the Company's actual
results for future  periods could differ  materially  from those  anticipated or
projected.

         Unless  otherwise  required by  applicable  law,  the Company  does not
undertake,   and   specifically   disclaims  any   obligation,   to  update  any
forward-looking statements to reflect occurrences,  developments,  unanticipated
events or circumstances after the date of such statement.

Risk Factors

         In  addition  to the risks set forth  above,  the Company is subject to
certain other risk factors due to its development stage status,  the industry in
which it competes and the nature of its  operations.  These risk factors include
the following.

         History  of  Losses/Profitability  Uncertain.  The  Company  is in  the
development  stage and,  except for 1999,  has  reported  losses each year since
1993. At December 31, 1999, it had an accumulated  deficit of  $16,063,783.  The
Company's  products  are  in  various  stages  of  production,   pre-production,
development and research.  The Company has made only limited sales of its sharps
container products, the only product it was selling as of December 31, 1999. The
Company does not have  marketing or  distribution  agreements  in place for this
product.  There is no assurance that the Company's products will be commercially
viable and no assurance can be given that the Company will become profitable. In
addition,  prospects  for  the  Company's  profitability  will  be  affected  by
expenses,  operational  difficulties and other factors frequently encountered in
the development of a business enterprise in a competitive  environment,  many of
which factors may be unforeseen and beyond the Company's control.

         Need for Additional  Funds. Due to the development  stage status of the
Company and the uncertainty of future profits,  the Report of Independent Public
Accountants  relating to the Company's 1999 consolidated  financial  statements,
attached  hereto,   contains  a  "going  concern"  explanatory  paragraph.   See
Consolidated  Financial Statements and related Notes. The Company estimates that
it will need at least  $500,000  in  additional  funding in 2000 to execute  its
business  plan.  The Company  anticipates  that it will  generate  such  funding
through license fees, royalties, net development fees and product royalties. The
Company has no plans to seek significant  additional funding through the sale of
its securities.  The Company has no contractual arrangements that guarantee that
the Company will have adequate funding during 2000 and there can be no assurance
that additional funding will be available on commercially reasonable terms or at
all. Any inability to obtain additional funding when needed will have a material
adverse  effect on the  Company,  including  possibly  requiring  the Company to
significantly curtail or cease its operations.

         Negative Pricing Pressures on the Company's Safety Products. Prices for
the  Company's  safety  products may be higher than for  competing  conventional
products which are not designed to provide the safety protection afforded by the
Company's  products.   The  Company's  prices,   however,  are  expected  to  be
competitive with those of competing safety  products.  Continuing  pressure from
third-party  payors  to  reduce  costs  in the  healthcare  industry  as well as
increasing  competition  from safety  products  made by other  companies,  could
adversely  affect the Company's  selling  prices.  Reductions in selling  prices
could  adversely  affect  operating   margins  if  the  Company  cannot  achieve
corresponding reductions in manufacturing costs.

         Rapidly  Changing  Technology.  The  Company  is in  various  stages of
production, pre-production,  development and research with respect to its sharps
containers, safety lancets, medical safety needle technologies, blood collection
devices and other products.  There is no assurance that  development of superior
products by competitors or changes in technology will not eliminate the need for
the Company's  products.  The introduction of competing products using different
technology could adversely  affect the Company's  attempts to develop and market
its products.

         Potential  Lack  of  Market  Acceptance.  The  use  of  safety  medical
products,  including the Company's  products,  is relatively  new. The Company's
products may not be accepted by the market and their  acceptance  will depend in
large part on (i) the  Company's  ability  (directly  or through  its  marketing

                                       20
<PAGE>

partners) to demonstrate  the  operational  advantages,  safety,  efficacy,  and
cost-effectiveness  of its products in comparison  with  competing  products and
(ii) its ability to  distribute  its products  through  major  medical  products
companies.  There can be no assurance  that the Company's  products will achieve
market  acceptance  or that  major  medical  products  companies  will  sell the
Company's products.

         Dependence on Continued  Research and  Development.  The safety medical
needle  technologies,  intravenous  flow gauge and safety  lancets  are still in
various  stages  of  development.  The  Company  is  also  exploring  additional
applications for all of its products.  The continued development of its products
and development of additional  applications and new products is important to the
long-term  success  of  the  Company.  There  can  be  no  assurance  that  such
applications  or products will be developed or, if developed,  that they will be
successful.

         Dependence on Patents and  Proprietary  Rights.  The  Company's  future
success depends in part on its ability to protect its intellectual  property and
maintain the  proprietary  nature of its  technology  through a  combination  of
patents and other intellectual property arrangements.  There can be no assurance
that the  protection  provided by patents,  if issued,  will be broad  enough to
prevent  competitors from introducing  similar products or that such patents, if
challenged,   will  be  upheld  by  the  courts  of  any  jurisdiction.   Patent
infringement  litigation,  either to enforce the Company's patents or defend the
Company from  infringement  suits,  would be expensive and, if it occurs,  could
divert Company  resources  from other planned uses. Any adverse  outcome in such
litigation  could  have  a  material  adverse  effect  on  the  Company.  Patent
applications  filed in  foreign  countries  and  patents in such  countries  are
subject to laws and  procedures  that  differ  from those in the United  States.
Patent  protection  in such  countries may be different  from patent  protection
under U.S. laws and may not be as favorable to the Company.  Certain portions of
the  Company's  international  patent  prosecution  efforts  are funded by third
parties.  The failure of the funding parties to pay for the international patent
prosecution  costs would  materially  effect the Company's  ability to prosecute
these patents. The Company also attempts to protect its proprietary  information
through the use of  confidentiality  agreements  and by  limiting  access to its
facilities.  There can be no assurance  that the  Company's  program of patents,
confidentiality  agreements  and  restricted  access to its  facilities  will be
sufficient to protect the Company's proprietary technology.

         Ability to Manage Expanding Operations. The Company intends to pursue a
strategy of rapid growth although there can be no assurance that any growth will
be achieved.  The Company plans to significantly expand its product lines and to
devote substantial  resources to support  operations,  research and development,
marketing  and  administrative  functions.  There can be no  assurance  that the
Company  will  obtain  sufficient  manufacturing  capacity on  favorable  terms,
arrange for the marketing and  distribution of its products,  attract  qualified
personnel or effectively  manage  expanded  operations.  The failure to properly
manage growth could have a material adverse effect on the Company.

         Competition/Potential Inability to Compete. The Company is engaged in a
highly  competitive  business  and will  compete  directly  with firms that have
longer operating  histories,  more experience,  substantially  greater financial
resources, greater size, more substantial research and development and marketing
organizations, and established distribution channels that are better situated in
the market than the Company. The Company's competitors and potential competitors
include Baxter  International,  Inc.,  Becton  Dickinson and Company,  Johnson &
Johnson, Sage Products, Inc., Surgicutt, Inc., Miles, Inc., B. Braun, Diagnostic
Corporation,  Boehringer  Mannheim,  Inc., Kendall Healthcare  Products Company,
Terumo Medical Corporation,  Med-Design Company,  Bio-Plexus,  Inc., Maxon, Inc.
and   Retractable   Technologies,   Inc.  and  Univec,   Inc.  See  "Business  -
Competition."  Such competitors may use their economic strength to influence the
market to continue to buy their existing products. These competitors may also be
potential  strategic  partners  with  respect to various  products  as are,  for
example, Kendall and JJM. The Company does not have an established customer base
and is likely to encounter a high degree of competition in developing a customer
base.  One or more of these  competitors  could use their  resources  to improve
their current products or develop new products that may compete more effectively
with the Company's products. New competitors may emerge and may develop products
which  compete with the Company's  products.  No assurance can be given that the
Company will be successful in competing in this industry.

         Product Liability. The sale of medical devices entails an inherent risk
of liability in the event of product  failure or claim of harm caused by product
operation.  There can be no  assurance  that the Company  will not be subject to
such claims, that any claim will be successfully  defended or, if the Company is
found

                                       21
<PAGE>

liable,  that the claim will not exceed the limits of the  Company's  insurance.
The  Company's  current  insurance  coverage  is in the amount of $1 million per
occurrence and $2 million in aggregate.  The Company also has an umbrella policy
in the amount of $5 million.  In certain  cases the Company has  indemnification
arrangements  in place with its strategic  partners who will be selling  Company
developed  products  under the partner's  label.  There is no assurance that the
Company will maintain  product  liability  insurance on acceptable  terms in the
future or that such insurance will be available.  Product liability claims could
have a material adverse effect on the Company.

         Uncertainty in the  Healthcare  Industry.  The  healthcare  industry is
subject to changing  political,  economic  and  regulatory  influences  that may
affect the procurement practices and operations of healthcare facilities. During
the past several years,  the  healthcare  industry has been subject to increased
government  regulation of reimbursement  rates and capital  expenditures.  Among
other  things,   third-party  payors  are  increasingly  attempting  to  contain
healthcare  costs  by  limiting  both  coverage  and  reimbursement  levels  for
healthcare products and procedures. Because prices of the Company's products may
exceed  the  price of  conventional  products,  the  cost  control  policies  of
third-party payors,  including government agencies,  may adversely affect use of
the Company's  products.  The Company  believes that the costs  associated  with
accidental  needlesticks,  however,  exceed  the  procurement  costs  of  safety
products such as those of the Company.

         There are numerous  proposals to reform the U.S.  healthcare system and
the healthcare  systems of various states including the safety  initiatives that
have been passed in five states and are under  consideration in other states and
on a national  level.  OSHA also issued a national  directive  in November  1999
requiring  use of  safety  medical  devices.  Many of  these  proposals  seek to
increase  government  involvement  in  healthcare,  lower  reimbursement  rates,
contain costs and otherwise  change the operating  environment for the Company's
prospective customers. Healthcare providers may react to these proposals and the
uncertainty surrounding such proposals by curtailing or deferring investments in
new technology  and new products,  including  those of the Company.  The Company
cannot predict what impact,  if any, such proposals or healthcare  reforms might
have on the Company's financial condition and results of operations.

         Management/Dependence  on  Key  Personnel/Board.  The  success  of  the
Company  depends upon the skills,  experience  and efforts of its management and
other key  personnel.  Should the services of one or more members of its present
management  or other key  personnel  become  unavailable  to the Company for any
reason,  the business of the Company  could be adversely  affected.  There is no
assurance that the Company will be able to retain existing  employees or attract
new  employees of the caliber  needed to achieve the Company's  objectives.  The
Board  currently  consists  of five  members,  two of whom are  employed  by the
Company.

         Market  Volatility.  Market prices of securities of medical  technology
companies  are  highly  volatile  from time to time.  The  trading  price of the
Company's  securities  may be  significantly  affected  by  factors  such as the
announcement  of new  product or  technical  innovations  by the  Company or its
competitors, proposed changes in the regulatory environment, or by other factors
that may or may not relate directly to the Company. Sales of substantial amounts
of Common Stock  (including  stock which may be issued upon exercise of warrants
or stock options),  or the perception that such sales may occur, could adversely
affect the trading price of the Common Stock.

         No Assurance of Dividends.  The Company has never paid dividends on its
Common  Stock.  The payment of  dividends,  if any,  on the Common  Stock in the
future is at the  discretion  of the Board and will  depend  upon the  Company's
earnings, if any, capital  requirements,  financial condition and other relevant
factors.  The Board does not intend to declare any dividends on the Common Stock
in the foreseeable future.

         Limitations  on  Director  Liability.   The  Company's  Certificate  of
Incorporation  provides,  as permitted by Delaware  law,  that a director of the
Company shall not be personally  liable to the Company or its  stockholders  for
monetary  damages  for any action or failure to take any  action,  with  certain
exceptions.  These  provisions  may discourage  stockholders  from bringing suit
against  a  director  for  breach  of duty  and may  reduce  the  likelihood  of
derivative litigation brought by stockholders on behalf of the Company against a
director.   In  addition,   the  Company  has  agreed  and  its  Certificate  of
Incorporation and Bylaws

                                       22
<PAGE>

provide, for mandatory  indemnification of directors and officers to the fullest
extent  permitted  by Delaware law and it has entered  into  contracts  with its
directors and officers providing for such indemnification.

         Anti-Takeover  Provisions of Certificate and Bylaws. The Certificate of
Incorporation  of the Company  provides for the division of the Board into three
classes  substantially  equal in number.  At each annual meeting of stockholders
one class of  directors is to be elected for a three-year  term.  Amendments  to
this  provision  must be approved by a  two-thirds  vote of all the  outstanding
stock  entitled to vote; the number of directors may be changed by a majority of
the entire Board or by a two-thirds  vote of the  outstanding  stock entitled to
vote.  Meetings  of  stockholders  may be called  only by the  Board,  the Chief
Executive  Officer or the President of the Company,  and stockholder  action may
not be taken by written  consent.  These provisions could have the effect of (i)
discouraging  attempts at  non-negotiated  takeovers  of the  Company  which may
provide  for  stockholders  to receive a premium  price for their  stock or (ii)
delaying  or   preventing  a  change  of  control  of  the  Company  which  some
stockholders may believe is in their interest.

         Effect  of  the  Issuance  of  Preferred  Stock.  The  Company  has  an
authorized  class of  preferred  stock,  shares of which may be issued  with the
approval  of its  Board on such  terms  and with such  rights,  preferences  and
designations  as the Board  may  determine.  Issuance  of  additional  series of
preferred  stock,  depending  upon  the  rights,  preferences  and  designations
thereof,  may have the effect of delaying,  deterring or  preventing a change in
control of the Company. In addition,  certain "anti-takeover"  provisions of the
Delaware General  Corporation Law, among other things,  may restrict the ability
of stockholders to effect a merger or business  combination or obtain control of
the  Company  and  may  be  considered  disadvantageous  by  some  stockholders.
Management  of the  Company  presently  does not  intend to issue any  shares of
preferred  stock.  Preferred stock may,  however,  be issued at some future date
which  stock  might  have  substantially  more  than one vote per share or other
provisions designed to deter a change in control of the Company. The issuance of
such  stock to a  limited  group  of  management  stockholders  may vest in such
persons absolute voting control of the Company,  including,  among other things,
the ability to elect all of the directors,  control certain matters submitted to
a vote of  stockholders  and  prevent  any change in  management  despite  their
performance.  Also,  preferred  stock may have the  right to vote  upon  certain
matters as a separate class.

Item 7. Financial Statements

         See index to financial  statements  and financial  statement  schedules
included herein as Item 14.

Item  8.  Changes  In and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure

         None.

                                       23
<PAGE>

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act

         Set forth below is certain information concerning each of the directors
and executive officers of the Company as of April 12, 2000.

                                                                      With the
         Name            Age             Position                  Company Since
         ----            ---             --------                  -------------
David A. Robinson (1)    56     President, Chairman of the              1993
                                Board, Chief Executive Officer
                                and Director

Dr. Gale H. Thorne (1)   67     Vice President - Product Development    1994
                                and Director

Charles D. Roe           49     Vice President - Finance and Investor   1997
                                Relations, Chief Financial Officer,
                                Secretary &Treasurer

David G. Hurley (2)(3)   64     Director                                1999

David T. Rovee (2)(3)    60     Director                                1998

Robert R. Walker (2)(3)  69     Director                                1994
---------------

(1)      Member of Executive Committee.
(2)      Member of Audit Committee.
(3)      Member of Compensation Committee.

         David A. Robinson.  Mr. Robinson is President,  Chief Executive Officer
and Chairman of the Board of the Company.  He has been a director and officer of
the Company since November 1993 and his term expires in 2001. From November 1992
to  November  1993,  Mr.  Robinson  was  President  of  EPC  Products,  Inc.,  a
distribution  company based in Bountiful,  Utah. From 1981 to 1992, Mr. Robinson
was  President  of  Royce   Photo/Graphics   Supply,   Inc.,  a  distributor  of
photographic  and  graphic  arts  equipment  and  supplies  based  in  Glendale,
California.  He holds a Masters degree in Business  Administration and a Masters
degree in Management Science from the University of Southern California.

         Dr. Gale H. Thorne. Dr. Thorne is Vice President - Product Development,
for the Company.  He has been a director since January 1995 and his term expires
in 2000.  Dr. Thorne has held his present  position as Vice  President - Product
Development,  since  October  1994.  From  1993 to  1994,  Dr.  Thorne  was Vice
President - Engineering,  of Eneco,  Inc., a Utah company.  During Dr.  Thorne's
tenure at Eneco, Inc., Dr. Thorne was primarily engaged in prosecuting  patents.
From 1989 to 1993,  Dr.  Thorne was employed as a patent  consultant  and patent
agent with Foster & Foster, a Salt Lake City intellectual property law firm. Dr.
Thorne holds thirty patents and has published numerous  technical  publications.
He has been a  technical  consultant  and a  member  of the  Board of the  Small
Business  Innovation  Program of the State of Utah.  Dr. Thorne  manages all the
patent and product  development  work for the Company and is a patent agent.  He
holds a Ph.D. in Biophysics  from the University of Utah. He is a past president
of Thorne, Smith, Astill, Inc., an engineering director for Becton Dickinson and
Company  Immunochemistry  Division and a vice president and division manager for
Varian and Diasonics Ultrasound.

                                       24
<PAGE>

         Charles D. Roe. Mr. Roe is Chief  Financial  Officer,  Vice President -
Finance and Investor  Relations,  Secretary and Treasurer of the Company. He was
appointed  to his  position as Chief  Financial  Officer and  Vice-President  in
November  1997, he was appointed as Secretary and Treasurer in December 1997 and
he has been with the Company since October 1997.  Mr. Roe is a certified  public
accountant licensed in the State of Utah and has principally been engaged in the
practice  of public  accounting  since  1976,  including  four years with Arthur
Andersen LLP. From June 1995 through October 1997, Mr. Roe worked in association
with Jones,  Jensen & Co., a certified public  accounting firm which is a member
of the McGladrey Network of accounting  firms,  specializing in audits of public
companies.  Mr. Roe was employed by Wellshire  Services,  Inc. from June 1993 to
June 1995 providing various services to numerous public and private companies in
the United  States and  Europe.  From 1987 to  October  1997,  Mr. Roe owned and
operated a public accounting  practice focusing on financial audits,  individual
and  corporate  income  tax  consultation  and  preparation  and other  advisory
services.  Since  1987,  Mr.  Roe has  served on the board of  directors  and as
secretary  of  Covington  Capital  Corporation,   a  privately  owned  financing
business.  From June 1995 through  November  1996,  Mr. Roe was employed by that
company providing management services to various companies financed by Covington
Capital  Corporation.  Mr.  Roe  graduated  from the  University  of Utah with a
Bachelor of Arts degree in Accounting.

         David G. Hurley.  Mr.  Hurley has been a director of the Company  since
February  1999 and his term  expires in 2000.  He has spent the last 33 years in
the  management  consulting  and financial  advisory  business.  For 25 years at
Arthur D.  Little,  Inc.,  Mr.  Hurley was  involved  in  corporate  development
consulting with large and mid-sized firms throughout North America.  Since 1991,
Mr.  Hurley has been self  employed  and  working  principally  as a  management
consultant  and  financial  advisor.  He has a  Bachelors  degree in  Economics,
Masters  degree  in  Business  Administration  and has  completed  the  Advanced
Management Program at the Harvard Graduate School of Business.

         Dr. David T. Rovee.  Dr. Rovee has been a director of the Company since
April 1998 and his term expires in 2002.  He is currently a business  management
and technology  consultant in the  pharmaceutical  and medical  products fields.
From  1991 to 2000 he  served  as  President  and  Chief  Operating  Officer  of
Organogenesis, Inc., a publicly traded biotechnology company. Dr. Rovee has been
employed full time with Organogenesis,  Inc. since 1991. Prior to his employment
with  Organogenesis,  Inc., Dr. Rovee was employed for a twenty-five year period
by Johnson & Johnson in various capacities including Vice President and Director
of Research and  Development  for Johnson & Johnson Patient Care, Inc. Dr. Rovee
has a Bachelors  degree in Biology  from  Memphis  State  University,  a Masters
degree in Zoology from  Louisiana  State  University  and a Ph.D. in Development
Biology from Brown University.

         Robert R. Walker.  Mr. Walker is a director of the Company and has been
since March 1994 and his term expires in 2002. He is currently  self-employed as
a  consultant  in the  healthcare  industry  primarily  in the area of  start-up
medical  device  companies.  From 1976 to 1992,  Mr.  Walker was employed by IHC
Affiliated  Services Division of Intermountain  Healthcare,  a regional hospital
company,  from which he retired as President of IHC Affiliated  Services.  He is
also a former Chairman of the Board of AmeriNet, Inc., which is a national group
purchasing organization for hospitals,  clinics,  detox/drug centers, emergency,
nursing  homes,  private  laboratories,   psychiatric  centers,   rehabilitation
facilities,  surgical centers and institutions such as schools and prisons.  Mr.
Walker  is a  member  of the  American  Hospital  Association  and the  Hospital
Financial  Management  Association.  He holds a Bachelor  of  Science  degree in
Business Administration.

         Executive officers of the Company are elected by the Board on an annual
basis and serve at the discretion of the Board.

                                       25
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's  executive  officers,  directors and persons who beneficially own more
than 10% of the Company's  Common Stock to file initial reports of ownership and
reports of changes in ownership  with the  Securities  and  Exchange  Commission
("SEC").  Such  persons are required by SEC  regulations  to furnish the Company
with copies of all Section 16(a) forms filed by such persons.

         Based  solely on the  Company's  review of such forms  furnished to the
Company and representations from certain reporting persons, the Company believes
that all filing  requirements  applicable to the Company's  executive  officers,
directors and more than 10% stockholders were complied with during 1999.

Item 10. Executive Compensation

         The tables below set forth certain information concerning  compensation
paid by the  Company  to its Chief  Executive  Officer  and all other  executive
officers with annual compensation in excess of $100,000 (determined for the year
ended December 31, 1999) (the "Named  Executive  Officers").  The tables include
information related to stock options granted to the Named Executive Officers.

         Summary  Compensation  Table.  The  following  table  provides  certain
information  regarding  compensation  paid by the Company to the Named Executive
Officers.
<TABLE>
<CAPTION>
                                                    SUMMARY COMPENSATION TABLE

                                           Annual Compensation                     Awards            Payouts
                                           -------------------                     ------            -------
                                                                           Restricted  Stock                     All Other
        Name and                                          Other Annual     Stock       Options/    LTIP        Compensation
   Principal Position       Year Salary ($)  Bonus ($)  Compensation($)(1) Awards ($)    SAR(#)    Payouts($)       ($)
   ------------------       ---- ----------  ---------  ------------------ ----------    ------    ----------   -----------
<S>                         <C>   <C>        <C>         <C>               <C>        <C>           <C>          <C>
David A. Robinson,          1997  240,000       ---          4,750            ---         ---         ---            4,150
President, CEO, Chairman    1998  240,000      1,000        10,000            ---         ---         ---           10,428
of the Board and Director   1999  225,416(2)    ---         10,000            ---         ---         ---           68,508(4)

Dr. Gale H. Thorne, VP      1997  150,000       ---          4,750            ---         ---         ---              429
Product Development and     1998  150,000      1,000         6,925            ---         ---         ---            6,925
Director                    1999  146,041(2)    ---          7,302            ---         ---         ---           21,752(5)
                                                                              ---         ---         ---
Charles D. Roe, VP          1997    20,833      ---            ---            ---                     ---              ---
                                                                                       50,000(3)

Finance and Investor        1998  100,000      1,000         5,050            ---         ---         ---              226
Relations and CFO           1999  104,022(2)    ---          3,438            ---         ---         ---            1,044(6)

David L. Thorne             1997   80,292       ---          4,000            ---         ---         ---
Manager - Product           1998   94,666       300          4,748            ---         ---         ---
Development                 1999  100,000(2)    ---          5,000            ---         ---         ---           51,044(7)
</TABLE>
---------------
(1)  These amounts represent  payments by the Company into its 401(k) retirement
     plan for the benefit of the Named Executive Officer.
(2)  In January  1999,  Dr.  Thorne's  salary was  increased  from  $150,000  to
     $165,000 per year,  Mr. Roe's was  increased  from $100,000 to $110,000 per
     year and Mr. David Thorne's  salary was increased from $96,000 to $100,000.
     In September  1999,  Mr.  Robinson's  salary was reduced  from  $240,000 to
     $190,000  per year,  Dr.  Thorne's  salary was  reduced  from  $165,000  to
     $100,000 per year and Mr. Roe's salary was reduced from $110,000 to $90,000
     per year.
(3)  Options issued pursuant to the non-qualified stock option plan.
(4)  This represents  payment of accrued vacation,  $67,400 of which was used to
     payoff  a  subscription  receivable  in a  noncash  transaction.  Effective
     January 1, 1999,  the  Company  changed  its  accrued  vacation  policy and

                                       26
<PAGE>

     subsequent  to that date allows a maximum of twenty days vacation pay to be
     carried forward from year to year.
(5)  This includes $17,957 payment of accrued vacation, $6,920 of which was used
     to payoff a  subscription  receivable in a noncash  transaction.  Effective
     January 1, 1999,  the  Company  changed  its  accrued  vacation  policy and
     subsequent  to that date allows a maximum of twenty days vacation pay to be
     carried  forward from year to year.  Also includes $3,795 in life insurance
     on Dr. Thorne with insurance proceeds payable to the beneficiary designated
     by Dr. Thorne. This insurance policy has no cash surrender value.
(6)  These  amounts  represent  the  amounts  paid by the  Company for term life
     insurance  on the life of Mr. Roe with  insurance  proceeds  payable to the
     beneficiary  designated  by Mr.  Roe.  This  insurance  policy  has no cash
     surrender value.
(7)  Represents  $50,000 paid to Mr. Thorne for cancellation of SHPI Warrants to
     acquire 25,000 shares of common stock.  Also represents  $1,044 paid by the
     Company for term life  insurance on the life of Mr.  Thorne with  insurance
     proceeds  payable  to  the  beneficiary  designated  by  Mr.  Thorne.  This
     insurance policy has no cash surrender value.

Compensation of Directors

         No cash fees or other  consideration were paid to employee directors of
the Company by the Company for service on the Board  during  1999.  During 1999,
the Company  compensated  non-employee  directors  at a rate of $10,000 per year
payable in equal  quarterly  installments  along with options to purchase 16,000
shares of the  Company's  common  stock  that were  granted  in equal  quarterly
installments  at an exercise price of $2.00 per share.  The Company expects that
the 2000  compensation for  non-employee  directors will be the same as the 1999
compensation  including the issuance of options to purchase 16,000 shares of the
Company's  common stock granted in equal  quarterly  installments at an exercise
price equal to the fair market value of the underlying  common stock on the date
of grant, but in no event shall the exercise price be less than $2.00 per share.
The Company has made no other agreements regarding  compensation of non-employee
directors.  All directors are entitled to reimbursement for reasonable  expenses
incurred in the performance of their duties as Board members.

Employment and Indemnity Agreements

         The Company has entered into an employment  agreement with Mr. David A.
Robinson. Mr. Robinson's employment agreement,  which has been amended from time
to time,  provides that (i) Mr.  Robinson  receive a salary of $190,000 per year
beginning  September 16, 1999; (ii) Mr. Robinson's current employment  agreement
expires on December 31, 2001; (iii) Mr. Robinson is entitled to vacation pay and
health insurance; (iv) if the employment of Mr. Robinson is terminated by reason
of  disability  or other than for cause,  his salary will  continue for the full
term of the agreement;  (v) if Mr. Robinson is terminated for cause,  his salary
ceases as of the date of termination; (vi) the Company will provide Mr. Robinson
with up to  $1,000,000  of term  life  insurance  while  he is  employed  by the
Company; and (vii) Mr. Robinson shall keep all proprietary  information relating
to the  business of the Company  confidential  both during and after the term of
the agreement.  The Company does not have employment  agreements with any of its
other Named Executive Officers.

         The Company has  entered  into  indemnity  agreements  (the  "Indemnity
Agreements") with each of its executive officers and directors pursuant to which
the Company has agreed to indemnify  the  officers and  directors to the fullest
extent  permitted by law for any event or  occurrence  related to the service of
the  indemnitee  as an officer or director of the Company that takes place prior
to or after the execution of the Indemnity  Agreement.  The Indemnity Agreements
obligate the Company to reimburse or advance expenses relating to any proceeding
arising out of an  indemnifiable  event.  Under the  Indemnity  Agreements,  the
officers  and  directors  of the Company are  presumed to have met the  relevant
standards of conduct  required by Delaware law for  indemnification.  Should the
Indemnity  Agreements  be held to be  unenforceable,  indemnification  of  these
officers and  directors  may be provided by the Company in certain  cases at its
discretion.

                                       27
<PAGE>

401(k) Retirement Plan

         Effective in 1996, the Company adopted a 401(k) retirement plan whereby
the Company  contributes  five percent of payroll  compensation  to the plan and
matches  employee  contributions  to the plan on a dollar for dollar basis up to
the maximum  contribution  allowed by  applicable  tax law. The Named  Executive
Officers have invested all of the funds in their 401(k) accounts in common stock
of the Company.

Accrued Vacation Pay

         Effective  January 1, 1999,  the Company  changed its vacation  policy.
Prior to January 1, 1999, the Company's  policy was to allow executive  officers
to carry over  vacation from year to year without  limitation.  After January 1,
1999,  the  Company  allows all  employs to carry over a maximum of twenty  days
vacation pay from year to year.

Indemnification for Securities Act Liabilities

         Delaware  law  authorizes,  and  the  Company's  Bylaws  and  Indemnity
Agreements provide for,  indemnification of the Company's directors and officers
against  claims,  liabilities,  amounts  paid in  settlement  and  expenses in a
variety of circumstances.  Indemnification for liabilities arising under the Act
may be permitted for directors,  officers and controlling persons of the Company
pursuant to the  foregoing or otherwise.  However,  the Company has been advised
that,  in  the  opinion  of  the  Securities  and  Exchange   Commission,   such
indemnification  is  against  public  policy  as  expressed  in the  Act and is,
therefore, unenforceable.

Stock Options and Warrants

         In October 1998,  the Company's  stockholders  approved the adoption of
the Specialized Health Products International,  Inc. 1998 Stock Option Plan (the
"Option Plan"). The Option Plan will permit the Company to grant  "non-qualified
stock  options" and "incentive  stock  options" to acquire the Company's  Common
Stock.  The  total  number  of  shares  authorized  for the  Option  Plan may be
allocated by the Board between the non-qualified stock options and the incentive
stock options from time to time, subject to certain requirements of the Internal
Revenue Code of 1986, as amended.  The option exercise price per share under the
Option  Plan may not be less  than the fair  market  value of a share of  Common
Stock  on the  date on which  the  option  is  granted  and in no event  can the
exercise  price be less than $2.00 per share.  A total of  2,000,000  shares are
allocated  to the Option  Plan,  but the Option  Plan also  restricts  the total
number of shares of Common  Stock that the Company can grant  options to acquire
under all of its existing  stock option plans to 2,000,000  shares.  As of April
12, 2000,  options to acquire an aggregate of 565,000  shares of Common Stock at
an  exercise  price of  $2.00  per  share  had been  granted  and are  presently
outstanding  under the Option Plan and stock options  exercisable  for 1,399,500
shares of Company  common stock at exercise  prices  ranging from $.39 to $2.625
are  outstanding  under plans that preceded the Option Plan. None of the options
granted under the Option Plan were granted to executive officers of the Company.

Compensation Committee Interlocks and Insider Participation

         No  executive  officers  of  the  Company  serve  on  the  Compensation
Committee (or in a like capacity) for the Company or any other entity.

                                       28
<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth certain  information with respect to the
beneficial  ownership  of the Common  Stock of the Company as of April 12, 2000,
for: (i) each person who is known by the Company to beneficially own more than 5
percent of the  Company's  Common Stock,  (ii) each of the Company's  directors,
(iii) each of the Company's Named Executive  Officers (defined below),  and (iv)
all  directors  and  executive  officers as a group.  As of April 12, 2000,  the
Company had 12,356,440 shares of Common Stock outstanding.

                                 Shares
  Name and Address           Beneficially Percentage of
of Beneficial Owner(1)         Owned(2)     Total(2)         Position

David A. Robinson(3)           640,717        5.1%     President, CEO, Chairman
                                                       of the Board and Director

Dr. Gale H. Thorne(4)          400,905        3.2%      Vice President - Product
                                                        Development and Director

Charles D. Roe(5)               38,936           *      Chief Financial Officer,
                                                        VP Finance and Investor
                                                               Relations

David G. Hurley(6)              16,000           *              Director

Dr. David T. Rovee(7)           27,000           *              Director

Robert R. Walker(8)            139,000        1.1%              Director

Executive Officers and       1,262,558        9.8%
Directors as a Group
(six persons)

Johnson & Johnson            2,000,000       15.0%
Development Corporation(9)
One Johnson & Johnson Plaza,
New Brunswick, NJ 08933

Asdale Ltd (10)              1,500,000       11.4%
44 Lowndes Street
London, England

* Less than 1%.
--------------
(1)  Except where otherwise  indicated,  the address of the beneficial  owner is
     deemed to be the same address as the Company.
(2)  Beneficial  ownership  is  determined  in  accordance  with SEC  rules  and
     generally  includes holding voting and investment power with respect to the
     securities. Shares of Common Stock subject to options or warrants currently
     exercisable,  or  exercisable  within 60 days, are deemed  outstanding  for
     computing the percentage of the total number of shares  beneficially  owned
     by the designated  person, but are not deemed outstanding for computing the
     percentage for any other person.
(3)  Includes  330,219  shares of common  stock and stock  options  to  purchase
     250,000 shares of common stock. Also includes 60,498 shares of common stock
     purchased through the Company's 401(k) plan.

                                       29
<PAGE>

(4)  Includes 18,000 shares of common stock,  stock options to purchase  115,000
     shares of common  stock and warrants to purchase  200,000  shares of common
     stock.  Also  includes  25,000  shares of common  stock that Dr.  Thorne is
     deemed to  beneficially  own  through a trust and  42,905  shares of common
     stock   purchased   through  the  Company's   401(k)  plan.   See  "Certain
     Relationships and Related Transactions."
(5)  Includes  13,936  shares of common stock  purchased  through the  Company's
     401(k) plan and stock  options to acquire  25,000  shares of common  stock.
     Does not include  stock  options to acquire  25,000  shares of common stock
     that vest in October 2000.
(6)  Includes stock options to acquire  16,000 shares of common stock.  Does not
     include stock options to purchase 4,000 shares of common stock that vest in
     December 2000.
(7)  Includes 1,000 shares of common stock and stock options to purchase  26,000
     shares of common stock.  Does not include  stock options to purchase  4,000
     shares of common stock that vest in December 2000.
(8)  Includes  stock options to purchase  76,000  shares of common  stock.  Also
     includes  63,000  shares  of  common  stock  that Mr.  Walker  is deemed to
     beneficially own through a trust. Does not include stock options to acquire
     4,000 shares of common stock that vest in December 2000.
(9)  Includes 1,000,000 shares of common stock and 1,000,000 Series D Warrants.
(10) Includes 750,000 shares of common stock and 750,000 Series D Warrants.

         The Company is not aware of any arrangements which may, at a subsequent
date, result in a change in control of the Company.

Item 12. Certain Relationships and Related Transactions

         Dr. Gale H. Thorne, a director and officer of the Company, was entitled
to a  royalty  of two and  one-half  percent  on the  Company's  gross  revenues
received from the sale of products  utilizing the  ExtreSafe(R)  medical  needle
technology,  blood  collection  device and intravenous  flow gauge  technologies
(collectively, the "Thorne Products"). These royalties were agreed to in 1994 in
exchange for Dr.  Thorne's  assignment to the Company of  intellectual  property
rights he owned prior to his involvement  with the Company,  which  intellectual
property  rights  relate to the Thorne  Products.  In addition,  the Company was
required under the agreement to pay Dr. Thorne minimum  royalty  payments of not
less than $435,000 over a six-year  period  beginning in 1998.  Minimum  royalty
payments in 1998 and 1999 totaled in the aggregate  $195,000.  As a condition of
the private  placement  that closed in January  1998,  Dr.  Thorne  released the
Company from all royalty obligations relating to Thorne Products in exchange for
the issuance of 750,000 SHPI Warrants to Dr. Thorne and his assigns.

         The law firm of Blackburn & Stoll,  LC provides  legal  services to the
Company.  Eric L.  Robinson,  a member of that  firm,  is the nephew of David A.
Robinson.

         In December  1997, the Company  entered into a development  and license
agreement with JJM to  commercialize  two  applications of medical safety needle
technology.  The JJM Agreement provides for monthly development payments by J&J,
sharing of field  related  patent  costs,  payments  for initial  periods of low
volume  manufacturing,  an ongoing royalty stream and a J&J investment in molds,
assembly equipment and other capital costs related to  commercialization of each
product.  The JJM  Agreement  also  provides  for an ongoing  joint  cooperative
program  between the Company and JJM which derives future funding  directly from
sales of Company  created  products,  low volume  manufacturing  revenue for the
Company and an ongoing  royalty stream for additional  safety products which are
jointly approved for development. In connection with the JJM Agreement,  Johnson
& Johnson  Development  Corporation  purchased  $2,000,000 of Company securities
comprised  of common  stock and Series D Warrants  in a private  placement  that
closed in January 1998.

         In May 1999, the Company paid Westbridge  Capital  Partners  $90,000 to
assist the Company in evaluating  certain  medical  safety  product  markets and
segments  and to evaluate  and develop  related  business  strategies.  David G.
Hurley,  a  director  of the  Company, is an  affiliate  of  Westbridge  Capital
Partners.

                                       30
<PAGE>

Item 13. Exhibits and Reports on Form 8-K

Exhibits

         Listed on page 33 hereof.

Reports on Form 8-K

         No  reports  on Form 8-K were  filed by the  Company  during the fourth
quarter ended December 31, 1999.

                                       31
<PAGE>

                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                                SPECIALIZED HEALTH PRODUCTS
                                                INTERNATIONAL, INC.
                                                (Registrant)

Date: April 13, 2000                             By  /s/ David A. Robinson
                                                    ----------------------
                                                    David A. Robinson
                                                    President, Chief Executive
                                                    Officer and Director

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated.

     Signature                         Title                        Date
     ---------                         -----                        ----

/s/ David A. Robinson        President, Chief Executive          April 13, 2000
------------------------     Officer and Director (Principal
David A. Robinson            Executive Officer)

/s/ Charles D. Roe           Vice President, Chief Financial     April 13, 2000
------------------------     Officer, Secretary and
Charles D. Roe               Treasurer (Principal Financial
                             and Accounting Officer)

/s/ Gale H. Thorne           Director and Vice President         April 13, 2000
------------------------
Gale H. Thorne

/s/ David G. Hurley          Director                            April 13, 2000
------------------------
David G. Hurley

/s/ Robert R. Walker         Director                            April 13, 2000
------------------------
Robert R. Walker

                                       32
<PAGE>

                                  EXHIBIT INDEX

EXHIBIT NO.                          DESCRIPTION OF EXHIBIT
-----------                          ----------------------

  3(i).1          Restated   Certificate  of   Incorporation   of  the  Company.
                  (Incorporated  by reference to Exhibit 3(i).1 of the Company's
                  current report on Form 8-K, dated July 28, 1995)

  3(i).2          Certificate of Amendment of Certificate  of  Incorporation  of
                  the Company.  (Incorporated  by reference to Exhibit 3(i).2 of
                  the Company's Form 10-K, dated December 31, 1996).

  3(i).3          Articles of Incorporation of Specialized Health Products, Inc.
                  ("SHP")  (Incorporated  by reference to Exhibit  3(i).2 of the
                  Company's Form 10-K, dated December 31, 1995)

  3(i).4          Articles of  Amendment  of SHP  (Incorporated  by reference to
                  Exhibit 3(i).3 of the Company's Form 10-K,  dated December 31,
                  1995)

  3(ii).1         Second   Amended   and   Restated   Bylaws   of  the   Company
                  (Incorporated by reference to Exhibit 3(ii).1 of the Company's
                  Annual Report on Form 10-K, dated December 31, 1997)..

  3(ii).2         Bylaws of SHP (Incorporated by reference to Exhibit 3(ii).2 of
                  the Company's Form 10-K, dated December 31, 1995)

  4.1             Form  of  Series  D  Warrant   Certificate   (Incorporated  by
                  reference  to Exhibit 4.3 of the  Company's  Form 10-K,  dated
                  December 31, 1997)

  4.2             Form of SHPI Warrant Certificate (Incorporated by reference to
                  Exhibit 4.4 of the  Company's  Form 10-K,  dated  December 31,
                  1997)

  10.1            Form  of   Employment   Agreement   with  David  A.   Robinson
                  (Incorporated  by reference  to Exhibit 10.3 of the  Company's
                  Form 10-K, dated December 31, 1995)

  10.2            Form  of  Indemnity  Agreement  with  Executive  Officers  and
                  Directors  (Incorporated  by  reference to Exhibit 10.4 of the
                  Company's Form 10-K, dated December 31, 1995)

  10.3            Form of Confidentiality  Agreement  (Incorporated by reference
                  to Exhibit 10.5 of the Company's Form 10-K, dated December 31,
                  1995)

  10.4            Joint Venture  Agreement  between SHP and Zerbec,  Inc., dated
                  October 30, 1995 (Incorporated by reference to Exhibit 10.6 of
                  the Company's Form 10-K, dated December 31, 1995)

  10.5            Distribution  Agreement between SHP and Becton,  Dickinson and
                  Company  (Incorporated  by  reference  to Exhibit  10.1 of the
                  Company's Current Report on Form 8-K, dated August 26, 1996)

  10.6            License  Agreement  between  SHP  and  Becton,  Dickinson  and
                  Company  (Incorporated  by  reference  to Exhibit  10.1 of the
                  Company's Current Report on Form 8-K, dated June 4, 1997)

  10.7            Distribution and License Agreement between SHP and Johnson and
                  Johnson  Medical,  Inc.  (Incorporated by reference to Exhibit
                  10.1  of the  Company's  Current  Report  on Form  8-K,  dated
                  December 22, 1997)

  10.8            Specialized  Health  Products  International,  Inc. 1998 Stock
                  Option Plan  (Incorporated  by  reference to Appendix A to the
                  Company's Amended Proxy Statement, filed October 1, 1998)

  21.1            Schedule of subsidiaries.

  27.1            Financial Data Schedule

                                       33
<PAGE>

SPECIALIZED HEALTH PRODUCTS
INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                    Page
                                                                    ----
Report of Independent Public Accountants                            F - 2

Consolidated Balance Sheet as of December 31, 1999                  F - 3

Consolidated Statements of Operations for the Years Ended
  December 31, 1999 and 1998 and for the Period
  from Inception to December 31, 1999                               F - 5

Consolidated Statements of Stockholders' Equity (Deficit)
  for the Years Ended December 31, 1999 and 1998 and
  for the Period from Inception to December 31, 1999                F - 6

Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1999 and 1998 and for the Period
  from Inception to December 31, 1999                              F - 12

Notes to Consolidated Financial Statements                         F - 14

                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Specialized Health Products International, Inc.:

We have  audited the  accompanying  consolidated  balance  sheet of  Specialized
Health Products  International,  Inc. (a Delaware corporation in the development
stage) and  subsidiaries  as of December 31, 1999, and the related  consolidated
statements of operations,  stockholders' equity (deficit) and cash flows for the
years ended December 31, 1999 and 1998 and the related statements of operations,
stockholders'  equity  (deficit)  and cash flows for the period  from  inception
(November 19, 1993) to December 31, 1999.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial  statements based on our audits. We did not audit the
consolidated financial statements of Specialized Health Products  International,
Inc. and  subsidiaries  for the period from inception to December 31, 1995. Such
financial  statements are included in the  cumulative  inception to December 31,
1999 totals of the statements of operations,  stockholders' equity (deficit) and
cash flows and reflect total  revenues and net loss of 7 percent and 24 percent,
respectively,  of the related cumulative totals. Those financial statements were
audited  by other  auditors  whose  reports  have been  furnished  to us and our
opinion,  insofar as it  relates  to those  specified  amounts  included  in the
cumulative totals, is based solely upon the reports of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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  and the  reports of other  auditors
provide a reasonable basis for our opinion.

In our  opinion,  based on our audits and the  reports  of other  auditors,  the
financial statements referred to above present fairly, in all material respects,
the   consolidated   financial   position   of   Specialized   Health   Products
International, Inc. and subsidiaries as of December 31, 1999, and the results of
their  operations and their cash flows for the years ended December 31, 1999 and
1998 and for the period from inception to December 31, 1999, in conformity  with
accounting principles generally accepted in the United States.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated   financial  statements,   the  Company  experienced  only  minimal
profitability  in 1999  and  prior to that  incurred  significant  losses  since
inception. The Company incurred negative cash flows from operating activities of
$2,340,118  and  $2,069,322  for the years  ended  December  31,  1999 and 1998,
respectively.  Sales of products based on the Company's proprietary technologies
have been  minimal.  As of December  31,  1999,  the Company had an  accumulated
deficit  of  $16,063,783.  These  matters  raise  substantial  doubt  about  the
Company's ability to continue as a going concern.  Management's  plans in regard
to these  matters are also  described in Note 1. The  accompanying  consolidated
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and  classification  of asset carrying amounts or the amount and
classification  of liabilities that might result should the Company be unable to
continue as a going concern.

ARTHUR ANDERSEN LLP

Salt Lake City, Utah
 February 9, 2000 (except with respect to
  the matter discussed in the fifth paragraph
  of Note 3, as to which the date is April 12, 2000)

                                      F-2
<PAGE>
<TABLE>
<CAPTION>

SPECIALIZED HEALTH PRODUCTS international, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED BALANCE SHEET


         ASSETS                                                                       December 31,
         ------                                                                           1999
                                                                                 ----------------------
CURRENT ASSETS:
<S>                                                                               <C>
   Cash                                                                           $       180,425
   Accounts receivable                                                                    135,374
   Prepaid expenses and other                                                              36,869
   Amounts due from related parties                                                         3,145
                                                                                 ----------------------

       Total current assets                                                               355,813
                                                                                 ----------------------

PROPERTY AND EQUIPMENT, at cost:
   Manufacturing molds                                                                    474,633
   Office furnishings and fixtures                                                        552,882
   Assembly and manufacturing equipment                                                   317,391
   Leasehold improvements                                                                 132,326
   Construction-in-progress                                                                71,300
                                                                                 ----------------------
                                                                                        1,548,532

   Less accumulated depreciation and amortization                                        (811,041)
                                                                                 ----------------------

       Net property and equipment                                                         737,491
                                                                                 ----------------------

OTHER ASSETS                                                                               35,568
                                                                                 ----------------------

                                                                                  $     1,128,872
                                                                                 ======================
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of this consolidated balance sheet.

                                      F-3
<PAGE>
<TABLE>
<CAPTION>

SPECIALIZED HEALTH PRODUCTS international, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED BALANCE SHEET (Continued)


         LIABILITIES AND STOCKHOLDERS' EQUITY                                         December 31,
         ------------------------------------                                             1999
                                                                                 ----------------------
CURRENT LIABILITIES:
<S>                                                                               <C>
   Accounts payable                                                               $         4,692
   Accrued liabilities                                                                    120,983
                                                                                 ----------------------

       Total current liabilities                                                          125,675
                                                                                 ----------------------

COMMITMENTS AND CONTINGENCIES (Notes 1, 3 and 6)
STOCKHOLDERS' EQUITY:
   Preferred stock, $.001 par value; 5,000,000 shares authorized, no shares
     outstanding                                                                              -
   Common stock, $.02 par value; 50,000,000 shares authorized, 12,356,440
     shares outstanding                                                                   247,129
   Additional paid-in capital                                                          14,865,399
   Series D warrants to purchase common stock                                           1,954,452
   Deficit accumulated during the development stage                                   (16,063,783)
                                                                                 ----------------------

       Total stockholders' equity                                                       1,003,197
                                                                                 ----------------------

                                                                                  $     1,128,872
                                                                                 ======================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
                      of this consolidated balance sheet.

                                      F-4
<PAGE>
<TABLE>
<CAPTION>

SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED STATEMENTS OF OPERATIONS

                                                             Year Ended December 31,               Period from
                                                     ------------------------------------------    Inception to
                                                                                                   December 31,
                                                            1999                 1998                  1999
                                                     ----------------------------------------------------------------
REVENUES:
<S>                                                    <C>                  <C>                 <C>
   Net product sales                                   $           -        $       10,202      $       748,228
   Development fees and related services                    1,100,947            1,028,934            2,379,881
   License fees                                             3,750,000                  -              3,750,000
                                                     ----------------------------------------------------------------
       Total revenues                                       4,850,947            1,039,136            6,878,109
                                                     ----------------------------------------------------------------

 COST OF REVENUES:
   Cost of product sales                                          -                  8,048              536,002
   Cost of development fees and related services              890,222              823,146            1,713,368
                                                     ----------------------------------------------------------------
       Total cost of revenues                                 890,222              831,194            2,249,370
                                                     ----------------------------------------------------------------

       Gross margin                                         3,960,725              207,942            4,628,739
                                                     ----------------------------------------------------------------

OPERATING EXPENSES:
   Selling, general and administrative                      2,776,669            2,946,722           14,692,540
   Research and development                                   780,425              909,048            5,241,105
   Loss on disposal of operating assets                       105,762              754,803            1,280,557
                                                     ----------------------------------------------------------------
       Total operating expenses                             3,662,856            4,610,573           21,214,202
                                                     ----------------------------------------------------------------

 INCOME (LOSS) FROM OPERATIONS                                297,869           (4,402,631)         (16,585,463)
                                                     ----------------------------------------------------------------


OTHER INCOME (EXPENSE):
   Interest income                                             58,261              199,287              520,150
   Interest expense                                               -                    -                (23,658)
   Other income, net                                            3,101                5,777               53,357
                                                     ----------------------------------------------------------------

       Net other income                                        61,362              205,064              549,849
                                                     ----------------------------------------------------------------

NET INCOME (LOSS)                                             359,231           (4,197,567)         (16,035,614)

LESS PREFERENCE STOCK DIVIDENDS                                   -                    -                (28,169)

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

NET INCOME (LOSS) APPLICABLE TO COMMON SHARES          $      359,231       $   (4,197,567)     $   (16,063,783)
                                                     ================================================================

BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE   $          .03       $         (.35)
                                                     ==========================================

BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES
   OUTSTANDING                                             12,356,440           12,153,264
                                                     ==========================================


DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES
   OUTSTANDING                                             12,364,917           12,153,264
                                                     ==========================================
</TABLE>
          The  accompanying  notes to consolidated  financial  statements are an
                integral part of these consolidated statements.

                                      F-5
<PAGE>
<TABLE>
<CAPTION>

SPECIALIZED HEALTH PRODUCTS international, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                                                                                                              Deficit
                                                                 Common                                     Accumulated
                       Preferred Stock       Common Stock       Stock Sub-  Additional                       During the   Deferred
                    -------------------- --------------------   scriptions   Paid-in   Series C   Series D   Development  Consulting
                      Shares    Amount     Shares     Amount    Receivable   Capital   Warrants   Warrants     Stage       Expense
                    ----------------------------------------------------------------------------------------------------------------
<S>                 <C>       <C>         <C>         <C>        <C>        <C>         <C>       <C>       <C>           <C>
Issuance of
 common stock for
 cash at inception          - $        -   1,170,000  $   1,300  $       -  $        -  $      -  $       - $           - $       -

Net loss                    -          -           -          -          -           -         -          -        (3,450)        -
                    ----------------------------------------------------------------------------------------------------------------


BALANCE as of
  December 31, 1993         -          -   1,170,000      1,300          -           -         -          -        (3,450)        -

Issuance of
 preferred stock
 for cash           1,440,000    560,000           -          -          -           -         -          -             -         -

Issuance of
 common stock for
 services and stock
 subscriptions
 receivable                 -          -     193,500    208,500  $(198,500)          -         -          -             -         -

Unpaid dividends
 on preference
 stock                      -          -           -          -          -           -         -          -       (16,780)        -

Net loss                    -          -           -          -          -           -         -          -      (906,948)        -
                    ----------------------------------------------------------------------------------------------------------------
BALANCE as of
  December 31, 1994 1,440,000 $  560,000   1,363,500  $ 209,800  $(198,500) $        -  $      -  $       - $    (927,178)$       -

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

                                      F-6
<PAGE>
<CAPTION>

SPECIALIZED HEALTH PRODUCTS international, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)

                                                                                                              Deficit
                                                                 Common                                     Accumulated
                       Preferred Stock       Common Stock       Stock Sub-  Additional                       During the   Deferred
                    -------------------- --------------------   scriptions   Paid-in   Series C   Series D   Development  Consulting
                      Shares    Amount     Shares     Amount    Receivable   Capital   Warrants   Warrants     Stage       Expense
                    ----------------------------------------------------------------------------------------------------------------
<S>                 <C>       <C>         <C>         <C>        <C>        <C>         <C>       <C>       <C>           <C>
Issuance of
 preferred stock
 for cash             362,403 $  604,001           -  $       -  $       -  $        -  $      -  $       - $           - $       -

Issuance of
 common stock
 for stock
 subscriptions
 receivable                 -          -      70,000      1,400   (140,000)    138,600         -          -             -         -

Reduction in stock
 subscriptions
 receivable
 (cash and services)        -          -           -          -    288,500           -         -          -             -         -

Unpaid dividends on
 preference stock           -          -           -          -          -           -         -          -       (11,389)        -

Exchange of debt
 for common stock           -          -     396,500    386,000          -      99,000         -          -             -         -

Issuance of common
 shares to
 stockholders under
 antidilution
 provisions                 -          -      90,000    180,000          -    (180,000)        -          -             -         -

Business
 combination       (1,802,403)(1,164,001)  2,102,403   (696,752)         -   1,860,753         -          -             -         -

Issuance of common
 stock for cash,
 net of expenses            -          -   4,256,250     85,125          -   7,193,935         -          -             -         -

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

                                      F-7
<PAGE>
<CAPTION>

SPECIALIZED HEALTH PRODUCTS international, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)

                                                                                                              Deficit
                                                                 Common                                     Accumulated
                       Preferred Stock       Common Stock       Stock Sub-  Additional                       During the   Deferred
                    -------------------- --------------------   scriptions   Paid-in   Series C   Series D   Development  Consulting
                      Shares    Amount     Shares     Amount    Receivable   Capital   Warrants   Warrants     Stage       Expense
                    ----------------------------------------------------------------------------------------------------------------
<S>                 <C>       <C>         <C>         <C>        <C>        <C>         <C>       <C>       <C>           <C>
Exercise of
 stock options
 for common stock
 subscriptions
 receivable                 - $        -     288,000  $   5,760  $(209,500) $  203,740  $      -  $       - $           - $       -
Net loss                    -          -           -          -          -           -         -          -    (2,919,489)        -
                    ----------------------------------------------------------------------------------------------------------------
BALANCE as of
 December 31, 1995          -          -   8,566,653    171,333   (259,500)  9,316,028         -          -    (3,858,056)        -

Cash received
 for stock
 subscriptions
 receivable                 -          -           -          -     50,300           -         -          -             -         -

Exercise of
 common stock
 options                    -          -      45,000        900          -      16,650         -          -             -         -

Exercise of
 common stock
 warrants                   -          -      45,000        900          -      74,250         -          -             -         -

Grant of stock
 options for
 consulting
 services                   -          -           -          -          -     134,000         -          -             -   (40,200)

Net loss                    -          -           -          -          -           -         -          -    (4,093,388)        -
                    ----------------------------------------------------------------------------------------------------------------
BALANCE as of
 December 31, 1996          - $        -   8,656,653  $ 173,133  $(209,200) $9,540,928  $      -  $       - $  (7,951,444)$ (40,200)

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

                                      F-8
<PAGE>
<CAPTION>

SPECIALIZED HEALTH PRODUCTS international, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)

                                                                                                              Deficit
                                                                 Common                                     Accumulated
                       Preferred Stock       Common Stock       Stock Sub-  Additional                       During the   Deferred
                    -------------------- --------------------   scriptions   Paid-in   Series C   Series D   Development  Consulting
                      Shares    Amount     Shares     Amount    Receivable   Capital   Warrants   Warrants     Stage       Expense
                    ----------------------------------------------------------------------------------------------------------------
<S>                 <C>       <C>         <C>         <C>        <C>        <C>         <C>       <C>       <C>           <C>
Exercise of
 common stock
 options                    - $        -     110,000  $   2,200  $       -  $  181,575  $      -  $       - $           - $       -
                                                                                                                             -
Issuance of
 common stock and
 common stock
 warrants for
 cash, net
 of expenses                -          -   1,263,189     25,264          -   2,180,343   310,994    388,158             -         -

Issuance of
 common stock
 for services               -          -     100,000      2,000          -     210,500         -          -             -         -

Net loss                    -          -           -          -          -           -         -          -    (4,274,003)        -
                    ----------------------------------------------------------------------------------------------------------------
BALANCE as of
 December 31, 1997          -          -  10,129,842    202,597   (209,200) 12,113,346   310,994    388,158   (12,225,447)  (40,200)

Exercise of
 common stock
 warrants                   -          -      85,000      1,700          -     168,300         -          -             -         -

Issuance of
 common stock and
 conversion of
 Series C warrants
 to Series D
 warrants                   -          -     256,598      5,132          -      (5,132) (310,994)         -             -   310,994

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

                                      F-9
<PAGE>
<CAPTION>

SPECIALIZED HEALTH PRODUCTS international, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)

                                                                                                              Deficit
                                                                 Common                                     Accumulated
                       Preferred Stock       Common Stock       Stock Sub-  Additional                       During the   Deferred
                    -------------------- --------------------   scriptions   Paid-in   Series C   Series D   Development  Consulting
                      Shares    Amount     Shares     Amount    Receivable   Capital   Warrants   Warrants     Stage       Expense
                    ----------------------------------------------------------------------------------------------------------------
<S>                 <C>       <C>         <C>         <C>        <C>        <C>         <C>       <C>       <C>           <C>
Issuance of
 common stock
 and common stock
 warrants for cash,
 net of expenses            - $        -   1,860,000  $  37,200  $       -  $2,518,159  $      - $1,078,800 $           - $       -

Issuance of
 common stock
 warrants for
 service                    -          -           -          -          -           -         -    163,500             -         -

Cash received
 for stock
 subscriptions
 receivable                 -          -           -          -      9,000           -         -          -             -         -

Issuance of
 common stock
 options for
 services                   -          -           -          -          -       7,200         -          -             -         -

Issuance of
 common stock
 for services               -          -      25,000        500          -     (13,500)        -     13,000             -         -

Net loss                    -          -           -          -          -           -         -          -    (4,197,567)        -
                    ----------------------------------------------------------------------------------------------------------------
BALANCE as of
 December 31, 1998          -          -  12,356,440    247,129   (200,200) 14,788,373         -  1,954,452   (16,423,014)  (40,200)

Reduction in stock
 subscriptions
 receivable                 -          -           -          -    200,200           -         -          -             -         -

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

                                      F-10
<PAGE>
<CAPTION>

SPECIALIZED HEALTH PRODUCTS international, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)

                                                                                                              Deficit
                                                                 Common                                     Accumulated
                       Preferred Stock       Common Stock       Stock Sub-  Additional                       During the   Deferred
                    -------------------- --------------------   scriptions   Paid-in   Series C   Series D   Development  Consulting
                      Shares    Amount     Shares     Amount    Receivable   Capital   Warrants   Warrants     Stage       Expense
                    ----------------------------------------------------------------------------------------------------------------
<S>                 <C>       <C>         <C>         <C>        <C>        <C>         <C>       <C>       <C>           <C>
Modification of
 options
 previously
 granted to
 employees                  - $        -           -  $       -  $       -  $   97,126  $      -  $       - $           - $       -

Stock options
 granted in
 exchange for
 services
 rendered                   -          -           -          -          -     (20,100)        -          -             -    20,100

Stock options
 forfeited                  -          -           -          -          -           -         -          -             -    20,100

Net income                  -          -           -          -          -           -         -    359,231             -         -
                    ----------------------------------------------------------------------------------------------------------------
BALANCE as of
 December 31, 1999          - $        -  12,356,440  $ 247,129  $       - $14,865,399  $      - $1,954,452 $ (16,063,783)$       -
                    ================================================================================================================
</TABLE>

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

                                      F-11
<PAGE>
<TABLE>
<CAPTION>

SPECIALIZED HEALTH PRODUCTS international, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Increase (Decrease) in Cash

                                                                                                      Period from
                                                                   Year Ended December 31,            Inception to
                                                              ------------------------------------    December 31,
                                                                     1999              1998               1999
                                                              ---------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                            <C>               <C>                <C>
    Net income (loss)                                          $      359,231    $   (4,197,567)    $   (16,035,614)
    Adjustments to reconcile net income (loss) to net cash
      used in operating activities:
        Depreciation and amortization                                 382,597           430,315           1,340,570
        Allowance for doubtful accounts receivable                    125,800               -               125,800
        Common stock issued for services                                  -                 -               231,000
        Noncash consulting expense                                    117,226            23,700             381,726
        Loss on disposition of assets                                 105,762           754,803           1,281,848
        Changes in operating assets and liabilities:
             Accounts receivable                                      359,110          (460,156)           (135,374)
             Unbilled receivables on contracts                        142,414          (142,414)                -
             Inventories                                                2,520            69,832                 -
             Prepaid expenses and other                                 7,887            19,460             (36,869)
             Amounts due from related parties                          21,663           (24,808)             (3,145)
             Other assets                                                 -               1,143             (27,000)
             Accounts payable                                         (12,546)         (452,710)              4,692
             Accrued liabilities                                     (201,782)           36,275             120,983
             Amounts due to related parties                               -            (127,195)                -
             Deferred royalty revenue                              (3,750,000)        2,000,000                 -
                                                              ---------------------------------------------------------

              Net cash used in operating activities                (2,340,118)       (2,069,322)        (12,751,383)
                                                              ---------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property and equipment                                (35,940)         (709,827)         (2,918,848)
    Purchase of patents and technology                                    -                 -              (356,146)
    Proceeds from the sale of assets                                    2,000             4,517               6,517
                                                              ---------------------------------------------------------

              Net cash used in investing activities                   (33,940)         (705,310)         (3,268,477)
                                                              ---------------------------------------------------------


                                      F-12
<PAGE>
<CAPTION>

SPECIALIZED HEALTH PRODUCTS international, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Increase (Decrease) in Cash

                                                                                                    Period from
                                                                   Year Ended December 31,          Inception to
                                                              -----------------------------------   December 31,
                                                                   1999             1998                1999
                                                              --------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S>                                                             <C>              <C>               <C>
   Proceeds from issuance of common stock                       $         -      $   2,725,359     $    12,487,801
   Proceeds from issuance of common stock warrants                        -          1,078,800           1,777,952
   Proceeds from stock subscriptions                                   74,400            9,000             413,700
   Proceeds from issuance of preferred stock                              -                -             1,164,001
   Proceeds from issuance of redeemable preference stock                  -                -               240,000
   Payments on redeemable preference stock and dividends                  -                -              (268,169)
   Net repayments on stockholder loans                                    -                -               385,000
                                                              --------------------------------------------------------

              Net cash provided by financing activities                74,400        3,813,159          16,200,285
                                                              --------------------------------------------------------

NET INCREASE (DECREASE) IN CASH                                    (2,299,658)       1,038,527             180,425

CASH AT BEGINNING OF THE PERIOD                                     2,480,083        1,441,556                 -
                                                              --------------------------------------------------------

CASH AT END OF THE PERIOD                                       $     180,425    $   2,480,083     $       180,425
                                                              ========================================================
</TABLE>

 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
   FINANCING ACTIVITIES:

   For the period from  inception  to December 31,  1999,  the Company  recorded
     in-kind dividends on the redeemable preferred stock of $28,169.

   For the period from inception to December 31, 1999, the Company issued common
     stock for subscriptions receivable of $548,000.

   For the period from  inception to December 31,  1999,  the Company  converted
     certain  stockholder  loans and amounts due to stockholders to common stock
     totaling $485,000.

                                      F-13
<PAGE>

SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)    NATURE OF OPERATIONS AND BUSINESS COMBINATION

Nature of Operations

Specialized  Health Products  International,  Inc.  together with its wholly and
majority  owned  subsidiaries,   Specialized  Health  Products,   Inc.  ("SHP"),
Specialized Cooperative Corporation ("SCC"), Iontophoretics Corporation ("IPC"),
and Safety  Syringe  Corporation  ("SSC")  (collectively,  the  "Company")  is a
development   stage   company   which  is   primarily   engaged  in   developing
cost-effective, disposable, proprietary healthcare products designed to limit or
prevent  the risk of  accidental  needle  sticks  which may cause the  spread of
blood-borne  diseases such as HIV/AIDS and hepatitis B. The Company's activities
since inception have focused on research and development of products,  obtaining
financing,   recruiting   personnel  and  identifying   and   contracting   with
manufacturers,  distributors and strategic partners. The Company has a portfolio
of  proprietary,  safety  healthcare  products  that are in  various  stages  of
production,  pre-production,  development and research.  The Company principally
intends to use third parties to manufacture,  market and distribute its products
worldwide.

Development Stage Presentation

The Company is in the development stage and has incurred significant  cumulative
net losses. The Company experienced only minimal profitability in 1999 and prior
to that incurred net losses since inception.  The Company incurred negative cash
flows from operating  activities of $2,340,118  and $2,069,322  during the years
ended December 31, 1999 and 1998,  respectively.  Sales of the products based on
the Company's  proprietary  technologies  have been minimal.  As of December 31,
1999, the Company had an accumulated deficit of $16,063,783. These matters raise
substantial  doubt about the Company's  ability to continue as a going  concern.
The Company's  continued  existence is dependent upon several factors  including
the Company's success in raising  sufficient  funding,  bringing its products to
commercialization,  reducing  costs and entering into  favorable  contracts with
third-party manufacturers, distributors and strategic partners.

Although there can be no assurance,  the Company believes that existing cash and
expected  cash  flows from  existing  and  potential  distribution  and  license
agreements (see Note 3), will be sufficient to support the Company's  operations
at least through  December 31, 2000.  Management has negotiated  agreements with
third  parties  to  assist  in the  development,  financing,  manufacturing  and
distribution of its products under  development or near  commercialization.  The
Company's inability to obtain additional  funding,  as required,  could severely
impair its business  operations and there can be no assurance that the Company's
operating plan will be successful.

The  Company is subject to certain  risk  factors due to its  development  stage
status, the industry in which it competes and the nature of its operations. Many
of these factors may be unforeseen and beyond the Company's control.  These risk
factors include:

a)   The Company has experienced  limited sales of its Safety  Cradle(R)  sharps
     container products,  the Company's only currently  commercialized  product.
     There is no assurance that other products will be  commercially  viable and
     no assurance can be given that the Company will have sufficient  sales or a
     sufficient  customer base to become  profitable.  The business prospects of
     the  Company  will  be  affected  by  expenses,   operational   issues  and
     uncertainties  frequently  encountered  in the  development  of a  business
     enterprise in a competitive environment.

b)   The Company's need for capital during the next year or more will vary based
     upon a number  of  factors,  including  the rate at  which  demand  for its
     products  expands,  the level of sales  and  marketing  activities  for the
     Safety Cradle(R) sharps container product and the level of effort needed to
     develop and  commercialize  other

                                      F-14
<PAGE>

     products utilizing the Company's medical needle and other technologies.  If
     additional  funds are not successfully  raised,  the lack of liquidity will
     likely have a material adverse effect on the Company.

c)   The Company's  safety  medical  products may not be accepted by the market.
     Market acceptance of the Company's  products will depend in large part upon
     the Company's  ability to demonstrate the operational  advantages,  safety,
     efficacy,  and  cost-effectiveness  of its  products  compared to competing
     products and its ability to distribute  through major medical  distributors
     and strategic partners.

d)   Regulation is a significant  factor in the development and marketing of the
     Company's products and in the Company's ongoing  manufacturing and research
     and development activities.  The Company and its products are regulated, in
     part, by the Federal Food,  Drug, and Cosmetic Act which is administered by
     the United  States Food and Drug  Administration.  The process of obtaining
     required   regulatory   clearances   or  approvals   for  products  can  be
     time-consuming and expensive.

e)   The Company anticipates that it will be dependent on third-party  contracts
     for the distribution of its products, none of which have been successful to
     date.

f)   The Company operates in a very competitive market and there is no assurance
     that development of superior  competing  products and changes in technology
     will not eliminate the need for the Company's products. The introduction of
     competing products could adversely affect the Company's attempts to develop
     and market its products successfully.

g)   The Company's  future success depends in part on its ability to protect its
     intellectual property and maintain the proprietary nature of its technology
     through  a  combination   of  patents  and  other   intellectual   property
     arrangements.  There can be no assurance  that the  protection  provided by
     patents  will be broad  enough  to  prevent  competitors  from  introducing
     similar products or that such patents, if challenged, will be upheld by the
     courts of any jurisdiction.

h)   The sale of medical  devices  entails an inherent  risk of liability in the
     event of product failure or claim of harm caused by product operation.  The
     Company currently maintains product liability insurance;  however, there is
     no  assurance  that the Company will be able to maintain  adequate  product
     liability insurance with acceptable terms in the future.

Business Combination

SHP was organized in November  1993.  In July 1995,  SHP entered into a business
combination  with Russco,  Inc.  wherein it became a wholly owned  subsidiary of
Russco  and  Russco's   name  was  changed  to   Specialized   Health   Products
International,  Inc. ("SHPI"). Russco was organized in February 1986. Russco had
no  significant  operations  and  minimal  capital  with  which to  conduct  its
business.

At the closing of the business  combination,  Russco's  300,000 shares of common
stock  remained  outstanding  as common  stock of the Company and Russco  issued
3,602,403  shares of its  common  stock for all of the  issued  and  outstanding
shares of SHP's common and preferred stock. The business combination was treated
as a reverse  merger  for  accounting  purposes.  SHP was  determined  to be the
acquiring  company even though  Russco  issued its common  shares to acquire SHP
because  the  stockholders  of SHP  received  the  significant  majority  of the
outstanding common stock of the Company.  In addition,  management of SHP became
the  management  of the  Company.  Because  Russco had limited  operations,  the
business  combination was accounted for as a purchase  transaction  with the net
assets of Russco (which were  insignificant)  being recorded at their  estimated
fair value at the date of closing and the  operating  results of Russco prior to
the  business  combination  not being  included  with the  historical  operating
results of SHP.

                                      F-15
<PAGE>

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying  consolidated financial statements include the accounts of SHPI
and its wholly  owned  subsidiaries.  All  material  intercompany  balances  and
transactions have been eliminated in consolidation.

Pervasiveness of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
effect  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.

Cash

Cash is  comprised  of  checking  and money  market  accounts  at a bank.  As of
December  31, 1999,  the Company had demand  deposits at a bank in excess of the
$100,000 limit for insurance by the Federal Deposit Insurance Corporation.

Property and Equipment

Property and equipment are stated at cost and consist primarily of manufacturing
molds and equipment, office furniture and fixtures and construction-in-progress.
Manufacturing molds and equipment are depreciated using the straight-line method
over seven years or the  units-of-production  method,  whichever is greater. All
other  property and equipment are  depreciated  using the  straight-line  method
based on the estimated useful lives of the related assets which are five years.

Maintenance  and  repairs  are  charged  to  expense  as  incurred  and costs of
improvements and betterments are capitalized. Upon disposal or sale, the related
asset costs and  accumulated  depreciation  are removed  from the  accounts  and
resulting gains or losses are reflected in current operations.

Costs  incurred  in  connection  with  the   fabrication  and   construction  of
manufacturing  molds and equipment are capitalized as  construction-in-progress.
No depreciation is recognized on these assets until they are placed in service.

Other Assets

Other assets consist primarily of purchased  technology rights and patents,  and
related patent costs such as outside legal fees. These costs are being amortized
on a  straight-line  basis over seven years.  Accumulated  amortization  totaled
approximately   $423,000  at  December  31,  1999.   Management   evaluates  the
recoverability of these costs on a periodic basis, based on sales of the product
related to the technology,  existing or expected sales contracts, revenue trends
and projected cash flows.

Long-Lived Assets

The Company  accounts for  impairment  of long-lived  assets in accordance  with
Statement of Financial  Accounting Standards No. 121, "Accounting for Impairment
of  Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of" ("SFAS No.
121").  SFAS No. 121 requires that long-lived  assets be reviewed for impairment
when events or changes in circumstances indicate that the book value of an asset
may not be  recoverable.  The Company  evaluates,  at each  balance  sheet date,
whether  events  and   circumstances   have  occurred  that  indicate   possible
impairment.  In  accordance  with SFAS No. 121,  the Company uses an estimate of
future  undiscounted net cash flows of the related asset or group of assets over
the remaining life in measuring whether the assets are recoverable.

                                      F-16
<PAGE>

During  1999,  the  Company  adjusted  the  estimated  useful  lives of  certain
manufacturing molds in order to properly reflect the realized value of the molds
at December 31, 1999. As a result of the adjustment,  an additional  $108,554 of
depreciation expense was recognized during 1999.

During  1998,  the  Company  elected  to abandon  the  further  manufacture  and
distribution of the ExtreSafe(R)  Lancet Strips. As a result,  the Company wrote
off  $49,853  of  inventory,   $7,380  of  patent  costs,   net  of  accumulated
amortization,  and $739,924 of fixed assets,  net of  accumulated  depreciation,
related to the  discontinued  product that cannot be utilized by the Company for
other purposes.

Also during 1998,  the Company  adjusted the  estimated  useful lives of certain
patents in order to properly  reflect  the fair  market  value of the patents at
December 31, 1998.  As a result of the  adjustment,  an  additional  $144,169 of
amortization expense was recognized during 1998.

Revenue Recognition

Sales are recognized when product is shipped to the customer.  Development  fees
are recognized in the period that the related  services are  performed.  Royalty
revenues are  recognized as revenues when the related  products are sold or upon
the Company's fulfillment of any future obligation under the related agreements.

Research and Development Costs

Research and development costs are expensed as incurred.

Income Taxes

The Company recognizes a liability or asset for the deferred tax consequences of
temporary  differences between the tax basis of assets and liabilities and their
reported  amounts in the consolidated  financial  statements that will result in
taxable or deductible  amounts in future years when the reported  amounts of the
assets and liabilities are recovered or settled.

Fair Value of Financial Instruments

The book values of the Company's  financial  instruments  approximate their fair
values.  The estimated fair values have been determined using appropriate market
information and valuation methodologies.

Recent Accounting Pronouncements

The Financial  Accounting  Standards Board has issued SFAS No. 133,  "Accounting
for Derivatives  Instruments and Hedging Activities." This statement establishes
accounting and reporting standards requiring that every derivative instrument be
recorded on the balance  sheet as either an asset or liability  measured at fair
value. The statement also requires that changes in the  derivative's  fair value
be recognized  currently in earnings unless specific hedge  accounting  criteria
are met. This statement is effective for fiscal years  beginning  after June 15,
2000,  and  is  not  expected  to  have  a  material  impact  on  the  Company's
consolidated financial statements.
                                      F-17
<PAGE>

Basic and Diluted Net Income (Loss) Per Common Share

As a result of the Company  incurring net losses for the year ended December 31,
1998,  both basic and diluted net loss per common  share for that year are based
on the weighted average number of common shares  outstanding.  Stock options and
warrants prior to conversion are not included in the  calculation of diluted net
loss  per  common  share  for  that  year  because  their   inclusion  would  be
antidilutive,  thereby  reducing  the net loss per  common  share.  Options  and
warrants to purchase 6,020,287 shares of common stock at exercise prices ranging
from $1.25 to $2.625 per share were  outstanding  at December  31, 1999 but were
not included in the  computation  of diluted EPS for the year then ended because
the  exercise  price was  greater  than the average  market  price of the common
shares and as such, their inclusion would be  antidilutive.  Options to purchase
18,000 common shares were  dilative and  therefore  were  considered in the 1999
calculation of diluted EPS.

Reclassifications

Certain  reclassifications  have  been  made in the  prior  years'  consolidated
financial statements to conform to the current year presentation.

(3)      DISTRIBUTION AND LICENSE AGREEMENTS

Becton Dickinson and Company

In August 1996,  the Company  entered into an exclusive  distribution  agreement
with Becton Dickinson and Company Sharps Disposal  Systems Division  relating to
the Company's Safety Cradle(R) sharps container products.  The agreement granted
Becton  Dickinson  an exclusive  worldwide  right to market and  distribute  the
Company's  sharps  container  products for an initial  term of three years.  The
first sales  pursuant to the  agreement  occurred in the first  quarter of 1997;
however,  as a result of Becton  Dickinson's  failure to meet  minimum  purchase
requirements  set forth in the agreement,  the Company  terminated the agreement
during 1998. Sales of the Safety Cradle(R) sharps have been minimal.

In May 1997, the Company entered into an exclusive license agreement with Becton
Dickinson and Company Infusion Therapy Division relating to a single application
of the Company's ExtreSafe(R) safety needle withdrawal  technology.  Pursuant to
the terms of the agreement,  Becton  Dickinson paid $4,000,000 to the Company of
which  $3,750,000  was for advanced  royalties for sales of product and $250,000
was for a product  development  fee.  In June  1999,  Becton  Dickinson  and the
Company  amended  the  license  agreement.   The  amendment  provides  that  the
$3,750,000  previously  paid by  Becton  Dickinson  to the  Company  will not be
credited  against  future earned  royalties and the Company will have no further
obligation  of any kind to Becton  Dickinson  with  respect  to these  payments.
Accordingly,  the  $3,750,000  of deferred  royalty  revenue was  recognized  as
revenue during 1999. The Company will not be manufacturing product in connection
with the license agreement.

Johnson & Johnson Medical, Inc.

In December 1997,  the Company  entered into an agreement with Johnson & Johnson
Medical,  Inc. to commercialize  two applications of the Company's safety needle
technologies  in one  restricted  field-of-application  of the  technology.  The
agreement  provides  for  monthly  development  payments  by  Johnson & Johnson,
sharing of field  related  patent  costs,  payments  for initial  periods of low
volume  manufacturing,  an  ongoing  royalty  stream  and a  Johnson  &  Johnson
investment  in molds,  assembly  equipment  and other  capital  costs related to
commercialization of each product.

The agreement  also provides for an ongoing joint  cooperative  program  between
Johnson & Johnson and the Company which  derives  future  funding  directly from
sales of Company created products,  the possibility of low volume  manufacturing
revenue for the  Company and an ongoing  royalty  stream for  additional  safety
products which are jointly  approved for  development.  The Company  anticipates
that Johnson & Johnson will perform substantially all of the manufacturing under
the Johnson & Johnson  agreement  during 2000. The Company and Johnson & Johnson
also  entered  into  arrangements  whereby  they are  pursuing  development  and
commercialization  of four

                                      F-18
<PAGE>

additional products. The Company anticipates that sales of one product under the
Johnson & Johnson agreement will begin in the year 2000 with additional products
scheduled for  introduction  into the market in 2001. There is no assurance that
the Company will realize revenues under the Johnson & Johnson  agreement or that
any of these products will be launched as anticipated.

Kendall Healthcare Products Company

In  November  1999,  the  Company and Kendall  Healthcare  Products  Company,  a
division of Tyco Healthcare Group LP ("Kendall")  entered into a Development and
License Agreement (the "Kendall  Agreement")  relating to one application of the
Company's needle technology in the production of a line of safety medical needle
products,  including six syringe products and five other safety needle products.
The  Kendall  Agreement  became  effective  March 29,  2000 upon  obtaining  the
required  approvals  of Kendall  and the  Company.  In April  2000,  the Company
received  $1,500,000,  less $35,044  representing the Company's share of certain
patent filing costs,  under the Kendall Agreement and will receive an additional
$1,000,000 upon the sale of commercial  quantities of products,  in exchange for
the Company assigning to Kendall the FlexLoc(R) and ReLoc(TM) trademarks and two
related  patents for one  technology.  The  assignment  of the patent  rights to
Kendall is subject to a preexisting  license  agreement and the retention by the
Company of an exclusive, royalty free worldwide license in a number of strategic
product  areas.  The  Kendall  Agreement  also  provides  for  SHPI  to  receive
development  fees and ongoing  royalties,  including a $500,000  advance royalty
payment upon the sale of commercial  quantities of products.  It is  anticipated
that  Kendall  will  manufacture  all  products  that are subject to the Kendall
Agreement.  There is no assurance  that products will be launched as anticipated
or that the Company will realize revenues under the Kendall Agreement.

(4)      INVESTMENT IN QUANTUM IMAGING CORPORATION

In October 1995, the Company entered into a joint venture agreement with Zerbec,
Inc. ("Zerbec"). Under the terms of the agreement, the Company and Zerbec formed
Quantum  Imaging   Corporation   ("QIC"),   a  Utah  corporation,   to  develop,
manufacture,  distribute and market products and  technologies  using a patented
solid state filmless  digitized imaging system. For a 50 percent interest in QIC
(before  considering  potential  dilution  as a result  of not  meeting  funding
requirements),  the Company was  obligated to pay QIC $15,000 a month,  which in
turn was paid to Zerbec to perform  research  and  development  on QIC's  behalf
through  March 31, 1997.  The Company was also  obligated to pay the general and
administrative  expenses of QIC up to $15,000 per month  through March 31, 1997.
Subsequent to March 31, 1997, the Company  continued to pay certain research and
development  and  general and  administrative  expenses.  The  Company  provided
funding to QIC of  approximately  $49,500  and  $469,300  during  1999 and 1998,
respectively,  all of which the Company  expensed and QIC used to fund  research
and development and to cover administrative expenses.  Assets and liabilities of
QIC were insignificant as of December 31, 1999.

During 1999,  Zerbec exercised its option to acquire two thirds of the Company's
interest in QIC for nominal consideration.  As a result of Zerbec exercising its
rights,  the Company's  ownership was reduced to approximately 17 percent of the
outstanding common stock of QIC.

(5)      TECHNOLOGY OPTION TO PURCHASE AGREEMENT

In June 1998,  the Company  entered  into an Option to Purchase  Agreement  (the
"Option  Agreement")  with the  University  of Texas System to purchase  certain
patents and related  technology,  research and  development for a total purchase
price of  $2,400,000.  In  accordance  with the  Option  Agreement,  a  $240,000
non-refundable  payment was made in July 1998 with the balance of  $2,160,000 to
be paid  within 30 days of the  exercise  of the  purchase  option.  The Company
retained the exclusive  right to exercise the option and acquire the patents and
related  technology  for a period of one year from the date of the  execution of
the Option Agreement or within 14 days of notification of successful  completion
of animal toxicity studies. The Company received notice of successful completion
of the  toxicity  studies in February  1999 and  subsequently  entered into four
amendments  to the Option  Agreement  resulting  in  extensions  of the exercise
period through May 2000. The Company paid a total of $265,000 in extension fees.
The Company was reimbursed for the majority of these fees from a third party who
expressed an interest in acquiring the technology from the Company upon exercise
of the option.  Subsequent to December 31, 1999, the third party determined that
it

                                      F-19
<PAGE>

would not  complete  the  acquisition.  As the  Company was not in a position to
exercise  the  option,  the option was allowed to expire  effective  January 23,
2000.  The Company has no  obligation  to make  additional  cash payments to the
University of Texas System.

In connection  with this Option  Agreement,  the Company entered into consulting
agreements  with  three  individuals  who were the  principal  inventors  of the
technology.  These consulting  agreements  provide for the individuals to assist
the Company to successfully develop the related technology. The individuals were
to provide a minimum of 50 hours of  services  annually  for which they would be
compensated  at a rate of $150 per hour.  Each  individual  also executed  stock
option  agreements  with the  Company's  subsidiary,  IPC,  which is the  entity
entering into the Option Agreement and the individual consulting agreements. The
stock option  agreements  provide for the  individuals  to purchase up to 40,000
shares  of IPC  common  stock at an  exercise  price of $.01 per share in 10,000
share  increments  based on achieving  certain  milestone  events in the future.
During 1998, IPC recorded  $7,200 of consulting  expense related to the granting
of these options.  During 1999, based on the achievement of certain  milestones,
20,000 of the options granted to each of the three individuals  vested, at which
time one  individual  elected to exercise  the  options in  exchange  for 20,000
shares of IPC no par value common stock.

(6)      COMMITMENTS AND CONTINGENCIES

Lease Obligations

The Company leases office space,  equipment,  and vehicles under  noncancellable
operating leases.  The following  summarizes future minimum lease payments under
operating leases at December 31, 1999:

                   Year Ending December 31,

                           2000                     $      295,000
                           2001                            306,766
                           2002                            319,001
                           2003                            135,366
                                                  -----------------

                                                    $    1,056,133
                                                  =================


Rental  expense  for  the  years  ended  December  31,  1999  and  1998  totaled
approximately $315,000 and $204,000, respectively.

Royalty Agreements

In connection with acquiring  technology rights and patents, the Company entered
into various royalty agreements. Generally, the agreements required royalties to
be paid based on various  percentages  of  revenues  generated  from the related
technologies or patents. In order to maintain certain licenses,  the Company was
obligated to pay minimum  royalties,  of which the Company  paid $20,000  during
1998.

The Company elected to abandon the further  manufacture and  distribution of the
product utilizing the technology encompassed by one of these royalty agreements.
As a result,  the royalty  agreement  was  terminated by the Company and related
technology rights and patents were forfeited during 1998. All inventory, patents
and fixed assets used in the  manufacture  of the  discontinued  product,  which
cannot be utilized by the Company for other  purposes,  were written off in 1998
(see Note 2).

In January 1998, the Company issued  warrants to purchase  750,000 common shares
with an  exercise  price of $2.00 per share to a  director  and  officer  of the
Company and his  assigns in  consideration  of the  Company's  release  from its
obligations under certain royalty agreements (see Note 11). As a result of these
events, the Company has no further obligations under any royalty agreements.

                                      F-20
<PAGE>

Employment Agreements

The  Company  has  entered  into an  employment  agreement  with  one of its key
employees. The agreement is for a term of three years and provides for an annual
aggregate  base salary of $190,000 to be reviewed  annually by the  Compensation
Committee of the Board of Directors  and  adjusted as deemed  appropriate.  Upon
termination  of  employment  without  cause,  salary and certain  benefits  will
continue to be paid through the expiration of the  agreement.  The agreement has
customary provisions for other benefits and includes noncompetition clauses.

In December 1998 and again in November  1999, a previously  existing  employment
agreement  was  amended  to allow for two cash  payments  totaling  $115,000  in
exchange  for  outstanding  common  stock  warrants  held by the  employee.  The
exchange  may be  elected  by the  employee  if the  fair  market  value  of the
Company's common stock does not reach specified  amounts by January 31, 1999 and
January  31,  2001.   Additionally,   the  January  31,  2001  exchange  may  be
accelerated,  at the employee's option,  should the Company's  consolidated cash
position  fall  below  a  specified  level.  Upon  election  of the  accelerated
exchange,  the cash compensation would be reduced by $625 each month between the
date the exchange  occurs and January 3,1 2001. On January 31, 1999, the Company
paid $50,000 to the employee upon exercise of the first option.

Litigation

The Company was involved in litigation with Lerrink, Swann & Company ("Leerink")
with respect to a dispute over investment banking commissions. In July 1999, the
parties  entered  into a  Settlement  Agreement  and  General  Release of Claims
whereby the Company paid Leerink $140,000 and all claims relating to the lawsuit
were  released  and the lawsuit was  dismissed.  The  Company  entered  into the
Settlement Agreement in order to minimize the ongoing cost and expenses relating
to the litigation as well as the disruption to its business.

(7)      STOCK OPTIONS

During 1994, the Board of Directors of SHP approved a nonqualified  stock option
plan for its officers, directors and employees, and authorized 396,000 shares of
common stock for issuance. During 1994, options to acquire 396,000 common shares
were granted at prices ranging from $.39 to $1.11 per share. The exercise prices
of the  options  were  equivalent  to the  estimated  fair  market  value of the
underlying  stock as  determined  by SHP's  Board of  Directors  at the dates of
grant.  No options  were  exercised or lapsed  during  1994.  On the date of the
business  combination,  as discussed in Note 1, all of the options  issued under
the plan became  outstanding  obligations of the Company.  On September 1, 1995,
options to acquire  288,000  shares were  exercised,  primarily by directors and
officers  of  the  Company,   from  which  the  Company  received   $209,500  in
non-interest  bearing common stock  subscriptions  receivable.  All common stock
subscriptions  receivable are due upon demand.  During 1996,  options to acquire
45,000 shares were exercised at $.39 per share and 22,500 options were canceled.
The remaining  40,500  options became  exercisable  during 1997, of which 22,500
were  exercised at $.39 per share.  As of December 31, 1999,  18,000 options are
exercisable at $.39 per share. These options expire in September 2005.

Effective September 1995, the Company's Board of Directors approved the adoption
of the Specialized  Health Products  International,  Inc. Stock Option Plan. The
plan is a  nonqualified  stock option plan and is  administered  by the Board of
Directors.  The plan  provided for the  issuance of  1,500,000  shares of common
stock to officers,  directors, other key employees and consultants. The exercise
prices of the options  granted  under this plan may not be less than 100 percent
of the fair market  value of the  underlying  common stock on the date of grant.
The options are  exercisable  for a period  defined by the Board of Directors at
the date granted;  however,  no stock option may be  exercisable  more than five
years from the date of grant.

Effective   August   1998,   adoption  of  the   Specialized   Health   Products
International,  Inc. 1998 Stock Option Plan was approved by the Company's  Board
of Directors.  The plan is a nonqualified  stock option plan and is administered
by the Board of Directors. The plan provides for the issuance of up to 2,000,000
shares of common stock to directors,  officers,  employees and consultants.  The
exercise prices of the options granted may not be less than the greater of $2.00
per share of common  stock or the fair market value (or 110 percent of such fair
market value when the optionee is a ten percent  stockholder)  of the underlying
common stock on the date of grant.  The options are

                                      F-21
<PAGE>

exercisable  for a period  not to  exceed  ten  years  (or five  years  when the
optionee is a ten percent shareholder) from the date of grant.

As permitted  by SFAS No. 123, the Company  applies APB Opinion No. 25 ("APB No.
25") and  related  interpretations  in  accounting  for  certain  aspects of its
stock-based  compensation  plans.  Accordingly,  no  compensation  cost has been
recognized  for stock  options  granted  to  officers,  directors  and other key
employees  as options  were  granted at the  intrinsic  fair market  value.  The
Company  recognized  $117,226 and $23,700 of consulting  expense during 1999 and
1998,  respectively,   related  to  certain  options  and  warrants  granted  to
nonemployee consultants in accordance with SFAS No. 123.

Had compensation  cost been determined based on the fair value at the grant date
for awards under its plans  consistent  with the method  prescribed  by SFAS No.
123,  the  Company's  net loss and basic and diluted  net loss per common  share
would have been increased to the pro forma amounts presented below:

                                                     1999        1998

                                                ------------- ---------------
Net income (loss):                 As reported   $    359,231 $   (4,197,567)


                                   Pro forma         279,915     (4,769,148)

Basic net income (loss) per
  common share:                    As reported          .03            (.35)
                                   Pro forma            .02            (.39)


Diluted net income (loss)
  per common share:                As reported          .03            (.35)
                                   Pro forma            .02            (.39)

Because the SFAS No. 123 method of  accounting  has not been  applied to options
and certain  warrants  granted prior to January 1, 1995, the resulting pro forma
compensation  cost may not be  representative  of that to be  expected in future
years.

                                      F-22
<PAGE>

A summary of the status of the  Company's  option  plans as of December 31, 1999
and 1998, and changes during the years then ended is presented below:
<TABLE>
<CAPTION>

                                           1999                             1998
                              -------------------------------- --------------------------------
                                                 Wtd. Avg.                        Wtd. Avg.
                                  Shares      Exercise Prices      Shares      Exercise Prices
                              --------------- ---------------- --------------- ----------------
<S>                            <C>              <C>              <C>             <C>
Outstanding at beginning of
  year                            1,493,500        $ 2.11          1,481,500       $ 2.11
Granted                             254,000          2.00             35,000         1.65
Exercised                               -             -                    -
Forfeited                           (94,000)         0.85            (23,000)        1.55
                              ---------------                  ---------------
Outstanding at
  end of year                     1,653,500          2.08          1,493,500         2.11
                              ===============                  ===============
Exercisable at
  end of year                     1,458,500          1.30          1,307,905         2.06
                              ===============                  ===============

Weighted average fair value
of options granted              $      0.32                      $       .74
                              ===============                  ===============
</TABLE>


The following table summarizes  information about the stock options  outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
                                              Options Outstanding                           Options Exercisable
                            --------------------------------------------------- ---------------------------------------
                                 Number           Wtd. Avg.                           Number
                               Outstanding        Remaining        Wtd. Avg.        Exercisable         Wtd. Avg.
          Range of             At December       Contractual       Exercise         at December          Exercise
       Exercise Prices          31, 1999            Life             Price           31, 1999             Price
   ------------------------ ------------------ ----------------- -------------- -------------------- -----------------
<S>                          <C>                <C>              <C>              <C>                  <C>
    $     0.3900                     18,000        0.67 years     $   0.3900              18,000       $     0.3900
          1.2500                     10,000         3.85              1.2500              10,000             1.2500
          1.6250                      5,000         3.60              1.6250               5,000             1.6250
          1.7500                      5,000         3.44              1.7500               5,000             1.7500
          1.8125                     10,000         3.38              1.8125                   -               -
          2.0000                  1,293,310         1.26              2.0000           1,138,310             2.0000
          2.0625                     50,000         2.87              2.0625              25,000             2.0625
          2.6250                    262,190         1.84              2.6250             257,190             2.6250
                            ------------------                                  --------------------
    $.39 to 2.625                 1,653,500                       $   2.076            1,458,500       $     1.3010
                            ==================                                  ====================
</TABLE>

The fair value of each option  granted is  estimated  on the date of grant using
the  Black-Scholes  option  pricing  model with the  following  weighted-average
assumptions  used for grants in 1999 and 1998:  risk-free  interest  rate of 6.0
percent in both years;  expected  lives of 2 years and 2.4 years,  respectively;
expected dividend yields of zero percent in both years;  expected  volatility of
68 percent in both years.

In calculating the pro forma net loss and pro forma basic and diluted net income
(loss) per share,  the Company has also  considered the effect of 800,000 common
stock  warrants  issued to a director  and  officer  (see Notes 6 and 11) and an
employee of the Company during 1998. The issuance of the warrants were accounted
for in accordance  with APB No. 25. For disclosure  purposes under SFAS No. 123,
the fair value of each warrant  granted was estimated on the date of grant using
the  Black-Scholes  option  pricing  model with the  following  weighted-average
assumptions used:  risk-free  interest rate of 6.0 percent;  expected lives of 2
years; expected dividend yield of zero; expected volatility of 68 percent.

                                      F-23
<PAGE>

(8)      RECENT CAPITAL TRANSACTIONS

In January  1998,  the  Company  completed  a private  placement  offering  (the
"January Private  Placement") in which it sold 2,610,000 units at $2.00 per unit
for total consideration of approximately $4,948,500,  net of expenses. Each unit
consists of one share of the Company's  common stock and one Series D warrant to
purchase  one  share of  common  stock at a price of  $2.00.  Of the  total  net
proceeds,   approximately   $1,365,200   was  received  in  December   1997  and
approximately  $3,583,300  was received in January 1998.  The Company  allocated
approximately $1,350,800 of the total proceeds to the Series D warrants based on
their  relative fair values.  Of the total units,  750,000 were sold in December
1997 and 1,860,000 were sold in January 1998.

Pursuant to requirements of the private placement  offering in January 1998, the
Company  provided  accredited  investors  in the  Company's  March 1997  private
placement offering with the opportunity to exchange the securities  purchased in
the March 1997 placement for a number of units the investor could have purchased
in the January 1998  placement  had the  investment  been made under the January
1998 placement  terms rather than the March 1997 terms. In February 1998, all of
the March 1997  accredited  investors  elected to  convert to the  January  1998
placement terms in reliance on the  registration  exemption found in Rule 506 of
Regulation D and Sections  3(9) and 4(2) of the  Securities  Act. As a result of
the conversion,  all outstanding Series C warrants were canceled and the Company
issued 256,598 additional shares of common stock and 769,787 additional Series D
warrants.

The  Series D  warrants  are  exercisable  for a period  of two  years  from the
effective date of a registration  statement covering the resale of the shares of
common stock underlying the Series D warrants by the holder,  which period shall
be extended  day-for-day for any time that a prospectus meeting the requirements
of the Securities Act of 1933 is not  available.  Such a registration  statement
has yet to be filed.  The Company may  accelerate the expiration of the Series D
warrants  in the event that the average  market  price of the  Company's  common
stock exceeds $6.00 per share for ten consecutive trading days. In the event the
Company accelerates the expiration of the Series D warrants,  the holders of the
Series D warrants would be permitted to exercise the Series D warrants  during a
period of not less than 20 days following notice of such event.

In March  1998,  the Company  issued  25,000  shares of common  stock and 25,000
Series D warrants to an  unaffiliated  financial  advisor in connection with the
January  Private  Placement.  The fair market  value of these shares and options
were offset against the gross private placement proceeds as offering costs.

In July 1998, certain Series B warrants were exercised resulting in the issuance
of 85,000 shares of common stock with  proceeds to the Company of $170,000.  The
remaining Series A and B warrants have expired.

The  following  summarizes  all warrant  activity  for the Company for the years
ended December 31, 1999 and 1998.

<TABLE>
<CAPTION>
                                          1999                             1998
                              -------------------------------- -------------------------------
                                                 Wtd. Avg.                       Wtd. Avg.
                                                  Exercise                        Exercise
                                  Shares           Prices          Shares          Prices
                              ---------------- --------------- --------------- ---------------
<S>                                 <C>             <C>            <C>           <C>
Outstanding at beginning of
  year                              4,409,787       $ 2.00         5,322,313     $  2.62
Granted                                25,000         2.00         3,659,787        2.00
Exercised                              -                -            (85,000)       2.00
Forfeited                             (50,000)        2.00        (4,487,313)       2.73
                              ----------------                 ---------------
Outstanding at end of year          4,384,787       $ 2.00         4,409,787     $  2.00
                              ================                 ===============
</TABLE>

                                      F-24
<PAGE>

(9)     INCOME TAXES

The  Company  recognized  no  income  tax  expense  in 1999  and 1998 due to its
incurring  net  operating  losses.  The  Company  did not  record any income tax
benefit  related to the net  operating  losses and other  deferred tax assets as
management  established a valuation allowance against the entire amount of those
assets.  Significant  components of the Company's deferred income tax assets and
deferred income tax liabilities as of December 31, 1999 are as follows:

                                                             1999
                                                     ---------------------
Deferred income tax assets:
   Net operating loss carryforwards                     $    5,380,305
   Non cash compensation expense                               107,471
   Accrued vacation                                              9,746
   Loss on disposition of assets                               213,262
   Patent costs                                                169,698
   Other                                                         6,069
                                                     ---------------------

       Total gross deferred income tax assets                5,886,551
   Less valuation allowance                                 (5,544,357)
                                                     ---------------------
       Net deferred income tax assets                          342,194

Deferred income tax liability -
  Property and equipment                                      (342,194)
                                                     ---------------------

       Net deferred income tax liability                $           -
                                                     =====================


The net change in the total valuation  allowance for the year ended December 31,
1999 was a decrease of $298,935.

At  December  31,  1999,  the  Company  had  total tax net  operating  losses of
approximately  $14,424,000  that can be carried forward to reduce federal income
taxes. If not utilized, the tax net operating loss carryforwards begin to expire
in 2009. As defined in Section 382 of the Internal Revenue Code, the Company has
undergone a greater than 50 percent  ownership change.  Consequently,  a certain
amount of the Company's tax net operating loss carryforwards available to offset
future  taxable  income in any one year may be limited.  The  maximum  amount of
carryforwards  available  in a  given  year is  limited  to the  product  of the
Company's  value on the  date of  ownership  change  and the  federal  long-term
tax-exempt rate, plus any limited carryforwards not utilized in prior years.

(10)     EMPLOYEE BENEFIT PLAN

Employees  who  are 21  years  of age  are  eligible  for  participation  in the
Specialized  Health Products 401(k) Plan and may elect to make  contributions to
the plan.  The  Company  matches 100  percent of such  contributions  up to five
percent of the individual  participant's  compensation.  The Company's  combined
contribution  to the plan was  approximately  $66,800  and $66,900 for the years
ended December 31, 1999 and 1998, respectively.

(11)     RELATED-PARTY TRANSACTIONS

In January and February 1999,  the Company  entered into  consulting  agreements
with a former  director  and officer of the Company and  relatives of a director
and officer of the Company. During 1999, the Company paid approximately $218,000
under these agreements.

During 1999, the Company  entered into an agreement  with a consulting  services
firm of which one of the Company's  board members is a partner.  In exchange for
consulting  services  rendered  during the year, the Company paid  approximately
$90,000 (including reimbursement of costs) under the agreement.

                                      F-25
<PAGE>

In January 1998,  1,000,000  shares of the Company's  common stock and 1,000,000
Series D common  stock  warrants  were  issued to Johnson & Johnson  Development
Corporation in conjunction with the private placement offering closed on January
20, 1998. Johnson & Johnson owns 8.1 percent of the Company.

The Company had entered  into  certain  license  agreements  with a director and
officer of the  Company  as a result of the  acquisition  of certain  technology
rights and patents. Under the terms of the agreements, the Company was obligated
to pay minimum  royalty  payments  totaling  $435,000 over six years. In January
1998, the Company issued  750,000 common stock warrants as  consideration  for a
release from its obligations  under these royalty  agreements (see Note 6). Each
warrant is redeemable for one share of the Company's  common stock at a price of
$2.00 per share.  The warrants are currently  exercisable and expire on December
31, 2002.

During 1998, the Company advanced approximately $28,700 to a former director and
stockholder of the Company.  The advance was non-interest bearing and was repaid
in full during 1998.

In December  1997,  the Company  borrowed  $45,000 from one of its directors and
officers to assist in the cash flow needs of the Company. The loan bore interest
at 10 percent and was repaid in full in January 1998.

In 1995,  the Company  entered into an  agreement  with a former  director,  the
president and a vice president of the Company, whereby these individuals had the
opportunity  to receive up to an aggregate  of 2,000,000  shares of common stock
based upon the Company achieving a specified pre-tax  consolidated income over a
certain  period of time.  The Company did not reach the levels  specified in the
agreement  for any period.  As such,  the  earn-out  shares did not vest and the
agreement expired effective December 31, 1998.

(12)     SUBSEQUENT EVENTS

In January 2000,  the Company  granted to various  employees  options to acquire
299,000  shares of the Company's  common stock at an exercise price of $2.00 per
share.  The options  vest over a  three-year  period and are  exercisable  for a
period of ten years from the date of grant.

In February  2000,  the Company  entered  into an  agreement  with a  consulting
services  firm of which a stockholder  of the Company is a partner.  In exchange
for services  rendered,  the Company will make cash  payments to the  consulting
firm on a contingent fee basis.  Under  circumstances  defined in the agreement,
the  Company  may elect to pay all of part of the service fee with shares of the
Company's  common stock.  These shares would be issued at a 25 percent  discount
from the average daily closing bid and ask prices of the common stock during the
period as defined in the agreement.

                                      F-26