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, 2000

                             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                         (IRS Employer
            of incorporation)                             Identification No.)

  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 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 $674,532.

         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 11, 2001
was approximately $6,703,000.

<PAGE>

SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.

                       TABLE OF CONTENTS TO ANNUAL REPORT
                                 ON FORM 10-KSB
                          YEAR ENDED DECEMBER 31, 2000

                                     PART I

Item 1.    Description of Business ...........................................3
Item 2.    Description of Properties ........................................13
Item 3.    Legal Proceedings ................................................13
Item 4.    Submission of Matters to a Vote of Security Holders ..............13

                                     PART II

Item 5.    Market for Common Equity and Related Stockholder Matters .........14
Item 6.    Management's Discussion and Analysis or Plan of Operation ........15
Item 7.    Financial Statements .............................................22
Item 8.    Changes In and Disagreements With Accountants on Accounting
           and Financial Disclosure .........................................24

                                    PART III

Item 9.    Directors, Executive Officers, Promoters and Control Persons;
           Compliance With Section 16(a) of the Exchange Act ................25
Item 10.   Executive Compensation ...........................................27
Item 11.   Security Ownership of Certain Beneficial Owners and Management ...31
Item 12.   Certain Relationships and Related Transactions ...................32
Item 13.   Exhibits and Reports on Form 8-K .................................33

                                       2
<PAGE>

                           Forward-Looking Statements

         When used in this Form  10-KSB,  in  filings  by the  Company  with the
Securities and Exchange  Commission  ("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,  launch  dates  for  licensed
products; dates upon which royalty payments will be received by the Company, the
generation of royalty revenues from our licensees; acceptance of safety products
by health care  professionals;  plans to rely on our joint  venture  partners to
pursue  commercialization  of  licensed  products;  expectations  regarding  the
ability  of  the  Company's  products  to  compete  with  the  products  of  its
competitors;   acceptance  of  Company  products  by  the  marketplace  as  cost
effective; factors affecting the ability of licensees to sell licensed products;
sufficiency  of available  resources to fund  operations;  plans  regarding  the
raising of capital; the size of the market for safety products;  plans regarding
sales  and  marketing;  strategic  business  initiatives;  intentions  regarding
dividends and the launch dates of our licensed products.

         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 a lack of demand or low demand for  Company  products  or for
safety products  generally,  a  determination  of one or more licensees to focus
their marketing  efforts on products other than those licensed from the Company;
the  inability  to license or enter into joint  venture or similar  arrangements
regarding  Company  products  that  are not  being  commercialized,  competitive
products and pricing, delays in introduction of products licensed by the Company
due to  manufacturing  difficulties  or other factors;  difficulties  in product
development,  commercialization  and  technology,  changes in the  regulation of
safety  healthcare  products,  a failure to timely obtain FDA or other necessary
approval  to sell  future  products  and  other  risks set forth in Item 6 "Risk
Factors" and elsewhere herein. 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.

PART I

Item 1. Description of Business

General

         Specialized Health Products  International,  Inc., ("SHPI") through its
wholly owned  subsidiaries,  Specialized Health Products,  Inc. ("SHP"),  Safety
Syringe  Corporation  ("SSC") and Specialized  Cooperative  Corporation  ("SCC")
(except  where the context  clearly  indicates  otherwise,  these  entities  are
collectively referred to as the "Company"), is a development stage company which
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 needle medical devices and identifying  marketing partners
for the Company's  safety  medical needle  products and concepts.  The Company's
products  are designed to reduce the risk of  acquiring  HIV/AIDS,  hepatitis B,
hepatitis C and other blood-borne diseases through accidental needlesticks.

                                       3
<PAGE>

         In January 2001, the Company and Merit Medical Systems,  Inc. ("Merit")
entered into a License  Agreement  relating to the  production  of safety needle
devices for angiographic guidewire  introducers.  Merit is a worldwide leader in
interventional cardiology and radiology needles. The Company received an upfront
license fee payment of $100,000 in January 2001. The Agreement provides that the
Company will receive  ongoing  royalties,  including  minimum  royalty  payments
beginning in 2002.  All product  introductions  are scheduled and  controlled by
Merit.

         In November  1999, the Company and The Kendall  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 (as defined in the  agreement) or
30 months from the effective date of the agreement, whichever comes first. These
payments,  totaling  approximately  $2,500,000,  are 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 minimum royalty payments totaling $2,500,000 during
the period  commencing  upon sale of  commercial  quantities of products and the
third  anniversary  thereof.  Kendall  has the  right to  cancel  its  unaccrued
obligations  under the Kendall  agreement  upon 15 days written  notice in which
event the patents that are the subject of the Kendall Agreement will be assigned
back to the  Company.  It is  anticipated  that  Kendall  will  manufacture  all
products that are subject to the Kendall  Agreement.  All product  introductions
are scheduled and controlled by Kendall.

         In December  1997, the Company  entered into a Development  and License
Agreement (the "JJM  Agreement")  with Johnson & Johnson  Medical,  Inc. ("JJM";
recently merged into Ethicon Endo-Surgery, Inc., a Johnson & Johnson company) to
commercialize two applications of the Company's safety needle technologies.  The
JJM Agreement  provided that the Company and JJM would seek to commercialize two
products using the Company's  safety medical  needle  technologies.  On April 3,
2001, the Company received notice from Ethicon  Endo-Surgery,  Inc. that the JJM
Development and License  Agreement was being  terminated  pursuant to a contract
provision  that  provided  for   termination   upon  90  days  notice.   Ethicon
Endo-Surgery,  Inc.  stated that higher gross profit returns had been imposed on
all  divisions'  products  and,  as the higher  returns  could not be  achieved,
Ethicon had made the  decision  not to enter the blood  collection  market.  The
Company has had discussions with potential new partners for the blood collection
devices  that were the subject of the JJM  agreement.  However,  there can be no
assurance  that the Company will enter into an  agreement  with respect to these
products.

         In May 1997,  the Company  entered into an  agreement  (the "BD License
Agreement")  with Becton  Dickinson and Company Infusion Therapy Division ("BD")
relating to a single  application  of the Company's  ExtreSafe(R)  safety needle
technology  (the  "Technology").  Pursuant  to  the  terms  of  the  BD  License
Agreement,  BD made payments of $4,000,000  to the Company.  BD has  exclusivity
related minimum royalty obligations to the Company beginning in 2004.

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

         The Company plans to focus its  activities  on the further  development
and  licensing of  additional  products  based upon the  Company's  intellectual
property  portfolio  and unique safety  needle  technologies.  Such products are
expected  to  include  syringes,  prefilled  syringes,  IV  catheters,  catheter
introducers,  Huber needles,  plasma apheresis sets,  dialysis sets, blood donor
sets,  winged  steel  infusion  sets,  Seldinger  needles,

                                       4
<PAGE>

epidural and spinal needles, lancets and other safety needle devices. Prototypes
of phlebotomy devices, catheter introducers,  lancets, Huber needles,  Seldinger
needles,  winged  steel  needles,  syringes  and  prefilled  syringes  have been
completed. The Company plans to continue discussions and negotiations with third
parties to generate revenues through the licensing of products, joint venturing,
and partnering with original equipment manufacturers.

Company Background

         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").  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.

Products Under Development

         General

         As its  primary  focus,  the  Company  has  over  90 U.S.  patents  and
international  patent  applications  pending  which  protect  its safety  needle
technologies.  These needle patents support the Company's 18  technologies  that
provide the basis for a wide range of safety needle  products.  The Company also
has two lancet patents covering its single use safety lancet and undercut lancet
technologies. The following products are currently under development.

         Safety Syringes

         There is significant  risk of needlesticks  in syringe use.  Generally,
the 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 a high number of  accidental  needlesticks
related to needle cap replacement  resulted in such practice being prohibited by
the Centers for Disease  Control  ("CDC").  Some medical  personnel  began using
needles and syringes  having  sheaths  which could be extended  over the exposed
needle  after a  procedure.  The  Company  has safety  needle  technologies  for
syringes that include passive, automatic and manual safety needle retraction and
needle  shielding.  The  first  of the  Company's  safety  syringe  products  is
currently being developed for 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 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.

                                       5
<PAGE>

         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 some instances,
the needle is  temporarily  left  exposed  while the patient is tended to by the
healthcare  worker.  The Company has safety  needle  technologies  for  catheter
insertion that include  passive,  automatic and manual safety needle  retraction
and needle shielding.

         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 single use safety fingerstick lancet and the other is for a undercut heelstick
technology which, the Company believes,  will yield 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 has applied two of its  technologies to safety lancets.  The Company
is currently developing one safety lancet device 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,   apheresis,   dialysis,  blood  donor,  filter,   laparoscopy,
opthalmic,  epidural, spinal, radiology,  cardiology needles and other specialty
needles.  The Company has safety needle  technologies for specialty needles that
include  passive   activation,   manual  safety  needle  retraction  and  needle
shielding.

Company Strategy

         The  Company's  primary  objective is to establish  itself as a leading
developer of safety medical needle products. The Company will seek to accomplish
this  objective  by  capturing  significant  market  share of  targeted  product
segments, broadening existing product lines, 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.

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<PAGE>

         o        Joint  venture  and  original  equipment  manufacture  ("OEM")
                  structures  where the Company is responsible  for  development
                  and  the   partner   may  be   responsible   for  funding  and
                  manufacturing.  The Company would be responsible for marketing
                  and sales to the OEM. In these  situations  the safety product
                  may be sold to several OEM companies.

         o        License/royalty   arrangements   with  large  medical  product
                  companies  for the  manufacture,  marketing  and  sale of 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.

         o        Combined  development/license/royalty  agreements with medical
                  product companies for the development,  manufacture, marketing
                  and sale of high volume  products in  selected  market  areas.
                  Such agreements may include joint development for a particular
                  product  and/or   continuing   development   subsidized  by  a
                  percentage of sales. This continuing  development  revenue may
                  be dedicated to production of future  products  resulting from
                  continuing joint development with compounding royalty income.

         o        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 may be  responsible  for
                  manufacturing,   marketing  and  sales.  Under  this  type  of
                  arrangement  the  parties are  expected to share  profits on a
                  predetermined basis.

         o        The  manufacture,  marketing  and sale of 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.  In such niche  markets the
                  Company may  outsource the low volume  manufacturing  and sell
                  the safety products to medical product companies.

         o        The sale of all rights to products  where  income  projections
                  and/or  other  circumstances  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.

         Future Market Opportunities

         The Company  intends to enter  additional  safety needle device 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  technologies,  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  two  sales  and  marketing   personnel.   These
individuals are principally involved in identifying and working with current and
potential strategic partners and developing marketing and sales strategies.  The
Company is and will seek third parties to market and  distribute its products in
the U.S. 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 or other
revenues.  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

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<PAGE>

third  parties  in the  future on terms  acceptable  to the  Company or that the
Kendall, BD , or Merit License Agreements will be commercially successful.

         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 U.S.
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 18
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.  Such
products are expected to include  syringes,  prefilled  syringes,  IV catheters,
catheter introducers, Huber needles, plasma apheresis sets, dialysis sets, blood
donor sets, winged steel infusions sets, Seldinger needles,  epidural and spinal
needles,  lancets and other safety needle devices.  Prototypes of the phlebotomy
devices, catheter introducers, lancets, Huber needles, Seldinger needles, winged
steel needles,  syringes and prefilled syringes have been completed. The Company
plans to continue  discussions and  negotiations  with third parties to generate
revenues through the licensing of products, joint venturing, and partnering with
original equipment manufacturers.

         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 in the U.S. and selected  foreign
countries  through  one or more  companies  that have a major  presence in these
major segments. There can be no assurance that the Company will be able to enter
into such arrangements for the sale and distribution of its products, other than
those referenced above.

         The  Company  is not  permitted  to sell  products  based on its safety
medical needle  technologies  for  commercial  use in the U.S. 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 Food and Drug Administration's  ("FDA") 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."

Industry

         Market

         Healthcare  is one of the  largest  industries  in the  world and grows
larger  each year.  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
Occupational Safety and Health Administration  ("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.

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<PAGE>

         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.  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 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 two  U.S.  patents  relating  to its  safety  lancet
technology,   and  18  U.S.  patents  relating  to  its  safety  medical  needle
technologies.  The Company has over 90 U.S. and international patents and patent
applications pending. The patents referred to above begin to expire in 2013.

         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 U.S.  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.

                                       9
<PAGE>

Manufacturing

         The Company has products that are in various stages of development  and
are not  currently  being  manufactured.  It is possible the Company may provide
manufactured  products  in niche  markets on an OEM basis.  In such  event,  the
materials used to produce the Company's products are generally widely available.
The Company does not anticipate difficulty in obtaining such materials.

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 IV catheter  market are Johnson & Johnson
and Becton  Dickinson and Company.  Other suppliers of IV catheters having minor
positions  in  this  market   include  B.  Braun  Medical  and  Terumo   Medical
Corporation.  The Company  believes its safety IV catheters  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 and Company,  Kendall  Healthcare and
Terumo Medical  Corporation.  The Company believes its safety phlebotomy needles
are  superior to any safety  phlebotomy  needles on the market being sold by its
competitors.

         The leading U.S. suppliers of syringe needles and syringes with needles
are Becton  Dickinson  and  Company,  and  Kendall  Healthcare.  Terumo  Medical
Corporation  holds a minor U.S.  market  share.  B. Braun Medical is a leader in
Europe  and Asia  while  Terumo is a leader in Japan and the  Pacific  Rim.  The
leading  developers of safety syringe  needles and syringes with needles include
the Company, Med-Design Corporation, Bio-Plexus, Inc., New Medical Technologies,
Retractable  Technologies,  Inc. and SIMS Portex,  Inc. Based on numerous market
studies  conducted by the Company and Kendall  Healthcare  the Company  believes
that its safety syringe  needles and syringes with needles are superior to those
presently being marketed by its competitors.

         The leading  suppliers in the lancet  market are Becton  Dickinson  and
Company,  Surgicutt,  Inc.,  Boehringer  Mannheim,  Inc., Kendall Healthcare and
International Technidyne, Inc. 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  specialty  needle  market  includes  a  wide  variety  of  needles
including Huber, spinal, epidural,  Seldinger,  biopsy, dental, dialysis, plasma
apheresis, blood donor collection sets, introducer, PICC introducer,  Veress and
opthalmic  needles.  Numerous  companies  compete  within  the  various  markets
associated with each of these needles.  These companies  include Arrow, CR Bard,
B. Braun Medical,  Kendall Healthcare,  Cook Inc., Becton Dickinson and Company,
Horizon Medical Products, Boston Scientific, Guidant, Bio-Plexus, Merit Medical,
Medtronic,  Mannan, Hart, Baxter  International,  Johnson & Johnson,  Medamicus,
Needle Tech, Mallinckrodt,  Inc., Terumo Medical Corporation, Daum, U.S. Biopsy,
Ballard and Abbott Laboratories. Many of the safety specialty needle areas offer
some of the greatest  opportunities for the Company to date. SHPI's technologies
are well suited for these markets and have led to  discussions  with many of the
companies listed.

         Conventional  needle  products have competed  primarily on the basis of
price.  In  direct  contrast,   the  safety  needle  market  offers  substantial
opportunities  as premium priced product.  The Company expects to compete on the
basis of healthcare worker safety,  ease of use, patient comfort,  added product
features and compliance with state, federal and OSHA regulations.  The Company's
products are projected to perform well in the near term based on product  design
features and endure in the market based on low manufacturing costs, which should
provide long-term pricing advantages.

                                       10
<PAGE>

Research and Development

         The  Company  has  devoted a  substantial  portion  of its  efforts  to
designing and developing  healthcare products. To date, research and development
expenditures have resulted in the Company's ownership of in excess of 90 patents
and patent applications worldwide and the creation of 18 different safety needle
technologies  which have  application in almost all medical  needles used today.
Company sponsored  research and development  activities  resulted in expenses of
$1,288,182  in  2000  and  $1,014,063  in  1999.   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  $452,529 in 2000 and  $1,100,947  in 1999.  The
Company plans to continue  research and development on its current  products and
possible new products. There is no assurance that the Company's ongoing research
and development activities will prove effective.

Government Regulation

         Product Approvals

         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.  Because the Company's focus is on the development,  design
and licensing of medical safety devices rather than marketing and  manufacturing
of the  devices,  the Company does not  typically  make the  regulatory  filings
necessary to sell its products.  The Company relies on its strategic partners to
pursue  regulatory  approvals and  anticipates  that it will continue to rely on
strategic  partners  in a  similar  manner  in the  future  unless  the  Company
manufactures products.

         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.

                                       11
<PAGE>

         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.  The average  time for 510(k)  clearance  for safety
devices is currently 90 days. In general, clearance of a 501(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  expects its  development  stage products  (i.e.,  products
based on its safety medical needle and lancet technologies) to be categorized as
Class II devices.  The Company also expects that these products will not require
pre-market  approval  applications but will be eligible for marketing  clearance
through  the  501(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  non-complying
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 described above, 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.

         Safety Product Mandates

         Recent  safety  regulations  and  legislation  have also  increased the
demand for and exposure of safety medical  devices.  Seventeen U.S.  states have
passed  safety  legislation  requiring  use  of  safety  needle  products.   The
Needlestick  Safety and  Prevention  Act was  recently  adopted  by the  federal
government. OSHA also issued a national directive in November 1999 requiring use
of safety  medical  devices.  Also,  in

                                       12
<PAGE>

November  1999,  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.

         The Needlestick  Safety and Prevention Act became effective in November
2000 and orders  specific  revisions  to OSHA's  bloodborne  pathogens  standard
within six months. This national law requires healthcare employers to review new
safety  products  and  mandates  their use by  employees.  The revised  standard
directs all healthcare  facilities and employers to select safety needle devices
as they become available.

         Foreign Regulation

         Distribution  and sales of the  Company's  products in countries  other
than the U.S.  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 U.S.

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 April 11,  2001,  the Company  employed 18 people,  including  11
engineers,  1 patent attorney,  2 sales and marketing employees and 4 accounting
and administrative employees, all but one of whom work for the Company on a full
time  basis.  The Company  expects to add  additional  employees  in the next 12
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,  which option has been  exercised.  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.

Item 3. Legal Proceedings

         None

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

         No matters were submitted to a vote of the Company's  security  holders
during the fourth quarter of the year ended December 31, 2000.

                                       13
<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
                  -------------                     ----              ---
                  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

                  2000
                  ----
                  March 31......................     $1.31            $0.69
                  June 30.......................     $1.44            $0.75
                  September 30..................     $1.94            $0.88
                  December 31...................     $1.75            $0.88


Holders of Record

         At April 11, 2001,  there were  approximately  277 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  November  2000,  the  Company  granted to two of the  non-executive
members of the Company's  board of directors stock options to acquire a total of
8,000 shares of the Company's  common stock at an exercise  price of $1.4375 per
share in consideration for services rendered by the recipients as members of the
Board of Directors  during the fourth  quarter of 2000.  In November the Company
also granted a non-employee stock options to acquire a total of 50,000 shares of
the Company's  common stock at an exercise

                                       14
<PAGE>

price of $2.00 per  share.  The  options  to this  non-employee  were  valued at
$19,573 using the Black-Scholes  option pricing model and have been reflected as
deferred  compensation  expense  in  the  accompanying   consolidated  financial
statements  with $1,233  recognized as  compensation  expense for the year ended
December  31,  2000.  The option  grants  were exempt  from  registration  under
Sections 4(2) and 4(6) of the  Securities Act of 1933 and pursuant to Regulation
D as  promulgated  under the  Securities Act of 1933. The Company did not use an
underwriter in connection with these transactions.

         In November and December 2000,  the Company  offered and sold unsecured
convertible  promissory  notes to four accredited and  sophisticated  investors.
Principal and interest was due and payable in a single balloon  payment on March
31,  2001.  The notes bear  interest at the rate of 10% per annum  beginning  on
January 1, 2001 through the maturity  date.  Prior to January 1, 2001, the notes
were non-interest  bearing. The notes were convertible,  at the sole election of
the note holders, into the Company's $.02 par value common stock at a conversion
rate of $1 per share on or before  December 31,  2000.  For each share of common
stock received upon conversion, the note holder shall receive a Series E Warrant
that is  exercisable  at $1.50 per share and expires on June 30, 2001.  No notes
were  converted  and the Company is currently in default in repaying the amounts
owing. The sale of these securities was exempt from registration  under Rule 506
of Regulation D,  Regulation S and Sections 4(2) and 4(6) of the  Securities Act
of 1933. The Company did not use an  underwriter in connection  with the sale of
the notes.

         In February  2001, the Company  issued a Private  Placement  Memorandum
("PPM") and raised  $170,000 in funding.  This PPM was closed in March 2000. The
offering was made in units of $20,000,  each unit providing 20,000 shares of the
Company's  common stock and Series F warrants to purchase an  additional  20,000
shares of the  Company's  common stock at an exercise  price of $1.50 per share,
said warrants  exercisable  through February 28, 2002. The PPM also contained an
adjustment  provision to  participants  should a subsequent  offering be made at
more advantageous  terms. The adjustment would become effective and be made upon
the following conditions:

         On  the  first  occasion  that  the  Company  issues  an  aggregate  of
         2,000,000  shares  of  common  stock  (including  securities  that  are
         convertible into common stock whether in the form of debt or equity) in
         a private offering (an "Equity  Financing") and the Equity Financing is
         at  a  different   price  or  has   different   terms,   conditions  or
         characteristics  than the Units  that are part of this  Offering,  then
         each  stockholder who then holds  outstanding  Units (i.e.,  the common
         stock and Series F warrants that were acquired in this Offering)  shall
         have  the   option   to   convert   the  Units   into  the   number  of
         subsequently-issued  securities  in  the  Equity  Financing  that  such
         stockholder would have received had such stockholder invested the funds
         used to acquire the Units in this  Offering  to acquire the  securities
         issued  in  the  Equity  Financing  (a  "Conversion   Privilege).   The
         Conversion Privilege and other rights described in this paragraph shall
         not apply to (i) an Equity  Financing  that occurs  after  December 31,
         2001,  (ii) stock  options  grants under any Company stock option plan,
         (iii) obligations of the Company that existed prior to the date of this
         Memorandum,  (iv) any securities  issuances to Rubicon or its successor
         or  nominees,  (v)  any  securities  issued  to one or  more  strategic
         partners  of the  Company,  (vi) the  issuance of  securities  that are
         primarily for compensatory  purposes,  (vii) the issuance of securities
         in  connection  with  any  merger,   stock   exchange,   consolidation,
         reorganization,  sale of a significant  portion of the Company's assets
         or similar  transaction or (viii) the issuance of securities  after the
         first occasion that the Company has an Equity Financing.

         Upon the occurrence of an Equity Financing where a Conversion Privilege
exists,  the Company will send notice to Offering  investors  who may exercise a
Conversion  Privilege  ("Offering  Investors") at the addresses set forth on the
Company's  stockholder records by first class U.S. mail. Offering Investors will
have  fourteen  days after the date of such  notice to elect to  exercise  their
Conversion  Privilege  by  notifying  the Company in writing  during said 14-day
period of their election to exercise the Conversion  Privilege and returning the
Offering  Investor's  common stock and Series F warrants that comprise the Units
that  are  the  subject  of  the   Conversion   Privilege  to  the  Company  for
cancellation.  Any investors not

                                       15
<PAGE>

electing to exercise their  Conversion  Privilege as described above within said
14-day period shall lose the right to exercise the Conversion Privilege.

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,  SSC and SCC,  on a  consolidated  basis,  except  where the
context clearly indicates otherwise.

Overview

         The Company's  principal business is the design,  development,  testing
and evaluation, and marketing of its safety needle technologies and other safety
medical  products,  the design and  development  of various molds and production
processes and the generation of its broad intellectual  property portfolio.  The
proprietary  SHPI  safety   technologies   that  have  been  developed  allow  a
contaminated needle to be protected without exposure of the healthcare worker to
the contaminated needle.

         In accordance  with  accounting  principles  generally  accepted in the
U.S., the Company has expensed all past research and  development  costs and has
incurred  cumulative  losses from operations since its inception.  The Company's
balance  sheet  does not  reflect  any value  attributable  to its  intellectual
property. To date, development expenditures have resulted in the ownership of in
excess of 90 patent and patent  applications  worldwide  and the  creation of 18
different and unique safety needle technologies which have application to almost
all medical  needles  used today,  including:  syringe,  prefilled  syringe,  IV
catheter, catheter introducers,  winged needle sets for infusion and collection,
phlebotomy devices,  procedure,  Huber needles,  plasma apheresis sets, dialysis
sets, blood donor sets, Seldinger needles, epidural and spinal needles, lancets,
as well as additional specialty needle devices.  [Agreements are in place for 13
safety needle  products  with three leading  global  medical  device  companies:
Kendall , BD, and Merit . These  three  license  agreements  have  generated  in
excess of  $5,500,000  of  pre-production  payments  and  payments  in excess of
$2,800,000  in  development  fee  payments  the Company.  These  agreements  are
projected to generate  further  revenues  from the sale of patents,  development
fees, advanced royalties and royalties based on product sales, some of which are
projected to begin entering the market in the third and fourth quarters of 2001

         SHPI plans to focus on the  following  four areas of  activity in 2001:
(1) the launch of safety needle  products  through its strategic  partners on an
exclusive  basis,  (2) the launch of an additional  safety  needle  product on a
non-exclusive  basis  through  joint  venturing  and  partnering  with  original
equipment manufacturers,  (3) the development of incremental revenues related to
design and development agreements with licensing partners and (4) the generation
of added  revenues  through  the further  development  and  licensing  and joint
venturing of additional products.

         Product Launches through Exclusive Partners. SHPI safety needle product
launches projected in 2001 include a Seldinger safety needle to be sold by Merit
for use by interventional  radiologists and  cardiologists.  By the end of 2001,
the SHPI safety syringe is expected to be ready to launch by Kendall.

         Product   Launch   through   Non-exclusive   Partners.   Based  on  the
availability  of  financing,  an SHPI  safety  Huber  needle is  expected  to be
launched in late 2001.  This safety  product  will be marketed by SHPI on an OEM
basis through several strategic partners on a non-exclusive basis.

         Development  Revenue.  SHPI  expects to  generate  incremental  revenue
related to the design and development of products during 2001 on safety products
which are already under  agreement.  In addition,

                                       16
<PAGE>

the  Company  would  anticipate  supplemental  development  revenue  related  to
potential agreements that could be negotiated during the year.

         Additional  Safety Needle  Products.  The Company is  negotiating  with
several  medical  product  companies  regarding   additional  potential  product
licensing  agreements.  SHPI is pursuing  OEM and joint  venture  agreements  to
supply products to the specialty needle markets.

Financial Position

         The  Company  had  $10,595  in  cash  as of  December  31,  2000.  This
represented  a decrease of $169,830  from  December  31, 1999.  Working  capital
(deficit)  as of December 31, 2000,  was  ($944,613)  as compared to $230,138 at
December 31, 1999.  These  decreases were largely due to decreased cash balances
coupled with increased  accounts  payable,  accrued  liabilities and $600,000 in
notes payable that were issued in December 2000 and are currently in default.

Years Ended December 31, 2000 and 1999

         During  the year  ended  December  31,  2000,  the  Company  had  total
operating  revenues  of  $674,532,  compared  with total  operating  revenues of
$4,850,947  for the year ended  December  31,  1999.  During  2000,  the Company
recognized  $153,117 in  development  fee revenues  under the JJM  Agreement and
$283,406 in development fee revenues under the Kendall Agreement. Costs incurred
to generate these development fees were $127,242 and $177,244, respectively. The
Company also had $222,003 in technology fee revenue from the Kendall  Agreement.
Prior to 1999, the Company had $3,750,000 in deferred  royalty revenue  relating
to the BD License  Agreement.  In June 1999,  BD and the Company  amended the BD
License Agreement. The amendment provided that the $3,750,000 previously paid by
BD to the Company would not be credited  against future earned royalties and the
Company would have no further obligation of any kind to BD 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.  The Company will look to
product  sales and other  development  and  strategic  arrangements  for  future
revenues.

         Research  and  development  ("R&D")  expenses  in 2000 were  $1,288,182
compared to $1,014,063 in 1999. The increase was primarily due reduced  revenues
and the associated allocation of R&D expenses to cost of revenues. Revenues from
development fees declined by $648,418 in 2000 compared to 1999.

         Selling,  general and administrative  ("SG&A") expenses were $2,275,342
in 2000,  a decline from the  $2,543,031  expenses in 1999.  Major  contributing
factors to the reduction were no expenses for litigation ($90,000) and decreased
depreciation and amortization  expenses  ($68,241).  Reductions in personnel and
employee  benefits  also  contributed  to the  reduction  in total  departmental
expenses.

         Other  income and expense  was  $29,698 in 2000  compared to $61,362 in
1999. Interest income in 2000 declined due to lower cash levels.

         The net loss from  operations in 2000 is $3,181,720,  compared to a net
income of $359,231 in 1999. The primary reason for the change was the $3,750,000
in BD license fees that were recognized as revenue in 1999.

Liquidity and Capital Resources

         To date,  the Company has financed its operations  principally  through
private  placements of equity  securities,  the sale of technology  and patents,
advanced royalties,  development fees,  technology and license fees and proceeds
from the exercise of common stock options. The Company generated  $16,207,305 in
net proceeds through  financing  activities from inception  through December 31,
2000.  The Company used net cash for  operating  activities  of $749,413 for the
year ended  December 31, 2000. As of December 31, 2000,

                                       17
<PAGE>

the Company's current liabilities  totaled  $1,359,958.  In addition the Company
had deferred  revenue,  net of current  portion  relating to the  prepayment  by
Kendall of $981,993.

         The  Company  had  $10,595  in  cash  as of  December  31,  2000.  This
represents  a decrease of $169,830  from  December  31,  1999.  Working  capital
(deficit)  as of December 31, 2000 was  ($1,240,617)  as compared to $230,138 at
December 31,  1999.  These  decreases  were largely due to increases in accounts
payable,  accrued liabilities,  current portion of deferred revenue and $600,000
in notes  payable  issued in  December  2000.  The  Company  received  $7,020 in
proceeds  from the  exercise  of common  stock  options  during  the year  ended
December 31, 2000.

         The Company's working capital  requirements for the foreseeable  future
will  vary  based  upon a number of  factors,  including  the costs to  complete
development  work, the cost of bringing safety medical needle  technologies  and
other products to commercial viability, the timing of the market launches of new
safety  needle  products and the level of sales.  As of December  31, 2000,  the
Company had accounts payable and accrued liabilities totaling $463,954,  current
portion of deferred  revenue of $296,004 and short-term debt of $600,000.  As of
the date of this report, the Company does not have sufficient funds to pay these
obligations  and  there  can  be no  assurance  that  the  Company  will  obtain
sufficient funds to pay these liabilities. As of April 11, 2001, the Company had
not committed any funds for capital expenditures.  The Company estimates that it
will need to raise at least  $4,000,000 in additional  funds for 2001 to execute
its business plan. The Company is developing a financing plan to provide it with
this  additional  funding.  There can be no  assurance  that the Company will be
successful in implementing any future  financing plans or in raising  additional
funds.  If the Company is  unsuccessful  in  completing  its  financing  plan or
raising additional funds the Company may be required to reduce  substantially or
eliminate  certain  areas  of its  product  development  activities,  limit  its
operations significantly or cease operations entirely.

         The Company has granted stock  options that are  currently  exercisable
for 1,939,000  shares of Common Stock at exercise  prices ranging  between $1.00
and $2.625 per share.  The exercise of all such stock options would result in an
equity  infusion to the Company of  $3,298,886.  At April 11,  2001,  all of the
stock options are out of the money and there can be no assurance that any of the
stock options will be exercised.

License Agreements

         In January 2001, the Company and Merit entered into a License Agreement
relating to the production of safety needle devices for  angiographic  guidewire
introducers.  Merit is a  worldwide  leader  in  interventional  cardiology  and
radiology  needles.  The  Company  received  an up front  license fee payment of
$100,000 in January 2001.  The Agreement  provides that the Company will receive
ongoing  royalties,  including  minimum royalty payments  beginning in 2002. All
product  introductions  are scheduled and  controlled by Merit.  There can be no
assurance  that  the  Company  will  receive  any  future  revenues  under  this
agreement.

         In November  1999,  the Company  and Kendall  entered  into 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  (as  defined in the  agreement)  or 30 months from the
effective date of the agreement, whichever comes first. These payments, totaling
approximately  $2,500,000,  are 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 minimum
royalty payments  totaling  $2,500,000 during the period commencing upon sale of
commercial quantities of products and the third anniversary thereof. Kendall has
the right to cancel its

                                       18
<PAGE>

unaccrued obligations under the Kendall Agreement upon 15 days written notice in
which event the patents  that are the subject of the Kendall  Agreement  will be
assigned back to the Company.  It is anticipated  that Kendall will  manufacture
all  products   that  are  subject  to  the  Kendall   Agreement.   All  product
introductions are scheduled and controlled by Kendall. There can be no assurance
that the Company will receive any future revenues under this agreement.

         In December 1997,  the Company  entered into the JJM Agreement with JJM
to commercialize two applications of SHPI's safety needle technologies.  The JJM
Agreement  provided  that the  Company and JJM would seek to  commercialize  two
products using SHPI's safety medical needle technologies.  On April 3, 2001, the
Company received notice from Ethicon Endo-Surgery, Inc. that the JJM Development
and License  Agreement was being terminated  pursuant a contract  provision that
provided for termination upon 90 days notice. Ethicon Endo-Surgery,  Inc. stated
that higher gross profit  returns had been  imposed on all  divisions'  products
and, as these higher returns could not be achieved,  Ethicon Endo-Surgery,  Inc.
made the decision not to enter the blood collection  market. The Company has had
discussions  with potential new partners for the blood  collection  devices that
were the subject of the JJM agreement.  However,  there can be no assurance that
the Company will enter into an agreement with respect to these products.

         The Company plans to focus its  activities  on the further  development
and  licensing of  additional  products  based upon the  Company's  intellectual
property  portfolio  and unique safety  needle  technologies.  Such products are
expected  to  include  syringes,  prefilled  syringes,  IV  catheters,  catheter
introducers,  Huber needles,  plasma apheresis sets,  dialysis sets, blood donor
sets,  winged  steel  infusion  sets,  Seldinger  needles,  epidural  and spinal
needles,  lancets and other safety  needle  devices.  Prototypes  of  phlebotomy
devices, catheter introducers, lancets, Huber needles, Seldinger needles, winged
steel needles,  syringes and prefilled syringes have been completed. The Company
plans to continue  discussions and  negotiations  with third parties to generate
revenues through the licensing of products, joint venturing, and partnering with
original equipment manufacturers.

Inflation

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

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, 2000, it had an accumulated  deficit of  $19,245,503.  The
Company's  products  are  in  various  stages  of  production,   pre-production,
development and research.  Profitability is dependent upon completion of product
development  and  manufacturing  lines and the successful  marketing of licensed
Company products;  the Company's ability to license additional products that are
not currently  subject to licenses or have these  products  distributed  through
joint  venture or similar  arrangements;  and the  Company's  ability to develop
additional  products based on its core technologies.  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.

         Dependence  on  Distribution  and Licensing  Partners.  The Company has
entered into distribution and licensing  arrangements  under which it expects to
generate  revenues  (although there can be no assurance) with Kendall and Merit.
See  "Business---General."  The Company  believes  that  royalty  payments  from
Kendall and Merit  related to sales of our  products  will  constitute  all or a
substantial  portion of the revenues in the future.  Kendall may  terminate  the
Kendall  Agreement  upon 15 days written  notice.  The ability of Kendall and/or
Merit to sell  products  they have  licensed  from the  Company  will  depend on

                                       19
<PAGE>

competitive  factors  and the  resources  such  parties  commit  to the  sale of
products  they  have  licensed  from the  Company.  The  extent  to which  these
licensees  commit  their  resources  to the sale of products  licensed  from the
Company is entirely  within their control.  These licensees are not obligated to
pursue the development and commercialization of Company products. Therefore, the
Company's  license  arrangements  with  Kendall  and Merit may not result in the
successful  commercialization  of the  products  and may not generate any future
revenues. If one or both of these agreements were terminated,  the licensees are
unsuccessful  in developing  or selling the licensed  products or one or both of
these parties  determines not to pursue the development and sale of the licensed
products,  it  may  have a  material  adverse  effect  on the  Company  and  its
operations. There can be no assurance that the Company's license or distribution
partners will  diligently  seek to develop,  market or sell Company  products or
that such arrangements will not be terminated in the future.

     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 2000 consolidated  financial  statements,
attached  hereto,   contains  a  "going  concern"  explanatory  paragraph.   See
Consolidated  Financial  Statements  and related  Notes.  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
work, the cost of bringing safety medical needle technologies and other products
to commercial viability,  the timing of the market launches of new safety needle
products and the level of sales.  At December 31, 2000, the Company had accounts
payable  and  accrued  liabilities  totaling  $463,954  and  short-term  debt of
approximately  $600,000,  the repayment of which is currently in default.  As of
the date of this report, the Company does not have sufficient funds to pay these
obligations  and  there  can  be no  assurance  that  the  Company  will  obtain
sufficient funds to pay these liabilities. As of April 11, 2001, the Company had
not committed any funds for capital expenditures.  The Company estimates that it
will need to raise at least  $4,000,000 in  additional  funds in 2001 to execute
its business plan. The Company has been operating with a working capital deficit
and needs to raise  additional funds in the immediate future or it may be forced
to cease  operations.  The Company has adopted financing plans and is developing
additional  financing plans in an attempt to provide it with additional funding.
If  the  Company  raises  additional   capital  by  issuing  equity  securities,
stockholders'  percentage  ownership  will  be  reduced,  and  stockholders  may
experience  substantial dilution.  Such financing plans may or may not involve a
change in control of the  Company.  There can be no  assurance  that the Company
will be  successful in  implementing  any future  financing  plans or in raising
significant  additional  funds.  If  the  Company  is  unsuccessful  in  raising
additional  funds,  the  Company  may be  required  to reduce  substantially  or
eliminate  certain  areas  of its  product  development  activities,  limit  its
operations significantly or cease operations entirely.

     In connection  with the current and future  financing  plans or strategies,
the  Company  has  been  threatened  with  lawsuits  by a  number  of  different
stockholders  if the  Company  does  not  pursue  suggested  financing  plans or
strategies.   These   financing   plans  include  a  plan  proposed  by  Rubicon
International  Limited who is  currently  acting as a  financial  advisor to the
Company. See "Certain  Relationships and Related  Transactions." The stockholder
proposals,  in some cases,  are mutually  exclusive.  Given  recent  stockholder
communications,  there  can be no  assurance  that  some  stockholders  will not
challenge  any  given  financing  plan  or  strategy  adopted  by  the  Company.
Stockholder  litigation may be expensive and, if it occurs, could divert Company
resources from other planned uses. Such litigation could have a material adverse
effect  on the  Company  including  requiring  the  Company  to  limit  or cease
operations.

         Dependence  on  Licensee  Manufacturing.   To  date,  the  Company  has
primarily  relied on  licensees  to arrange for the  commercial  manufacture  of
products. These licensees generally anticipate manufacturing Company products at
their own  facilities,  although it is possible that in  connection  with future
licenses  or joint  venture or similar  arrangements,  the  Company  may rely on
third-party  manufacturers other than licensees or manufacture selected products
itself.  Contracting  with third parties or relying on licensees to  manufacture
products presents the following risks: (i) delays in the manufacture of products
could have a material adverse effect on the marketing of the products;  (ii) the
manufacturers  may not  comply  with  requirements  imposed  by the FDA or other
governmental agencies; (iii) the Company may have to share intellectual property
rights to  improvements  in the  manufacturing  processes  or new  manufacturing
processes  for  products;  (iv) in those  instances  where the  Company may seek
third-party manufacturers, it may not be able to locate acceptable manufacturers
or enter into favorable long-term  agreements with them; and (v) the Company may
not be able to find substitute manufacturers, if necessary. Any of these factors
could delay  commercialization  of products and adversely affect the sale of the
products and license or joint venture revenues.

                                       20
<PAGE>

         Dependence on Sales and Marketing Efforts of Licensees. The Company has
limited sales and marketing  capabilities,  and does not intend to build a sales
and marketing infrastructure for commercial sales of products.  Accordingly, the
Company is dependent  on licensees to sell our products and generate  royalties.
If  licensees  do not  devote  sufficient  effort to the sale and  marketing  of
Company products,  or are otherwise  unsuccessful in marketing Company products,
it will materially affect future revenues, if any.

         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.

         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  payers  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 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
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. Some of the Company's
safety medical needle  technologies  are in various stages of  development.  The
Company is also exploring  additional  applications for all of its technologies.
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.

         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

                                       21
<PAGE>

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 strategic
partners include Baxter  International,  Inc., B. Braun Medical, BD, Bio-Plexus,
Inc., Boehringer Mannheim,  Inc., Kendall,  Maxon Inc., Med-Design  Corporation,
Medi-Hut,   Medisys  PLC,  Miles  Inc.,  Merit  ,  NMT  Group  PLC,  Retractable
Technologies, Inc., Surgicutt, Inc., Terumo Medical Corporation and Univec, Inc.
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 Merit. 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 that
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  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 payers 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  payers,  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.

         The Needlestick  Safety and Prevention Act was recently  adopted by the
federal  government.  OSHA also issued a national  directive  in November  1999,
requiring use of safety medical devices.  Also in November 1999, the Centers for
Disease  Control and National  Institute  for OSHA issued  safety  alerts urging
healthcare workers to use safety devices having engineered controls. The Company
cannot predict what impact, if any, such legislation 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

                                       22
<PAGE>

achieve the Company's  objectives.  The Board currently consists of six members,
three 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 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.

                                       23
<PAGE>

Item 7. Financial Statements

         See  index  to  consolidated   financial  statements  and  consolidated
financial statement schedules included herein as Item 13.

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

         None.

                     [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]




                                       24
<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 11, 2001.

                                                                      With the
         Name              Age              Position               Company Since
         ----              ---              --------               -------------
David A. Robinson (1)      57   President, Chairman of the Board,       1993
                                Chief Executive Officer and Director

Dr. Donald D. Solomon (1)  50   Vice President, Chief Operating         2000
                                Officer, Chief Technical Officer
                                and Director

Paul S. Evans (1)          38   Vice President, General Counsel,        2000
                                Secretary and Director

Keith L. Merrell (1)       55   Vice President of  Finance and          2000
                                Investor Relations, Chief Financial
                                Officer and Treasurer

Dr. David T. Rovee (2)(3)  61   Director                                1998

Robert R. Walker (2)(3)    70   Director                                1994

Dr. H. Roy Bichan (2)(3)   59   Director                                2000
---------------
(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 as a director  expires in 2001. As
well as considerable  involvement and  responsibility as SHPI President and CEO,
Mr. Robinson draws upon more than 25 years of business development experience to
generate strategic partnerships and to provide an effective interface to a broad
range of SHPI customers. That experience is overlaid with 30 years of management
experience,  including 19 years as  President  and CEO of three  companies.  Mr.
Robinson  holds a MBA and a  Masters  degree  in  Management  Science  from  the
University of Southern California.

         Dr. Donald D. Solomon.  Dr. Solomon is Vice President,  Chief Operating
Officer,  Chief Technical Officer and a director of the Company.  He has been an
officer of the Company since October 2000 and a director since March 2001and his
term as a director  expires in 2003.  Dr.  Solomon is an  innovator  with a keen
understanding  of the  clinician's  needs.  He is  responsible  for managing the
operations  for the  Company.  He brings  more than 21 years of medical  product
experience in research, product development,  engineering,  and manufacturing in
both the U.S. and internationally to SHPI. Dr. Solomon was the Vice President of
Research and  Development at Johnson & Johnson Medical - Vascular Access ("JJM")
from  1996 to  2000.  Prior to JJM,  Dr.  Solomon  served  at  Becton  Dickinson
("BD")from 1987 to 1996, including positions as Worldwide Director of R&D for BD
Pharmaceutical  Systems  Division  based  in  France,  and  Director  of R&D for
Biocompatible  Polymer  Development  at the BD Infusion  Therapy  Division.  Dr.
Solomon  currently  holds  37  patents  and  is  the  author  of  52  scientific
publications.  He received his Masters

                                       25
<PAGE>

and Ph.D.  degrees in Polymer  Science from Case Institute of Technology at Case
Western Reserve University.

         Paul S. Evans. Mr. Evans is Vice President,  General Counsel, Secretary
and a Director of the Company. He has been a director and officer of the Company
since June of 2000 and his term as director expires in 2003. He serves as patent
counsel in various intellectual property areas, including:  domestic and foreign
patent  prosecution,  technology  transfer  and  licensing;  and  strategic  and
tactical  business-focused  legal  planning  with an  emphasis  on  intellectual
property.  Mr.  Evans  received  a  B.S.  in  Mechanical  Engineering  from  the
University  of  Utah  and  worked  as  a  Project/Design   Engineer  for  Morton
International  (now Autoliv)  prior to receiving  his law degree.  He previously
served as Vice  President and General  Counsel for two research and  development
companies,  serving  from 1994 to 2000 as Vice  President,  General  Counsel  of
Eneco,  Inc. He was a patent  attorney with the law firm of Snow,  Christensen &
Martineau.  His project and design  engineering  experience coupled with his law
expertise  provides a  valuable  insight  into his  management  of  intellectual
property for the Company. Mr. Evans speaks fluent Japanese.

         Keith  L.  Merrell.  Mr.  Merrell  is  Chief  Financial  Officer,  Vice
President of Finance and Investor  Relations,  and Treasurer of the Company.  He
has been an officer of the  Company  since July 2000.  Along with his  financial
responsibilities  as CFO of SHPI,  Mr.  Merrell  draws on 28 years of accounting
experience to manage all of the  accounting  functions and to interface with the
Company's  independent  public  accountants.  He spent two years in the field of
public  accounting,  and served as Chief Financial Officer or Controller of four
companies prior to his joining SHPI. His business career also includes extensive
experience in management, sales and marketing, and consulting. He served as Vice
President - Western  Operations for Michelex,  an injection molding company with
corporate  headquarters  in New York,  from  1998 to 2000.  From 1991 to 1998 he
served as Director of Finance for The Duplication Group, planning,  implementing
and bringing  online the first CD  manufacturing  facility in the  intermountain
area.  He graduated  from Arizona  State  University  with a Bachelor of Science
degree in Accounting.

         Dr. David T. Rovee.  Dr. Rovee has been a director of the Company since
April 1998 and his term expires in 2002.  From 2000 to present he has acted as 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. Prior
to his employment with Organogenesis, Inc., Dr. Rovee was employed for a 25 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
Developmental Biology from Brown University.

         Robert R.  Walker.  Mr.  Walker has served as a director of the Company
since  March  1994 and his term  expires  in 2002.  For the past five  years Mr.
Walker has been  principally  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  from the
University of Utah.

         Dr. H. Roy Bichan.  Dr. Bichan is the most recent addition to the Board
of  Directors,  having been  appointed  in August  2000.  As an appointee of the
board, he will be up for election in 2001 for a full term on the board. His term
as director  expires in 2001. His vast business  experience has taken him around
the  world  and  includes  serving  as  Chairman  and  Director  of a number  of
companies.  He has long been active in developing the economic base of Wales. He
served as Deputy Chairman of the Welsh Development

                                       26
<PAGE>

Agency,  Chairman of the Welsh  Industrial  Development  Advisory Board,  and is
currently a Director of the Midland Enterprise Fund for Wales. He earned a Ph.D.
in geology from the University of Leeds.

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

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 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 2000.

 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, 2000) (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,          1998  240,000      1,000        10,000            ---         ---         ---        10,428(4)
President, CEO, Chairman    1999 225,416(2)     ---         10,000            ---         ---         ---        68,508(3)(4)
of the Board and Director   2000 190,000(2)     ---          9,500            ---      300,000(7)     ---        12,180(4)

David L. Thorne             1998    94,666      300          4,748            ---         ---         ---              ---
Manager - Product           1999 100,000(3)     ---          5,000            ---         ---         ---        51,044(5)
Development                 2000  100,000       ---          5,000            ---       74,810        ---         1,044(6)
</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 September 1999, Mr. Robinson's  salary was voluntarily  reduced from
         $240,000 to $190,000 per year.
(3)      This represents payment of accrued vacation,  $67,400 of which was used
         to  pay  off  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 20 days vacation
         pay to be carried forward from year to year.
(4)      Represents  amounts paid by the Company for life  insurance on the life
         of Mr.  Robinson with  insurance  proceeds  payable to the  beneficiary
         designated by Mr. Robinson.
(5)      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.
(6)      Represents  amounts paid by the Company for life  insurance on the life
         of Mr.  Thorne  with  insurance  proceeds  payable  to the  beneficiary
         designated by Mr. Thorne.

                                       27
<PAGE>

(7)      Mr.  Robinson had 300,000  five year  options  that expired  August 31,
         2000. On September 2, 2000, the board granted Mr. Robinson  300,000 new
         options with a three-year term.

         Option  Grants in Fiscal  Year  2000.  The  following  table sets forth
certain  information  with respect to stock options grants during the year ended
December 31, 2000 to Named Executive Officers.
<TABLE>
<CAPTION>
                             OPTION/SAR GRANTS IN LAST FISCAL YEAR
                                         (Individual Grants)

                           Number of     Percent of Total
                          Securities        Options/SAR
                          Underlying        Granted to
                          Options/SAR      Employees in   Exercise or Base
            Name        Granted (#) (1)     Fiscal Year    Price ($/Share)    Expiration Date
            ----        ---------------     -----------    ---------------    ---------------
<S>                        <C>                 <C>              <C>                <C>
   David A. Robinson       300,000 (2)         31.5%            $2.00              9/2/03
   David L. Thorne          74,810 (3)          7.9%            $1.25              9/2/10
</TABLE>

(1)      These options were granted  pursuant to the Company's 2000 Stock Option
         Plan.
(2)      Mr.  Robinson had 300,000  five year  options  that expired  August 31,
         2000. On September 2, 2000, the board granted Mr. Robinson  300,000 new
         options with a three-year term.
(3)      Mr. Thorne had 19,810  five-year  options that expired August 31, 2000.
         On September 2, 2000,  the board  granted Mr. Thorne 19,810 new options
         with a three-year term.

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  2000.  During 2000,
the Company  compensated two of the 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  equal  to the  fair  market  value  of the
underlying  common  stock on the date of grant,  subject  to a minimum  exercise
price of $1.00 per share.  The other  non-employee  director is compensated at a
rate of $4,000 per year payable in equal quarterly  installments and was granted
options to purchase  50,000  shares of the  Company's  common stock at $1.00 per
share.  The Company expects that in 2001 the monetary  compensation for employee
and non-employee  directors will be the same as the 2000 compensation  packages,
with the  exception  that no stock options will be granted to Mr. Bichan in 2001
for  his  services.   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;
(ii) Mr. Robinson's current  employment  agreement expires on December 31, 2002;
(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
is required to keep all proprietary  information relating to the business of the
Company confidential both during and after the term of the agreement.

                                       28
<PAGE>

         The Company has entered into an employment agreement with Dr. Donald D.
Solomon.  Dr.  Solomon's  employment  agreement  provides  that (i) Dr.  Solomon
receive a salary of  $165,000  per year  beginning  October 23,  2000;  (ii) Dr.
Solomon's  current  employment  agreement expires on October 23, 2004; (iii) Dr.
Solomon is entitled to vacation pay and health insurance; (iv) if the employment
of Dr.  Solomon is  terminated  by reason of disability or other than for cause,
his salary will continue for the full term of the agreement;  (v) if Dr. Solomon
is terminated for cause,  his salary ceases as of the date of termination;  (vi)
the Company will provide Dr.  Solomon with up to $200,000 of term life insurance
while he is employed by the Company;  and (vii) Dr.  Solomon is required to keep
all proprietary information relating to the business of the Company confidential
both during and after the term of the agreement.  In addition, Mr. Solomon is to
be reimbursed for relocation expenses to a maximum of $40,000.

         The  Company has entered  into an employee  agreement  with Mr. Paul S.
Evans.  Mr. Evans'  employment  agreement  provides that (i) Mr. Evans receive a
salary of $165,000 per year  beginning  June 12, 2000;  (ii) Mr. Evans'  current
employment  agreement  expires on June 12, 2003;  (iii) Mr. Evans is entitled to
vacation  pay and  health  insurance;  (iv) if the  employment  of Mr.  Evans 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. Evans is terminated for
cause,  his salary  ceases as of the date of  termination;  (vi) the  Company is
obligated to provide Mr. Evans with up to $200,000 of term life insurance  while
he is employed by the Company;  (vii) Mr. Evans was granted 25,000 shares of the
Company's  stock on the date of his hire;  and (viii) Mr.  Evans is  required to
keep  all  proprietary  information  relating  to the  business  of the  Company
confidential both during and after the term of the agreement.

         The Company has entered  into an employee  agreement  with Mr. Keith L.
Merrell.  Mr.  Merrell's  employment  agreement  provides  that (i) Mr.  Merrell
receives  a salary of $90,000  per year  beginning  January  1,  2001;  (ii) Mr.
Merrell's  current  employment  agreement  expires  December 31, 2002; (iii) Mr.
Merrell is entitled to vacation pay and health insurance; (iv) if the employment
of Mr.  Merrell 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. Merrell
is terminated for cause,  his salary ceases as of the date of termination;  (vi)
the Company will provide Mr.  Merrell with up to $200,000 of term life insurance
while he is employed by the Company;  and (vii) Mr.  Merrell is required to keep
all proprietary information relating to the business of the Company confidential
both during and after the term of the agreement.

         The Company entered into an employment agreement with Mr. David Thorne.
Mr. Thorne's contract provides that (i) Mr. Thorne receives a salary of $100,000
per year beginning  October 16, 2000;  (ii) Mr.  Thorne's  employment  agreement
expires  October 15,  2001;  (iii) Mr.  Thorne is  entitled to vacation  pay and
health  insurance;  (iv) the Company shall have exclusive  ownership of all work
product;  (v) Mr.  Thorne shall not work either  directly or  indirectly  with a
competing  company for one year  following the  termination of employment by the
Company  and (vi) Mr.  Thorne is required  to keep all  proprietary  information
relating to the business of the Company  confidential  both during and after the
term of the agreement. In December 2000, Mr. Thorne exercised an option, granted
in connection with warrants he received for the transfer of technology rights to
the company, to cancel SHPI Warrants to acquire 23,333 shares of common stock in
exchange for a payment of $60,666.  The Company was obligated to make payment in
January  2001.  As of the date of this writing said payment has not been made by
the Company.

         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.

                                       29
<PAGE>

401(k) Retirement Plan

         Effective in 1996, the Company adopted a 401(k) retirement plan whereby
the Company contributes up to five percent of payroll  compensation to the plan,
matching  employee  contributions to the plan on a dollar for dollar basis up to
the  maximum  five  percent  contribution.  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 20-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. In June 2000,
the  Company's  stockholders  approved  the adoption of the  Specialized  Health
Products  International,  Inc. 2000 Stock Option Plan (the "2000 Option  Plan").
The 2000 Option Plan is similar to the Option Plan,  except the 2000 Option Plan
increases the option pool to 2,500,000 shares and requires that the option price
to be equal  to the fair  market  value of the  underlying  stock on the date of
grant,  but in no event may the option price be less than $1.00 per share. As of
April 11, 2001,  options to acquire an  aggregate of 1,939,000  shares of common
stock at exercise prices ranging from $1.00 to $2.625 are outstanding  under the
option plans.

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.

                                       30
<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 11, 2001,
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 , and (iv) all directors
and  executive  officers  as a group.  As of April 11,  2001,  the  Company  had
12,449,440 shares of Common Stock outstanding.
<TABLE>
<CAPTION>
                                     Shares
       Name and Address            Beneficially            Percentage of
    of Beneficial Owner(1)           Owned(2)                Total(2)                    Position
    ----------------------           --------                --------                    --------
<S>                                  <C>                     <C>             <C>
David A. Robinson(3)                   703,545                 5.6%           President, CEO, Chairman of
                                                                                the Board and Director

Dr. Donald D. Solomon(4)                12,386                    *           Vice President, COO, CTO and
                                                                                Director

Paul S. Evans(5)                        28,765                    *           Vice President, General
                                                                                Counsel, Secretary and
                                                                                Director

Keith L. Merrell(6)                      2,011                    *           Chief Financial Officer, Vice
                                                                              President of Finance and
                                                                              Investor Relations, Treasurer

Dr. David T. Rovee(7)                   43,000                    *           Director

Robert R. Walker(8)                    155,000                 1.2%           Director

Dr. H. Roy Bichan(9)                    50,000                    *           Director

Executive Officers and                 994,707                 7.9%
Directors as a Group (seven
persons)

Johnson & Johnson Development        1,000,000                 8.0%
Corporation(10)
One Johnson & Johnson Plaza,
New Brunswick, NJ 08933

Asdale Ltd (11)                        750,000                 6.0%
44 Lowndes Street
London, England
</TABLE>

* 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

                                       31
<PAGE>

     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
     300,000 shares of common stock,  50,000 of which Mr. Robinson has agreed to
     transfer to a  nonaffiliated  party.  Also includes 73,326 shares of common
     stock purchased through the Company's 401(k) plan.
(4)  Includes  10,000  shares of common  stock and 2,386  shares of common stock
     purchased through the Company's 401(k) plan. Does not include stock options
     exercisable  for  100,000  shares  of common  stock  that vest in two equal
     vestings on September 25, 2002 and 2003.
(5)  Includes  25,000  shares of common  stock and 3,765  shares of common stock
     purchased through the Company's 401(k) plan. Does not include stock options
     exercisable for 100,000 shares of common stock that vest on June 12, 2001.
(6)  Includes  2,011  shares of common  stock  purchased  through the  Company's
     401(k) plan.  Does not include stock options  exercisable for 50,000 shares
     of common stock that vest in two equal  vestings on July 10, 2002 and 2003.
     Includes 1,000 shares of common stock and stock options to purchase  42,000
     shares of common stock.
(7)  Includes 1,000 shares of fcommon stock and stock options to purchase 42,000
     shares of common stock.
(8)  Includes  stock options to purchase  92,000  shares of common  stock.  Also
     includes  63,000  shares  of  common  stock  that Mr.  Walker  is deemed to
     beneficially own through a trust.
(9)  Includes stock options to purchase 50,000 shares of common stock.
(10) Includes 1,000,000 shares of common stock.
(11) Includes 750,000 shares of common stock.

         The Company is in the  process of  implementing  a financing  strategy.
This strategy is in the process of being finalized and may result in a change in
control  of the  Company.  The  details  of such  arrangement  are  still  under
consideration  and will be the  subject  of future  disclosure  if and when such
arrangements come to fruition.

Item 12. Certain Relationships and Related Transactions

     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 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,  who was a director  of the  Company at that time,  is an  affiliate  of
Westbridge Capital Partners.

         In February  2000,  the Company  entered into a letter  agreement  with
Rubicon  International Limited ("Rubicon") to receive certain financial advisory
services.  Certain of the  principals  of Rubicon  and the  persons  expected to
perform  service on behalf of Rubicon  under the letter  agreement  are  Company
stockholders. In the event that the Company enters into a transaction related to
the letter  agreement  (other than a  refloatation)  Rubicon will be entitled to
compensation of up to 2.5% of the consideration  received by the Company in such
a  transaction.  Subject to certain  limitations,  in the case of a refloatation
(i.e.,  listing or  quotation  of the  Company's  common  stock on a  recognized
European  stock  exchange  and , in the event the Company goes  private,  on the
Nasdaq  SmallCap or National Market System) then Rubicon is entitled to a fee of
up to  2.5%  of the  undiluted  market  value  of  the  Company's  common  stock
calculated  on a 20  day  average  stock  price  beginning  on  the  five  month
anniversary of such refloatation.  Not withstanding the foregoing,  no fee shall
be payable to  Rubicon  in the event  that the total  consideration  paid to the
Company is less than $1.70 per outstanding  common share of the Company,  or its
successor,  on the date the fee is first  required  to be paid.  The  Company is
currently  obligated to pay Rubicon fees and expense  reimbursements  under this
agreement.

         Rubicon has suggested that the scope of the financial advisory services
agreement be  substantially  expanded.  The parties are in the initial stages of
discussion  with  respect  to a  proposed  amendment.  No  agreements  have been
reached.

                                       32
<PAGE>

Item 13. Exhibits and Reports on Form 8-K

Exhibits

         Listed on page 35 hereof.

Reports on Form 8-K

         No  reports on Form 8-K were filed by the  Company  during the  quarter
ended December 31, 2000.

                                       33
<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 16, 2001                   By  /s/ David A. Robinson
                                          ----------------------
                                          David A. Robinson
                                          President, Chief Executive Officer,
                                          Chairman of the Board 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 Officer,   April 16, 2001
-----------------------    Chairman of the Board and Director
David A. Robinson          (Principal Executive Officer)


/s/ Keith L. Merrell        Vice President, Chief Financial      April 16, 2001
-----------------------     Officer, and Treasurer (Principal
Keith L. Merrell            Financial and Accounting Officer)


/s/ Paul S. Evans           Director, Vice President, and        April 16, 2001
-----------------------     Secretary
Paul S. Evans

/s/ Donald D. Solomon       Director, Vice President, COO        April 16, 2001
-----------------------     and CTO
Donald D. Solomon

/s/ David T. Rovee          Director                             April 16, 2001
-----------------------
David T. Rovee

/s/ H. Roy Bichan           Director                             April 16, 2001
-----------------------
H. Roy Bichan

/s/ Robert R. Walker        Director                             April 16, 2001
-----------------------
Robert R. Walker

                                       34
<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
              Registration Statement on Form S-1 filed December 11, 1995 (File
              No. 33-901014)).

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 Registration Statement on Form S-1 filed December 11,
              1995 (File No. 33-901014)).

3(i).4        Articles of Amendment of SHP (Incorporated by reference to Exhibit
              3(i).3 of the Company's Registration Statement on Form S-1 filed
              December 11, 1995 (File No. 33-901014)).

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 Registration Statement on Form S-1 filed December 11,
              1995 (File No. 33-901014)).

10.1          Employment Agreement with David A. Robinson

10.2          Employment Agreement with Dr. Donald E. Solomon

10.3          Employment Agreement with Paul S. Evans

10.4          Form of Indemnity Agreement with Executive Officers and Directors

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

10.6          Development and License Agreement, effective date of March 29,
              2000, by and among Safety Syringe Corporation, a wholly owned
              subsidiary of the Company and The Kendall Company (Incorporated by
              reference to Exhibit 10.1 of the Company's Current Report on Form
              8-K, dated March 29, 2000)

10.7          License Agreement, effective date of January 1, 2001, by and among
              Merit Medical Systems, Inc. and Specialized Health Products, Inc.

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)

10.8          Specialized Health Products International, Inc. 2000 Stock Option
              Plan (Incorporated by reference to Exhibit 10.7 of the Company's
              Quarterly Report on Form 10-QSB, dated June 30, 2000).

10.9          Letter Agreement between SHPI and Rubicon International Limited
              dated February 8, 2000.

10.10         Amendment No. 1 to Letter Agreement between SHPI and Rubicon
              International Limited dated December 15, 2000.

21.1          Schedule of subsidiaries.

                                       35
<PAGE>

SPECIALIZED HEALTH PRODUCTS
INTERNAITONAL, 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, 2000                     F - 3

Consolidated Statements of Operations for the Years Ended
  December 31, 2000 and 1999 and for the Period
  from Inception to December 31, 2000                                  F - 5

Consolidated Statements of Stockholders' Equity (Deficit)
  for the Years Ended December 31, 2000 and 1999 and
  for the Period from Inception to December 31, 2000                   F - 6

Consolidated Statements of Cash Flows for the Years Ended
  December 31, 2000 and 1999 and for the Period
  from Inception to December 31, 2000                                 F - 10

Notes to Consolidated Financial Statements                            F - 12

                                      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, 2000, and the related  consolidated
statements of operations,  stockholders' equity (deficit) and cash flows for the
years  ended  December  31,  2000  and 1999 and for the  period  from  inception
(November  19,  1993)  to  December  31,  2000.  These  consolidated   financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements  based on our  audits.  We 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 consolidated  financial
statements are included in the cumulative  inception to December 31, 2000 totals
of the statements of operations,  stockholders'  equity (deficit) and cash flows
and  reflect  total  revenues  and  net  loss  of  6  percent  and  20  percent,
respectively,  of the related  cumulative totals.  Those consolidated  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
audits to obtain reasonable assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by management,  as well as evaluating  the overall  consolidated
financial statement presentation.  We believe that our audits and the reports of
the 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, 2000, and the results of
their  operations and their cash flows for the years ended December 31, 2000 and
1999 and for the period from inception to December 31, 2000, 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 has  experienced  significant
losses since  inception  with only minimal  profitability  in 1999.  The Company
incurred  negative  cash  flows  from  operating   activities  of  $749,413  and
$2,340,118 for the years ended December 31, 2000 and 1999,  respectively.  Sales
of products based on the Company's  proprietary  technologies have been minimal.
As of December 31, 2000, the Company had an  accumulated  deficit of $19,245,503
and negative  working  capital of  $1,240,617.  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
  March 27, 2001 (except with respect to
  the matter discussed in the fourth paragraph
  of Note 3, as to which the date is April 3, 2001)

                                      F-2
<PAGE>
<TABLE>
<CAPTION>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED BALANCE SHEET

         ASSETS                                                                       December 31,
                                                                                          2000
                                                                                 ----------------------
<S>                                                                               <C>
CURRENT ASSETS:
   Cash                                                                           $        10,595
   Accounts receivable                                                                     94,545
   Prepaid expenses and other                                                              14,201
                                                                                 ----------------------
       Total current assets                                                               119,341
                                                                                 ----------------------

PROPERTY AND EQUIPMENT, at cost:
   Manufacturing molds                                                                    474,633
   Computer equipment and software                                                        403,426
   Research and development machinery and equipment                                       291,738
   Office furnishings and fixtures                                                        171,083
   Leasehold improvements                                                                 134,870
   Manufacturing equipment                                                                 25,653
   Construction-in-progress                                                                71,300
                                                                                 ----------------------
                                                                                        1,572,703

   Less accumulated depreciation and amortization                                      (1,156,200)
                                                                                 ----------------------
       Net property and equipment                                                         416,503
                                                                                 ----------------------

OTHER ASSETS                                                                               27,000
                                                                                 ----------------------

                                                                                  $       562,844
                                                                                 ======================

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

                                      F-3
<PAGE>
<CAPTION>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED BALANCE SHEET (Continued)


         LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                               December 31,
                                                                                          2000
                                                                                 ----------------------
<S>                                                                               <C>
CURRENT LIABILITIES:
   Accounts payable                                                               $       130,607
   Accrued liabilities                                                                    333,347
   Notes payable                                                                          600,000
    Deferred revenues                                                                     296,004
                                                                                 ----------------------
       Total current liabilities                                                        1,359,958

DEFERRED REVENUES, NET OF CURRENT PORTION                                                 981,993
UNAMORTIZED RENT                                                                           42,148
                                                                                 ----------------------
           Total liabilities                                                            2,384,099
                                                                                 ----------------------

COMMITMENTS AND CONTINGENCIES (Notes 1, 4 and 9)

STOCKHOLDERS' EQUITY (DEFICIT):
   Preferred stock, $.001 par value; 5,000,000 shares authorized, no shares
     outstanding                                                                              -
   Common stock, $.02 par value; 50,000,000 shares authorized, 12,449,440
     shares outstanding                                                                   248,989
   Additional paid-in capital                                                          15,364,061
   Series D warrants to purchase common stock                                           1,954,452
   Advances to stockholders                                                                (2,801)
   Deferred compensation expense                                                         (140,453)
   Deficit accumulated during the development stage                                   (19,245,503)
                                                                                 ----------------------
       Total stockholders' equity (deficit)                                            (1,821,255)
                                                                                 ----------------------
                                                                                  $       562,844
                                                                                 ======================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
                       of these consolidated statements.

                                      F-4
<PAGE>
<TABLE>
<CAPTION>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED STATEMENTS OF OPERATIONS

                                                             Years Ended December 31,              Period from
                                                     ------------------------------------------    Inception to
                                                                                                   December 31,
                                                            2000                 1999                  2000
                                                     ----------------------------------------------------------------
REVENUES:
<S>                                                    <C>                  <C>                 <C>
   Technology fees and licensing revenues              $      222,003       $    3,750,000      $     3,972,003
   Development fees and related services                      452,529            1,100,947            2,832,410
   Net product sales                                                -                  -                748,228
                                                     ----------------------------------------------------------------
       Total revenues                                         674,532            4,850,947            7,552,641
                                                     ----------------------------------------------------------------

 COST OF REVENUES:
   Cost of development fees and related services              316,295              890,222            2,029,663
   Cost of product sales                                            -                    -              536,002
                                                     ----------------------------------------------------------------
       Total cost of revenues                                 316,295              890,222            2,565,665
                                                     ----------------------------------------------------------------
       Gross margin                                           358,237            3,960,725            4,986,976
                                                     ----------------------------------------------------------------

OPERATING EXPENSES:
   Selling, general and administrative                      2,275,342            2,543,031           16,734,244
   Research and development                                 1,288,182            1,014,063            6,762,925
   Loss on disposal of operating assets, net                    6,131              105,762            1,286,688
                                                     ----------------------------------------------------------------
       Total operating expenses                             3,569,655            3,662,856           24,783,857
                                                     ----------------------------------------------------------------

 INCOME (LOSS) FROM OPERATIONS                             (3,211,418)             297,869          (19,796,881)
                                                     ----------------------------------------------------------------

OTHER INCOME (EXPENSE):
   Interest income                                             22,697               58,261              542,847
   Interest expense                                               -                    -                (23,658)
   Other income, net                                            7,001                3,101               60,358
                                                     ----------------------------------------------------------------

       Net other income                                        29,698               61,362              579,547
                                                     ----------------------------------------------------------------

NET INCOME (LOSS)                                          (3,181,720)             359,231          (19,217,334)

LESS PREFERENCE STOCK DIVIDENDS                                   -                    -                (28,169)
                                                     ----------------------------------------------------------------

NET INCOME (LOSS) APPLICABLE TO COMMON SHARES
                                                       $   (3,181,720)      $      359,231      $   (19,245,503)
                                                     ================================================================

BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE   $         (.26)      $          .03
                                                     ==========================================

BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES
   OUTSTANDING                                             12,393,024           12,356,440
                                                     ==========================================

DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES
   OUTSTANDING                                             12,393,024           12,364,917
                                                     ==========================================
</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)


                                                                            Common
                              Preferred Stock           Common Stock       Stock Sub-   Additional
                           ----------------------  ----------------------  scriptions    Paid-in
                              Shares      Amount       Shares     Amount    Receivable   Capital
                           ---------------------------------------------- -----------------------
<S>                       <C>        <C>          <C>         <C>          <C>        <C>
Issuance of common
 stock for cash
 at inception                         $        -     1,170,000 $     1,300 $         -  $       -

Net loss                           -           -             -           -           -          -
                          -------------------------------------------------------------------------
BALANCE as of
 December 31, 1993                 -           -     1,170,000       1,300           -          -

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                             -          -              -           -           -          -

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

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                             -          -              -            -          -          -

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

                                       F-6
<PAGE>
<CAPTION>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

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


                                     Series C       Series D                                            Deficit
                                   Warrants to     Warrants to                                        Accumulated
                                     Purchase       Purchase                         Deferred         During the
                                      Common         Common        Advances to     Compensation       Development
                                      Stock          Stock        Stockholders        Expense           Stage
                                   --------------------------------------------------------------------------------
<S>                                <C>           <C>              <C>              <C>                <C>
Issuance of common
 stock for cash
 at inception                        $       -    $       -        $       -        $      -           $         -

Net loss                                     -            -                -               -                (3,450)
                                     -------------------------------------------------------------------------------
BALANCE as of
 December 31, 1993                           -            -                -               -                (3,450)

Issuance of
 preferred stock
 for cash                                    -            -                -               -                     -

Issuance of common
 stock for
 services and
 stock subscriptions
 receivable                                  -            -                -               -                     -

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

Net loss                                     -            -                -               -              (906,948)
                                     -------------------------------------------------------------------------------
BALANCE as of
 December 31, 1994                           -            -                -               -              (927,178)

Issuance of
 preferred stock
 for cash                                    -            -                -               -                     -

Issuance of common
 stock for stock
 subscriptions
 receivable                                  -            -                -               -                     -

Reduction in stock
 subscriptions
 receivable (cash
 and services)                               -            -                -               -                    -

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

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

                                       F-7
<PAGE>
<CAPTION>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

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


                                                                            Common
                              Preferred Stock           Common Stock       Stock Sub-   Additional
                           ----------------------  ----------------------  scriptions    Paid-in
                              Shares      Amount       Shares     Amount    Receivable   Capital
                           ---------------------------------------------- -----------------------
<S>                        <C>        <C>          <C>         <C>          <C>        <C>
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

Exercise of stock
 options for
 common stock
 subscriptions
 receivable                        -           -       288,000       5,760    (209,500)   203,740

Net loss                           -           -             -           -           -          -
                        --------------------------------------------------------------------------------
BALANCE as of
 December 31, 1995                 -           -     8,566,653     171,333    (259,500) 9,316,028

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

Net loss                           -           -             -           -           -          -
                       --------------------------------------------------------------------------------
BALANCE as of
 December 31, 1996                 -  $        -  $  8,656,653  $  173,133  $ (209,200)$9,540,928

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

                                       F-8
<PAGE>
<CAPTION>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

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


                                     Series C       Series D                                            Deficit
                                   Warrants to     Warrants to                                        Accumulated
                                     Purchase       Purchase                         Deferred         During the
                                      Common         Common        Advances to     Compensation       Development
                                      Stock          Stock        Stockholders        Expense           Stage
                                   --------------------------------------------------------------------------------
<S>                                <C>           <C>              <C>              <C>                <C>
Exchange of debt
 for common stock                  $         -   $        -       $        -       $       -          $          -

Issuance of common
 shares to
 stockholders under
 antidilution
 provisions                                  -            -                -               -                     -

Business
 combination                                 -            -                -               -                     -

Issuance of
 common stock for
 cash, net of
 expenses                                    -            -                -               -                     -

Exercise of stock
 options for
 common stock
 subscriptions
 receivable                                  -            -                -               -                     -

Net loss                                     -            -                -               -            (2,919,489)
                                   ------------------------------------------------------------------------------------
BALANCE as of
 December 31, 1995                           -            -                -               -            (3,858,056)

Cash received
 for stock
 subscriptions
 receivable                                  -            -                -               -                     -

Exercise of
 common stock
 options                                     -            -                -               -                     -

Exercise of
 common stock
 warrants                                    -            -                -               -                     -

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

Net loss                                     -            -                -               -            (4,093,388)
                                   ------------------------------------------------------------------------------------
BALANCE as of
 December 31, 1996                           -            -                -         (40,200)           (7,951,444)

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

                                       F-9
<PAGE>
<CAPTION>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

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


                                                                            Common
                              Preferred Stock           Common Stock       Stock Sub-   Additional
                           ----------------------  ----------------------  scriptions    Paid-in
                              Shares      Amount       Shares     Amount    Receivable   Capital
                           ---------------------------------------------- -----------------------
<S>                        <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

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

Net loss                           -           -             -           -           -          -
                          ------------------------------------------------------------------------
BALANCE as of
 December 31, 1997                 -           -    10,129,842     202,597    (209,200)12,113,346

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)

Issuance of common
 stock and common
 stock warrants for
 cash, net of
 expenses                          -           -     1,860,000      37,200          -   2,518,159

Issuance of common
 stock warrants
 for service                       -         -               -           -          -           -

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)

Net loss                           -           -             -           -           -          -
                          ------------------------------------------------------------------------
BALANCE as of
 December 31, 1998                 -  $        -    12,356,440  $  247,129  $ (200,200)$14,788,373

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

                                      F-10
<PAGE>
<CAPTION>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

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


                                     Series C       Series D                                            Deficit
                                   Warrants to     Warrants to                                        Accumulated
                                     Purchase       Purchase                         Deferred         During the
                                      Common         Common        Advances to     Compensation       Development
                                      Stock          Stock        Stockholders        Expense           Stage
                                   --------------------------------------------------------------------------------
<S>                                <C>           <C>              <C>              <C>                <C>
Exercise of
 common stock
 options                            $        -   $        -       $        -       $       -          $          -

Issuance of
 common stock and
 common stock
 warrants for
 cash, net of
 expenses                              310,994      388,158                -               -                     -

Issuance of common
 stock for
 services                                    -            -                -               -                     -

Net loss                                     -            -                -               -            (4,274,003)
                                   ------------------------------------------------------------------------------------
BALANCE as of
 December 31, 1997                     310,994      388,158                -         (40,200)          (12,225,447)

Exercise of
 common stock
 warrants                                    -            -                -               -                     -

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

Issuance of common
 stock and common
 stock warrants for
 cash, net of
 expenses                                    -    1,078,800                -               -                     -

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

Cash received
 for stock
 subscriptions
 receivable                                  -            -                -               -                     -

Issuance of common
 stock options
 for services                                -            -                -               -                     -

Issuance of
 common stock for
 services                                    -       13,000                -               -                     -

Net loss                                     -            -                -               -            (4,197,567)
                                   ------------------------------------------------------------------------------------
BALANCE as of
 December 31, 1998                 $         -  $ 1,954,452       $        -    $    (40,200)    $     (16,423,014)


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

                                      F-11
<PAGE>
<CAPTION>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

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


                                                                            Common
                              Preferred Stock           Common Stock       Stock Sub-   Additional
                           ----------------------  ----------------------  scriptions    Paid-in
                              Shares      Amount       Shares     Amount    Receivable   Capital
                           ---------------------------------------------- -----------------------
<S>                        <C>        <C>          <C>         <C>          <C>        <C>
Reduction in stock
 subscriptions
 receivable                        -   $       -             - $         -  $  200,200 $        -

Modification of
 options previously
 granted to
 employees                         -           -             -           -           -     97,126

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

Stock options
 forfeited                         -           -             -           -           -          -

Net income                         -           -             -           -           -          -
                  ---------------------------------------------------------------------------------
BALANCE as of                      -           -    12,356,440     247,129           - 14,865,399
 December 31, 1999

Issuance of common
 stock options for
 consulting
 services                          -           -             -           -           -      8,337

Issuance of common
 stock for
 consulting
 services                          -           -        25,000         500           -     27,625

Exercise of common
 stock options                     -           -        18,000         360           -      6,660

Issuance of common
 stock for
 consulting
 services                          -           -        50,000       1,000           -     58,375

Issuance of
 common stock
 options for
 consulting
 services                          -           -             -           -           -     19,573

Issuance of common
 stock options for
 consulting services               -           -             -           -           -    245,244

Modification of
 terms on Series
 D warrants                        -           -             -           -           -    132,848

Advance to a
 stockholder of
 the Company                       -           -             -           -           -          -


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

                                      F-12
<PAGE>
<CAPTION>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

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


                                     Series C       Series D                                            Deficit
                                   Warrants to     Warrants to                                        Accumulated
                                     Purchase       Purchase                         Deferred         During the
                                      Common         Common        Advances to     Compensation       Development
                                      Stock          Stock        Stockholders        Expense           Stage
                                   --------------------------------------------------------------------------------
<S>                                <C>           <C>              <C>              <C>                <C>
Reduction in stock
 subscriptions
 receivable                        $         -   $        -       $        -       $       -          $          -

Modification of
 options previously
 granted to
 employees                                   -            -                -               -                     -

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

Stock options
 forfeited                                   -            -                -          20,100                     -

Net income                                   -            -                -               -               359,231
                                   ------------------------------------------------------------------------------------
BALANCE as of                                -    1,954,452                -               -           (16,063,783)
 December 31, 1999

Issuance of common
 stock options for
 consulting
 services                                    -            -                -               -                     -

Issuance of common
 stock for
 consulting
 services                                    -            -                -               -                     -

Exercise of common
 stock options                               -            -                -               -                     -

Issuance of common
 stock for
 consulting
 services                                    -            -                -               -                     -

Issuance of
 common stock
 options for
 consulting
 services                                    -            -                -         (18,340)                    -

Issuance of common
 stock options for
 consulting services                         -            -                -               -                     -

Modification of
 terms on Series
 D warrants                                  -            -                -        (122,113)                    -

Advance to a
 stockholder of
 the Company                                 -            -           (2,801)              -                     -

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

                                      F-13
<PAGE>
<CAPTION>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

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


                                                                            Common
                              Preferred Stock           Common Stock       Stock Sub-   Additional
                           ----------------------  ----------------------  scriptions    Paid-in
                              Shares      Amount       Shares     Amount    Receivable   Capital
                           ---------------------------------------------- -----------------------
<S>                        <C>        <C>          <C>         <C>          <C>        <C>
Net loss                           -           -             -           -           -          -
                  --------------------------------------------------------------------------------
Balance as of
 December 31, 2000                 -  $        -    12,449,440  $  248,989  $        -$15,364,061
                  ================================================================================

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

                                      F-14
<PAGE>
<CAPTION>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

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


                                     Series C       Series D                                            Deficit
                                   Warrants to     Warrants to                                        Accumulated
                                     Purchase       Purchase                         Deferred         During the
                                      Common         Common        Advances to     Compensation       Development
                                      Stock          Stock        Stockholders        Expense           Stage
                                   --------------------------------------------------------------------------------
<S>                                <C>           <C>              <C>              <C>                <C>
Net loss                                     -            -                -               -            (3,181,720)
                                   ------------------------------------------------------------------------------------
Balance as of
 December 31, 2000                 $         -   $1,954,452       $   (2,801)      $(140,453)         $(19,245,503)
                                   ====================================================================================
</TABLE>
       The accompanying notes to consolidated financial statements are an
               integral part of this consolidated balance sheet.

                                      F-15
<PAGE>
<TABLE>
<CAPTION>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                                      Period from
                                                                   Years Ended December 31,           Inception to
                                                              ------------------------------------    December 31,
                                                                     2000              1999               2000
                                                              ---------------------------------------------------------
<S>                                                            <C>               <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                          $   (3,181,720)   $      359,231     $   (19,217,334)
    Adjustments to reconcile net income (loss) to net cash
      used in operating activities:
        Depreciation and amortization                                 350,908           382,597           1,691,478
        Allowance for doubtful accounts receivable                          -           125,800             125,800
        Common stock issued for consulting services                    69,160               -               300,160
        Common stock options issued for consulting services
                                                                      273,154           117,226             654,880
        Compensation expense for cancellation of warrants              60,665               -                60,665
        Compensation expense for modification of term on
             Series D warrants                                         10,735               -                10,735
        Loss on disposition of assets, net                              6,131           105,762           1,287,979
        Changes in operating assets and liabilities:
           Accounts receivable                                         40,829           359,110             (94,545)
           Unbilled receivables on contracts                                -           142,414                 -
           Prepaid expenses and other                                  24,788            10,407             (12,082)
           Amounts due from related parties                            (1,822)           21,663              (4,967)
           Other assets                                                   -                 -               (27,000)
           Accounts payable                                           132,022           (12,546)            136,714
           Accrued liabilities                                        140,342          (201,782)             261,325
           Other liabilities                                           47,398               -                 47,398
           Deferred revenue                                         1,277,997        (3,750,000)           1,277,997
                                                              ---------------------------------------------------------
              Net cash used in operating activities                  (749,413)       (2,340,118)        (13,500,797)
                                                              ---------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property and equipment                                (27,483)          (35,940)         (2,946,330)
    Purchase of patents and technology                                    -                 -              (356,146)
    Proceeds from the disposition of assets                               -               2,000               6,517
                                                              ---------------------------------------------------------
              Net cash used in investing activities                   (27,483)          (33,940)         (3,295,959)
                                                              ---------------------------------------------------------

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

                                      F-16
<PAGE>
<CAPTION>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

                                                                                                      Period from
                                                                   Years Ended December 31,           Inception to
                                                              ------------------------------------    December 31,
                                                                     2000              1999               2000
                                                              ---------------------------------------------------------
<S>                                                            <C>               <C>                <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of notes payable                      $     600,000    $          -      $       600,000
   Proceeds from issuance of common stock                               7,020               -           12,494,952
   Proceeds from issuance of common stock warrants                        -                -             1,777,952
   Proceeds from stock subscriptions                                      -             74,400             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                                     46              -               385,046
                                                              --------------------------------------------------------
              Net cash provided by financing activities               607,066           74,400          16,807,351
                                                              --------------------------------------------------------

NET INCREASE (DECREASE) IN CASH                                      (169,830)      (2,299,658)             10,595

CASH AT BEGINNING OF THE PERIOD                                       180,425        2,480,083                 -
                                                              --------------------------------------------------------

CASH AT END OF THE PERIOD                                       $      10,595    $     180,425     $        10,595
                                                              ========================================================
</TABLE>


 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
   FINANCING ACTIVITIES:

   For the period from  inception  to December 31,  2000,  the Company  recorded
     in-kind dividends on redeemable preferred stock of $28,169.

   For the period from inception to December 31, 2000, the Company issued common
     stock for subscriptions receivable of $548,000.

   For the period from  inception to December 31,  2000,  the Company  converted
     certain  stockholder  loans and amounts due to stockholders to common stock
     totaling $485,000.



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

                                      F-17
<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.  ("SHPI")  through its wholly
owned  subsidiaries,  Specialized  Health Products,  Inc.  ("SHP"),  Specialized
Cooperative   Corporation   ("SCC"),  and  Safety  Syringe  Corporation  ("SSC")
(collectively,  the  "Company") is a development  stage company which 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  needle  medical  devices  and  identifying  marketing  partners  for the
Company's  safety medical needle products and concepts.  The Company's  products
are designed to reduce the risk of acquiring HIV/AIDS,  hepatitis B, hepatitis C
and other blood-borne diseases through accidental needlesticks.

Development Stage Presentation

The Company is in the development stage and has incurred significant  cumulative
net losses. The Company has experienced  significant losses since inception with
only minimal  profitability  in 1999. The Company  incurred  negative cash flows
from  operating  activities  of $749,413 and  $2,340,118  during the years ended
December 31, 2000 and 1999,  respectively.  Sales of the  products  based on the
Company's  proprietary  technologies have been minimal. As of December 31, 2000,
the Company had an  accumulated  deficit of  $19,245,503  and  negative  working
capital of $1,240,617. 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.

In addition to its existing cash and expected cash flows from  distribution  and
license agreements,  the Company will require additional debt or equity funding.
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,  would 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)   There is no assurance  that the  Company's  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 be
     significant  and will vary based upon a number of  factors,  including  the
     rate at which  demand  for its  products  expands  and the  level of effort
     needed to develop and commercialize  other products utilizing the Company's
     medical  needle and other  technologies.  The  Company  has no  contractual
     arrangements  that  guarantee  that the Company will have adequate  funding
     during 2001 and there can be no assurance that  additional  funding will be
     available on  commercially  reasonable  terms

                                      F-18
<PAGE>

     or at all. Any inability to obtain additional funding when needed will have
     a material adverse effect on the Company.

c)   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 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.

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  ("U.S.") 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  continue  to  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 highly  competitive  market and competes directly
     with  firms  that  have  longer  operating   histories,   more  experience,
     substantially  greater financial resources,  greater size, more substantial
     research and development,  marketing and distribution  organizations,  than
     the Company.  Such competitors may use their economic strength to influence
     the market to continue to buy their existing  products.  These competitors,
     such  as  Becton   Dickinson  and  Company  ("BD"),   The  Kendall  Company
     ("Kendall"), Johnson & Johnson Medical ("JJM") and Merit Medical ("Merit"),
     may also be potential  strategic partners with respect to various products.
     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.

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,  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 U.S.  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.

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.
     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  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

                                      F-19
<PAGE>

     should they begin 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.

Business Combination

SHP, a Utah  corporation,  was  incorporated in November 1993. On July 28, 1995,
SHP became a wholly owned subsidiary of SHPI, (a Delaware corporation  organized
in February 1986 and known as Russco,  Inc.  prior to changing its name to SHPI)
through a merger with a subsidiary  of SHPI (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.

(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 accounting principles
generally  accepted  in the  U.S.  requires  management  to make  estimates  and
assumptions  that effect the reported  amounts of assets and liabilities and the
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.

Property and Equipment

Property and equipment are stated at cost and consist primarily of manufacturing
molds and  equipment,  office  furniture  and fixtures,  computer  equipment and
software,    research   and   development    machinery   and   equipment,    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.  Leasehold  improvements  are amortized using the
straight-line  method over the shorter of the lease term or the estimated useful
life of the asset.  All other property and equipment are  depreciated  using the
straight-line  method based on the estimated  useful lives of the related assets
of five years, except for computer equipment and software,  with useful lives of
three 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  of a security  deposit  for the  Company's  headquarters
building.

                                      F-20
<PAGE>


Long-Lived Assets

The Company  accounts for  impairment  of long-lived  assets in accordance  with
Statement of Financial  Accounting  Standards ("SFAS") No. 121,  "Accounting for
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of".
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.

During 2000, the Company adjusted the estimated useful lives of certain computer
equipment and software in order to properly  reflect the realizable value of the
equipment  and software at December  31,  2000,  and  recognized  an  additional
$54,365 of depreciation expense.

During  1999,  the  Company  adjusted  the  estimated  useful  lives of  certain
manufacturing  molds in order to properly  reflect the  realizable  value of the
molds  at  December  31,  1999,  and   recognized  an  additional   $108,554  of
depreciation expense.

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.  Royalties
are  recognized  as  revenues  when the  related  products  are sold or upon the
Company's fulfillment of any future obligation under the related agreements.

On April 12, 2000,  the Company  received a payment of  $1,500,000  less $35,044
representing the Company's share of certain patent filing costs. This $1,500,000
payment was for the purchase of patents and an exclusive  license to produce and
sell  products  covered by those  patents.  Pursuant to the revenue  recognition
guidelines in Staff Accounting Bulletin ("SAB") No. 101 issued by the Securities
and Exchange  Commission  ("SEC"),  the Company is recognizing  revenue from the
agreement  over a period of five  years at a rate of $24,667  per  month.  As of
December  31,  2000,  the  Company  has  reflected   deferred   revenue  in  the
accompanying  consolidated  balance sheet of $1,277,997  related to this license
agreement.

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 bases 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 Derivative  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

                                      F-21
<PAGE>

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.

In December 1999,  the SEC issued SAB No. 101. SAB No. 101 provides  guidance on
the recognition, presentation and disclosure of revenue in financial statements.
The Company's adoption of the provisions of SAB No. 101 during 2000 did not have
a material impact on the Company's consolidated results of operations, financial
position, or liquidity.

Basic and Diluted Net Income (Loss) Per Common Share

As a result of the Company  incurring a net loss for the year ended December 31,
2000, both basic and diluted net loss per common share for the 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  the  year  because  their   inclusion   would  be
antidilutive,  thereby  reducing  the net loss per  common  share.  Options  and
warrants to purchase  6,298,787 and 6,020,287 shares of common stock at exercise
prices  ranging from $1.25 to $2.625 per share were  outstanding at December 31,
2000 and 1999, but were not included in the computation of diluted  earnings per
share ("EPS") for the respective years 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
dilutive for 1999 and therefore were included in the 1999 calculation of diluted
EPS.

Reclassifications

Certain  reclassifications  have  been made in the 1999  consolidated  financial
statements to conform to the 2000 presentation.

(3)  DISTRIBUTION AND LICENSE AGREEMENTS

The Kendall Company

In November 1999, the Company and Kendall,  a division of Tyco Healthcare  Group
LP, 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.

Becton Dickinson and Company

In August 1996,  the Company  entered into an exclusive  distribution  agreement
with BD Sharps  Disposal  Systems  Division  relating  to the  Company's  Safety
Cradle(R)  sharps  container  products.  The  agreement  granted BD 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 BD'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
container products have been minimal.

                                      F-22
<PAGE>

In May 1997,  the Company  entered into an exclusive  license  agreement with BD
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,  BD 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, BD and the Company amended the license agreement.
The amendment provides that the $3,750,000  previously paid by BD to the Company
will not be credited  against future earned  royalties and the Company will have
no  further  obligation  of any  kind  to BD 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  JJM  to
commercialize  two applications of the Company's  safety needle  technologies in
one restricted  field-of-application  of the technology.  The agreement provided
for monthly development  payments by JJM, sharing of field related patent costs,
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 agreement also provided for an ongoing joint cooperative program between JJM
and the Company which would derive future funding directly from sales of Company
created  products and provide for the  possibility  of low volume  manufacturing
revenue for the  Company and an ongoing  royalty  stream for  additional  safety
products which were jointly approved for development. However, on April 3, 2001,
the Company received notice from JJM that the Development and License  Agreement
between JJM and the Company had been terminated.

(4)   COMMITMENTS AND CONTINGENCIES

Lease Obligations

The Company  leases office space and equipment  under  noncancellable  operating
leases that expire over various terms. The following  summarizes  future minimum
lease payments net of sublease  income,  under operating  leases at December 31,
2000:

                                       Minimum
                                        lease       Sublease          Net rent
                                      payments        income           expense
                                 -------------- --------------- ----------------
       Year Ending December 31,
                      2001       $    305,895   $    (72,000)    $     233,895
                      2002            318,130        (18,000)          300,130
                      2003            133,090              -           133,090
                                 -------------- --------------- ----------------
                                 $    757,115   $    (90,000)    $     667,115
                                 ============== =============== ================

Rental  expense  for  the  years  ended  December  31,  2000  and  1999  totaled
approximately $269,000 and $315,000, respectively.  Beginning March 1, 2000, the
Company subleased approximately 3,300 square feet of its office space for a term
of 12 months with an option to renew for an  additional  12 months.  This option
has been exercised. Sublease payments of $54,000 were received during 2000.

Employment Agreements

On January 1, 2001,  the Company  entered into an employment  agreement with the
Company's Chief Financial Officer.  The agreement is for a term of two years and
provides  for an annual  aggregate  base  salary of  $90,000,  subject to annual
adjustment  by the  Compensation  Committee  of the  Board  of  Directors.  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 a noncompete clause.

                                      F-23
<PAGE>

On October 23 and June 12, 2000, the Company entered into employment  agreements
with  the  Company's   Chief   Operating   Officer  and  the  General   Counsel,
respectively.  The  agreements  are for a term of three years and provide for an
annual  aggregate  base salary of $165,000  subject to annual  adjustment by the
Compensation Committee of the Board of Directors. Upon termination of employment
without cause,  salary and certain benefits will continue to be paid through the
expiration of the agreements. The agreements have customary provisions for other
benefits and include noncompete clauses.

On September 19, 1999, the Company entered into an employment agreement with the
Company's  president . The  agreement  is for a term of three years and provides
for an annual aggregate base salary of $190,000 subject to annual  adjustment by
the  Compensation  Committee  of the Board of  Directors.  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 noncompete clauses.

In December 1998 and again in November  1999, a previously  existing  employment
agreement was amended to allow for cash payments  totaling  $115,000 in exchange
for the surrender of 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 did not reach  specified  amounts by January 31,  2001.
Additionally,  the  January  31,  2001  exchange  could be  accelerated,  at the
employee's  option,  should the  Company's  cash position fall below a specified
level. Upon election of the accelerated exchange, the cash compensation would be
reduced by $625 for each month between the date the exchange  occurs and January
31,  2001.  In January  1999,  the Company  paid  $50,000 to the  employee  upon
exercise of the first  option.  In December  2000,  the employee  exercised  the
second  option  and the  Company  agreed to make the cash  payment of $60,665 on
January 31, 2001. The Company has yet to make payment to the employee.

Litigation

The Company was involved in litigation with Leerink, 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  expenses  relating to the litigation
and the  disruption to its business.  In connection  with the current and future
financing plans or strategies,  the Company has been threatened with lawsuits by
a number of  different  stockholders  if the Company  does not pursue  suggested
financing plans or strategies.  These financing plans include a plan proposed by
Rubicon  International Limited who is currently acting as a financial advisor to
the Company. The stockholder  proposals,  in some cases, are mutually exclusive.
Given recent  stockholder  communications,  there can be no assurance  that some
stockholders  will not challenge any given financing plan or strategy adopted by
the Company.  Stockholder  litigation may be expensive and, if it occurs,  could
divert Company  resources from other planned uses. Such litigation  could have a
material adverse effect on the Company including  requiring the Company to limit
or cease operations.

(5)      STOCK OPTIONS

Effective June 2000, adoption of the Specialized Health Products  International,
Inc.  2000 Stock Option plan was approved by the  Company's  Board of Directors.
The plan is  administered  by the Board of Directors.  The plan provides for the
issuance  of up to  2,500,000  shares of common  stock to  directors,  officers,
employees and consultants. The exercise price of the options granted will be the
greater of $1.00 per share 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 exercisable for a period not
to  exceed  ten  years  (or  five  years  when  the  optionee  is a ten  percent
stockholder) 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  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 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  exercisable for a period not to exceed ten years (or five years
when the optionee is a ten percent stockholder) from the date of grant.

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,

                                      F-24
<PAGE>

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.

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 $0.39 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 forfeited  during 1994. In connection  with
the business  combination,  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,  which are due upon
demand.  During 1996,  options to acquire  45,000 shares were exercised at $0.39
per share and 22,500 options were  forfeited.  Of the remaining  40,500 options,
22,500  were  exercised  in 1997 at $0.39  per  share.  During  August  2000 the
remaining 18,000 options were exercised at $0.39 per share.

As permitted by SFAS No. 123,  "Accounting  for Stock-based  Compensation",  the
Company applies  Accounting  Principles Board ("APB") Opinion No. 25 and related
interpretations   in  accounting   for  certain   aspects  of  its   stock-based
compensation  plans.  Accordingly,  no compensation cost is recognized for stock
options  granted to officers,  directors  and other key employees if options are
granted at the  intrinsic  fair market value or higher.  The Company  recognized
$273,154 and $117,226 of consulting expense during 2000 and 1999,  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 income (loss) and basic and diluted net income (loss) per
common  share would have been  increased  (decreased)  to the pro forma  amounts
presented below for the years ended December 31:
<TABLE>
<CAPTION>
                                                         2000             1999
                                                    ---------------- -----------------
<S>                                                  <C>               <C>
Net income (loss):                     As reported   $  (3,181,720)    $      359,231
                                       Pro forma        (4,056,591)           279,915

Basic and diluted  net income (loss)
  per common share:                    As reported            (.26)               .03
                                       Pro forma              (.33)               .02
</TABLE>

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-25
<PAGE>

A summary of the status of the  Company's  option  plans as of December 31, 2000
and 1999, and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
                                           2000                             1999
                              -------------------------------- --------------------------------
                                                 Wtd. Avg.                        Wtd. Avg.
                                  Shares      Exercise Prices      Shares      Exercise Prices
                              --------------- ---------------- --------------- ----------------
Outstanding at beginning of
  year                            1,653,500        $ 2.08          1,493,500       $ 2.11
Granted                           1,445,810          1.50            254,000         2.00
Exercised                           (18,000)         0.39                  -          -
Forfeited                        (1,142,310)         2.78            (94,000)        0.85
Outstanding at
  end of year                     1,939,000          1.70          1,653,500         2.08
                              ---------------                  ---------------
Exercisable at
  end of year                     1,205,000          1.78          1,458,500         1.30
                              ---------------                  ---------------
Weighted average fair value
of options granted              $      0.99                      $      0.32
                              ===============                  ===============

<CAPTION>
The following table summarizes  information about the stock options  outstanding
at December 31, 2000:

                                           Options Outstanding                           Options Exercisable
                                 Number           Wtd. Avg.                           Number
                               Outstanding        Remaining        Wtd. Avg.       Exercisable          Wtd. Avg.
          Range of           as of December      Contractual       Exercise       as of December        Exercise
       Exercise Prices          31, 2000            Life             Price           31, 2000             Price
   ------------------------ ------------------ ----------------- -------------- ------------------- ------------------
    <S>                           <C>              <C>            <C>                  <C>            <C>
    $     1.0000                     58,000         9.67 years    $   1.0000              58,000      $     1.0000
          1.1250                    122,000         9.46              1.1250              22,000            1.1250
          1.2500                    670,810         6.26              1.2500             374,810            1.2500
          1.5625                    100,000         9.74              1.5625                   -                 -
          1.6250                     55,000         9.35              1.6250               5,000            1.6250
          1.7500                      5,000         7.44              1.7500               5,000            1.7500
          1.8125                     10,000         7.38              1.8125               5,000            1.8125
          2.0000                    661,000         4.67              2.0000             478,000            2.0000
          2.6250                    257,190         0.83              2.6250             257,190            2.6250
                            ------------------                   -------------- ------------------- ------------------
    $1.00 to 2.625                1,939,000                       $   1.7040           1,205,000      $     1.7780
                            ==================                   ============== =================== ==================
</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 2000 and 1999:  risk-free  interest  rate of 6.0
percent  in both  years;  expected  lives of 4 years and 2 years,  respectively;
expected dividend yields of zero percent in both years;  expected  volatility of
92 and 68 percent, respectively.

In  calculating  the pro forma net income (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
an  employee of the Company  during  1998.  The  issuance  of the  warrants  was
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-26
<PAGE>

(6)      CAPITAL TRANSACTIONS

In December  2000,  the Company filed a  registration  statement  related to the
Series D warrants,  which became  effective  on January 12,  2001.  The Series D
warrants are  exercisable for a period of two years from the effective date of a
registration statement,  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.  The Company offered the Series D warrant holders a reduced  exercise
price,  allowing  their exercise at $1.00 per share rather than $2.00 per share,
to encourage  warrant  holders to exercise  their  Series D warrants  during the
period of the reduced price offer,  which ended January 13, 2001.  Those warrant
holders who exercised some of their warrants,  but not all of them, were allowed
to extend the exercise period of an equal number, up to the total warrants held,
until June 30, 2001. Of the 3,609,787 Series D warrants outstanding, 76,694 were
exercised.  The exercise  dates of 6,921  warrants were extended  until June 30,
2001.  The  remaining  3,526,172  Series D  warrants  have  expired.  Other SHPI
warrants totaling 750,000 remain  outstanding with expiration dates beginning in
2002. As a result of the  modification of terms on the Series D warrants a total
of $132,848 was recorded as  compensation  expense,  of which  $122,113 has been
deferred as of December 31, 2000, and will be recognized during 2001.

In August 2000,  common stock options to acquire  18,000 shares of the Company's
common stock at $0.39 per share were exercised by a former employee and director
of the Company.

In August 2000, the Company  issued 50,000 shares of restricted  common stock in
full  settlement  of a claim from an  individual  related  to  certain  expenses
incurred by that  individual in connection  with the  Company's  acquisition  of
certain intellectual property and related assets.

In June 2000, the Company  granted to an employee  25,000 shares of common stock
as part of a new  employment  arrangement.  The stock  issuance  was 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. The Company did not
use an underwriter in connection with the transaction.

The  following  summarizes  all warrant  activity  for the Company for the years
ended December 31, 2000 and 1999.
<TABLE>
<CAPTION>
                                           2000                             1999
                              -------------------------------- -------------------------------
                                                 Wtd. Avg.                       Wtd. Avg.
                                                  Exercise                        Exercise
                                  Shares           Prices          Shares          Prices
                              ---------------- --------------- --------------- ---------------
<S>                                 <C>             <C>            <C>           <C>
Outstanding at beginning of
  the year                          4,384,787       $ 2.00         4,409,787     $  2.00
Granted                                   -             -             25,000        2.00
Exercised                                 -             -                  -         -
Forfeited                             (25,000)        2.00           (50,000)       2.00
                              ----------------                 ---------------
Outstanding at end of the
  year                              4,359,787       $ 2.00         4,384,787     $  2.00
                              ================                 ===============
Exercisable at end of the
  year                              4,359,787                      4,384,787
                              ================                 ===============
</TABLE>
                                      F-27
<PAGE>

(7)      INCOME TAXES

The  Company  recognized  no  income  tax  expense  in 2000  and 1999 due to 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, 2000 are as follows:

                                                               2000
                                                      ---------------------
Deferred income tax assets:
   Net operating loss carryforwards                      $    5,928,214
   Non cash compensation expense                                206,521
   Accrued compensation                                          36,156
   Patent costs                                                 157,499
   Financial reporting accruals and reserves                     79,214
   Deferred revenue                                             476,693
                                                      ---------------------
       Total gross deferred income tax assets                 6,884,297
   Less valuation allowance                                  (6,799,275)
                                                      ---------------------
       Net deferred income tax assets                            85,022

Deferred income tax liability -
  Property and equipment                                        (85,022)
                                                      ---------------------
       Net deferred income taxes                         $           -
                                                      =====================

The net change in the total valuation  allowance for the year ended December 31,
2000 was an increase of $1,254,918.

At  December  31,  2000,  the  Company  had  total tax net  operating  losses of
approximately  $15,893,000  that can be carried forward to reduce federal income
taxes, if any. 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 are 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.

(8)      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 contribution
to the plan was  approximately  $62,300 and $66,800 for the years ended December
31, 2000 and 1999, respectively.

(9)      RELATED-PARTY TRANSACTIONS

In February  2000,  the Company  entered  into a letter  agreement  with Rubicon
International   Limited   ("Rubicon")  to  receive  certain  financial  advisory
services.  Certain of the  principals  of Rubicon  and the  persons  expected to
perform  service on behalf of Rubicon  under the letter  agreement  are  Company
stockholders.  In the event that the Company enters into a financing transaction
related to the letter  agreement  (other than a  refloatation)  Rubicon  will be
entitled to compensation of up to 2.5 percent of the  consideration  received by
the Company in such a transaction.  Subject to certain limitations,  in the case
of a refloatation (i.e., listing or quotation of the Company's common stock on a
recognized  European stock exchange and, in the event the Company initially goes
private,  on the Nasdaq  SmallCap or National  Market  System)  then  Rubicon is
entitled  to a fee of up to 2.5  percent of the  undiluted  market  value of the

                                      F-28
<PAGE>

Company's  common stock  calculated on a 20-day average stock price beginning on
the five month anniversary of such refloatation. Not withstanding the foregoing,
no fee shall be payable  to  Rubicon  in the event that the total  consideration
paid to the  Company  is less than  $1.70 per  outstanding  common  share of the
Company, or its successor, on the date the fee is first required to be paid. The
Company is obligated to pay Rubicon fees and expense  reimbursements  under this
agreement.  Rubicon  has  suggested  that the  scope of the  financial  advisory
services  agreement be  substantially  expanded.  The parties are in the initial
stages of discussion  with respect to a proposed  amendment.  No agreements have
been reached.

In December  2000, an employee of the Company  exercised his option to return to
the Company  23,333  warrants in exchange for a cash payment of $60,665,  due in
January 2001. The Company has yet to make this cash payment.

During 2000, two non-employee  directors of the Company each received options to
purchase  16,000 shares of the Company's  stock at exercise  prices ranging from
$1.00 to $2.00, all of which vested at December 31, 2000.

In September 2000, the Company granted to an officer options to purchase 100,000
shares of common stock at an exercise price of $1.5625  vesting over a period of
two years.  Options  that  immediately  vested  were  granted to an officer  and
director  to purchase  300,000  shares of common  stock at an exercise  price of
$2.00 per share.  A  non-employee  director was granted  options with  immediate
vesting to purchase  20,000 shares of common stock at an exercise price of $2.00
per share.  Three  employees  were  granted  options with  immediate  vesting to
purchase a total of 96,810 shares of common stock with exercise  prices  ranging
from $1.25 to $2.00.

In August 2000, the Company granted a director options to purchase 50,000 shares
of common stock of the Company which vested  immediately at an exercise price of
$1.00 per share.

In July 2000,  the  Company  granted to an  officer  of the  Company  options to
purchase  50,000 shares of common stock at an exercise  price of $1.625  vesting
over a period of two years.

In July 2000, the Company entered into a consulting agreement with a shareholder
to provide services.  The agreement obligates the Company to pay a fee of $6,000
per month plus reimbursement of expenses. During 2000, the Company recorded fees
of $36,000 and expenses of $31,870 relating to this agreement.

In June 2000,  the Company  entered into an employment  contract with a director
and officer of the Company. As a part of that agreement the employee was granted
25,000 shares of common stock and options to purchase  100,000  shares of common
stock at an exercise price of $1.125 vesting over a period of two years.

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.

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  royalty  agreements.   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.

                                      F-29
<PAGE>

(10)     INVESTMENT IN QUANTUM IMAGING CORPORATION

The Company's investment in Quantum Imaging Corporation ("QIC") has been written
down to zero as of  December  31,  2000.  The  Company  maintains  a 17  percent
interest in QIC. Any funding contributed by the Company to QIC is expensed.

(11)     SUBSEQUENT EVENTS

In February 2001, the Company issued a Private Placement  Memorandum ("PPM") and
raised  $170,000 in cash.  This PPM was closed in March 2001.  The  offering was
made in units of $20,000,  each unit  providing  20,000  shares of the Company's
common stock and Series F warrants to purchase an  additional  20,000  shares of
the  Company's  common  stock  at an  exercise  price of $1.50  per  share  (the
"Units").  The warrants are exercisable  through February 28, 2002. The PPM also
contained an adjustment  provision to participants  should a subsequent offering
be made at more  advantageous  terms. The adjustment would become effective upon
the following conditions:

On the first occasion that the Company  issues an aggregate of 2,000,000  shares
of common stock  (including  securities that are  convertible  into common stock
whether  in the  form of debt or  equity)  in a  private  offering  (an  "Equity
Financing")  and the Equity  Financing is at a different  price or has different
terms,  conditions  or  characteristics  than  the  Units  that are part of this
Offering,  then each stockholder who then holds outstanding Units shall have the
option to convert the Units into the number of subsequently issued securities in
the  Equity  Financing  that  such  stockholder  would  have  received  had such
stockholder  invested  the  funds  used to  acquire  the  Units to  acquire  the
securities  issued in the  Equity  Financing  (a  "Conversion  Privilege").  The
Conversion  Privilege and other rights  described in this paragraph do not apply
to (i) an Equity  Financing  that occurs after  December  31,  2001,  (ii) stock
option  grants under any Company  stock option plan,  (iii)  obligations  of the
Company  that  existed  prior  to the  date of this  PPM,  (iv)  any  securities
issuances to Rubicon or its successors or nominees, (v) any securities issued to
one or more strategic  partners of the Company,  (vi) the issuance of securities
that are primarily for compensatory  purposes,  (vii) the issuance of securities
in connection with any merger,  stock exchange,  consolidation,  reorganization,
sale of a significant  portion of the Company's assets or similar transaction or
(viii) the issuance of securities  after the first occasion that the Company has
an Equity Financing.

In January 2001, the Company and Merit Medical Systems,  Inc.  ("Merit") entered
into a License Agreement relating to the production of safety needle devices for
angiographic guidewire introducers.  The Company received an upfront license fee
payment of $100,000 in January  2001.  The License  Agreement  provides that the
Company will receive  ongoing  royalties,  including  minimum  royalty  payments
beginning in 2002.  All product  introductions  are scheduled and  controlled by
Merit.

                                      F-30