<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                   FORM 10-K
                      ----------------------------------

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

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

                       COMMISSION FILE NUMBER:  0-11625

                    MICROFLUIDICS INTERNATIONAL CORPORATION
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


            DELAWARE                                 04-2793022
            --------                                 ----------
 (State or other jurisdiction of        (I.R.S. Employer Identification No.)
 incorporation or organization)

      30 OSSIPEE ROAD, P.0. BOX 9101                  02164-9101
          NEWTON, MASSACHUSETTS                       ----------
      ------------------------------                  (Zip Code)
(Address of principal executive offices)


      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 969-5452
       SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:  NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                         COMMON STOCK, $.01 PAR VALUE


Indicate by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.

Yes [X]    No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

The aggregate market value of Common Stock held by non-affiliates of the
registrant as of March 16, 1998 was $ 14,451,713.

The number of shares outstanding of the registrant's Common Stock as of March
16, 1998 was 4,919,732 shares.
<PAGE>

                      DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1997. Portions of such proxy statement are incorporated by reference into Part
III of this report.
<PAGE>

                                      -3-


ITEM 1.   BUSINESS:

COMPANY OVERVIEW:
----------------

     Microfluidics International Corporation ("Microfluidics" or the "Company"),
through its wholly-owned subsidiaries, Microfluidics Corporation ("MFC") and
MediControl Corporation ("MediControl"), which is currently inactive,
specializes in producing and marketing proprietary Microfluidizer/(R)/ materials
processor devices used for the creation of micro-droplets and dispersions in
liquid streams for very fine mixing and blending applications. Microfluidizer
devices have wide-spread use in chemical, pharmaceutical, biotechnology,
cosmetics and food processing applications.

     Microfluidizer equipment is used to formulate emulsions, dispersions, and
liposomes, and is used in cell disruption.  Emulsions are found in a broad
variety of common products, including processed foods, medicines and
photographic films.  Dispersions are often employed in products such as inks,
pigments and coatings.  The Company believes that the processing technique of
the Microfluidizer equipment enhances the stability and consistency of emulsions
and dispersions due to the equipment's unique ability to consistently produce
uniform micron scale particles in many applications.  Liposomes,  which are
biodegradable cell-like structures, are used to encapsulate medications or
nutrients, and are typically used in cosmetic or pharmaceutical products.  In
addition, Microfluidizer equipment may be used in biotechnology applications to
harvest, through cell disruption, the cultivated product contents of plant and
animal cells.

     The Company was incorporated in Delaware in 1983. The Company, formerly
named Biotechnology Development Corporation, changed its name effective June 8,
1993 to Microfluidics International Corporation (MFIC).  Its principal executive
offices are located at 30 Ossipee Road, in Newton, Massachusetts, and its
telephone number is (617) 969-5452.

THE TECHNOLOGY:
--------------

     The Company's Microfluidizer devices are based on patents and related
technology that was licensed by MFIC from Arthur D. Little & Co. in 1983 and
subsequently purchased by MFIC in 1985. The Company holds two United States
patents related to the apparatus and process used to intimately mix liquids and
disperse particulate solids in microemulsions.

     The Company's Microfluidizer device is used in the processing industries to
mix materials that are normally very difficult to mix. The Microfluidizer
devices allow manufacturers in the chemical, pharmaceutical, biotechnology,
cosmetic, and food processing industries to produce higher quality products with
better characteristics on a more consistent basis than with other blending and
mixing techniques.

     In the Microfluidizer device, two or more ingredients are pumped into the
device under high pressure.  The fluid streams are then injected at very high
speeds into the proprietary interaction chamber where the streams collide in a
confined space and resultingly interact.  This collision of fluids under these
conditions causes the thorough mixing and integration of the component
ingredients.  The
<PAGE>

                                      -4-



result is a uniform, consistent, and lump-free product. The process can also be
used in biotechnology cell-rupture applications. The precision with which the
Microfluidizer device can be used to break up materials allows the encapsulating
cell wall to be ruptured with minimum damage to or contamination of the cell
contents. The advantage of Microfluidics' equipment is its ability to: (i)
reduce the particle size of ingredients to minute levels using extremely high
pressures [up to 40,000 pounds per square inch ("psi")]; and (ii) precisely
control the process so all component ingredients are uniformly affected by
interaction.

     The Company believes its patented Microfluidizer device, with its unique
ability to consistently produce micron and sub-micron-size particles, allows
users to manufacture new and improved formulations with enhanced product
stability and formulation consistency.  The Company's technology is
distinguished by its ability to provide, through fixed geometry, uniform
treatment of all elements of a formulation. The Company believes that causing
processed material to flow through fixed channels under nearly constant high
pressure into a confined liquid collision zone within its proprietary
interaction chamber differentiates its equipment from the equipment of its
competitors. The resulting high intensity forces of shear (flow), impact and
cavitation (vapor bubble implosion) forces caused thereby uniformly affect all
materials in the collision zone, reducing the size of droplets or particles in
the material flow to a uniform micron-size scale. Smaller and more uniform
particles result in increased surface area that can substantially improve the
compatibility of formulation ingredients, allowing a much higher level of
homogeneity.  In contrast, the Company believes that other mixing technologies
are limited by non-uniform pressure, variable geometry processes, lower
practical operating pressures which  imparts less energy in mixing and produces
less uniform formulations that are inferior to those produced with the
Microfluidizer device.


     Among the benefits believed to be imparted by Microfluidizer processing for
various industries are:

     *    extension of shelf life
     *    enhanced flavor and texture
     *    consistency of  color and fragrance
     *    improved delivery of drugs and cosmetics
     *    elimination of additives and solvents
     *    more uniform product appearance
     *    more effective (higher yield) cell rupture

     In February 1995, the Company introduced the Diamond Interaction Chamber as
a product enhancement to the Microfluidizer.  This chamber uses diamond surfaces
in the high wear regions of the chamber, rather than the Company's proprietary
ceramic materials.  While the standard ceramic interaction chamber is generally
acceptable for most applications, the Diamond Interaction Chamber was designed
to reduce wear in the chamber from applications that introduce abrasive
materials into the process stream, such as metal oxides, and cause significant
wear to areas of high energy transfer. Proprietary material preparation,
machining and assembly methodologies for the Company's Diamond Interaction
Chamber were developed during 1993 and 1994.
<PAGE>

                                      -5-

     The Company believes that the equipment of its competitors generally
incorporate mechanical components in the mixing valves that move continually
during processing, allowing variable size particles to pass through and
resulting in non-uniform, inconsistent products. In contrast, the Company's
equipment contains no in-line moving parts in the high energy mixing zone. In
addition, while the Company believes that competing equipment frequently needs
to repeat a mixing process cycle, Microfluidics' equipment can achieve results
that are similar or superior to its competitors' results with fewer mixing
cycles.  An additional advantage of the Microfluidizer equipment is that it can
be scaled up to larger, higher volume product requirements in a reliable manner.

COMMERCIAL APPLICATIONS:
-----------------------

     The Microfluidizer equipment can be used to mix and formulate emulsions,
dispersions and liposomes, and for cell disruption.

     Emulsions are homogenous mixtures of oil and water components (or other
normally immiscible components), which, if mixed properly, do not readily
separate.  Emulsions make up many products, such as processed foods, medicines,
photographic films, hydraulic fluids and polymers.  The Company believes that,
generally, an emulsion processed with  Microfluidizer equipment will exhibit
improved stability and require reduced concentrations of costly emulsifying
agents that are otherwise needed to enhance product stability.

     Dispersions are mixtures of fine solids suspended in liquid so that the two
do not separate readily after processing.  Similar to emulsions, dispersions are
used in a variety of consumer and industrial products, including pigments for
paints and inks, iron oxide for magnetic tapes and mascara, phosphorescent
coatings for TV screens and fluorescent lamps, barium titanate for capacitors,
toners and inks.

     Liposomes are biodegradable cell-like structures, formed from materials
such as cholesterol and lecithin, that can be used to encapsulate medications or
nutrients.  Pharmaceutical and cosmetic manufacturers use liposomes as a
delivery system to target active ingredients for specific anatomical sites and
to prolong their efficacy.  To date, liposomes have been used commercially
primarily in the area of medical diagnostic agents and cosmetics.  Applications
include the encapsulation of dye to be used as a marker in medical diagnostic
tests and the encapsulation of ingredients for deeper skin penetration, or time
release control, as well as pharmaceutical, food and specialized agricultural
applications.

     In the biotechnology industry, Microfluidizer equipment is currently used
to harvest, by cell rupture, the contents of plant or animal cells.  The
precision with which the Microfluidizer can be used to break up materials allows
the encapsulating cell wall to be ruptured without damage to or contamination of
the cell contents. As a result, the Microfluidizer equipment minimizes the
amount and presence of cell wall debris, thus resulting in maximum yields.
<PAGE>

                                      -6-

     With the introduction of the Diamond Interaction Chamber, the Company
targeted the markets for processing abrasive materials by wet milling and wet
grinding, which cause deagglomeration and dispersion of these materials into
slurries.

     The Company continually seeks to expand the applications for which the
Microfluidizer materials processing technology can be used.  The Company is
exploring other applications for the Microfluidizer processing technology in
research and licensing arrangements with Worcester Polytechnic Institute ("WPI")
and Catalytica, Inc. ("Catalytica").  See "Research and Development".


THE PRODUCTS:
------------

     Microfluidics currently manufactures and markets the following lines of
equipment that range in price from $8,000 to $460,000:

I.   LABORATORY EQUIPMENT
     --------------------

     The HC Series:  The HC Series, also known as "Homogenizers," is a
     -------------
laboratory-scale series of equipment that is intended to impart moderate levels
of energy into a customer's product with greater flow rates than the more energy
intensive Microfluidizer devices.  Operating pressures of products in the
Company's HC Series can range from under 500 psi to as high as 8,000 psi, and
will process as much as two liters of fluid per minute.

     The M-110 Series:  The 110 Series, a laboratory product line, is designed
     ----------------
primarily for research and development applications. Standard models can operate
at pressures as high as 25,000 psi and have a flow rate that exceeds one-half of
a liter of product per minute.

     The M-140K:  The M-140K, introduced in June of 1994, is a laboratory-scale
     ----------
unit developed for customers in the chemical, biotechnology, pharmaceutical,
cosmetic and food processing industries who require elevated operating pressures
to achieve better performance.  The M-140K can achieve operating pressures up to
40,000 psi. The M-140K has a built-in hydraulic system and utilizes a double
ended intensifier pump that provides a highly uniform pressure profile.  It has
been designed with important safety features such as an explosion proof motor,
starter and electrical controls.

II.  PILOT PLANT AND SMALL VOLUME PRODUCTION EQUIPMENT
     -------------------------------------------------

     The M-210 Series:  The 210 Series is primarily marketed to manufacturers
     ----------------
who have created a successful new or improved formulation on a 110 series unit
and would like to increase their productive capacity.   The 210 Series unit is
typically used for testing formulations at greater volume levels before
initiating full scale production.   For some customers (such as pharmaceutical
product manufacturers), the 210 Series may have the capacity to function as a
production unit.
<PAGE>

                                      -7-

III. LARGE VOLUME PRODUCTION EQUIPMENT
      ---------------------------------

     The M-610 Series:  The 610 Series consists of custom built models used for
     ----------------
large-scale manufacturing.  These units have flow rates of up to 50 gallons per
minute and generate operating pressures up to 40,000 psi.

MARKETING AND SALES:
-------------------

     The Company's strategy is to sell laboratory Microfluidizer systems such as
the M-110 Series or the M-140K into customers' research and development
departments where chemists, formulators, scientists and process engineers are
searching for new and better formulations of their products.  If the laboratory
Microfluidizer systems  and technology are effective in creation or
reformulation of products, then Microfluidizer systems such as the 210 Series or
the 610 Series are placed in a customer's operations department for use in
commercial quantity manufacture of such new or improved products.

     Marketing is conducted through advertising, direct mail, seminars, trade
shows and telemarketing.  In addition, the Company has an active program of
field demonstrations, as well as demonstrations to potential users in the
Company's applications laboratory.  International distributors and sales agents
are supported with trade advertising, collateral literature and trade show
materials. The distributors also advertise directly on their own behalf and
attend regional and international trade shows.  As an aid to the marketing and
sales activity for the equipment, the Company provides a complete applications
testing laboratory service. This service includes free processing and particle
size and distribution analysis of a prospective customer's sample formulation.
Additionally, a prospective customer may pay for subsequent laboratory time and
services on a fee for services basis, which includes equipment rentals.

     The Company sells its equipment in the U.S. through a network of
independent regional sales representative firms who are overseen and assisted by
the Company's regional sales managers.  In Canada, the Company has an exclusive
distributor.  In Europe, the Company utilizes a network of independent regional
sales agents and distributors who are assisted by the Company's European Sales
Manager and his staff.  In Asia, the Company sells through regional distributors
who are assisted by the Company's Sales Manager Asia/Pacific Rim.

CUSTOMERS:
---------

     The users of Microfluidizer systems are industrial producers of high value
added fluid materials in the chemical, pharmaceuticals, food, cosmetic and
biotechnology industries.  Mizuho Industrial Co. Ltd., a distributor, accounted
for 20% of revenues in 1997, 17% of revenues in 1996 and 21% of revenues in
1995.  One other distributor (Inland) accounted for 10% of revenues in 1996. A
reduction or delay in orders from Mizuho or other significant customers could
have a material adverse effect on the Company's results of operations.
<PAGE>

                                      -8-

COMPETITION:
-----------

     The Company believes that its Microfluidizer equipment competes with high
and low pressure homogenizers and high energy mechanical dispersing equipment.
Homogenizers are directly descended from the first milk homogenizer, introduced
around 1900.  Mechanical dispensers employ high shear technology, which consists
of blades rotating in a vessel containing the material to be dispersed.  The
Company believes that machines produced by other manufacturers have, in general,
more moving parts and operate at lower pressures and impart less intense process
energy. Colloid mills are also used to produce emulsions and dispersions. These
devices create homogenization of liquid products by directing a thin sheet of
product to a narrow space where moving stones "shear" the product.  Other types
of rotor-stator mixing equipment, which are sometimes referred to as low-shear
mixers, are generally not competitive in function with the Company's equipment,
but may be useful in pre-mixing product for subsequent processing by other
means, including Microfluidizer processing.

     With respect to emulsions, the Company believes that, generally, an
emulsion processed with a Microfluidizer unit will exhibit improved stability
characteristics. Competing homogenizer equipment operates by impacting the
pressurized ejection of a formulation upon a ring of metal.  The Company
believes that these devices have several operational disadvantages, including
variable treatment of formulation elements, particle size reduction limitations,
cleaning difficulty, energy inefficiency and imprecise temperature control.

     With respect to dispersions, the available competing equipment ("media
mills") uses milling media (beads of ceramic, metal, etc.) to facilitate
dispersion of the solid component in the liquid. When using a media mill, the
media used is often fragmented in the mixing process, thus contaminating the
final dispersion.  Using its fluid stream mixing process, the Microfluidizer
unit avoids the need for an additional processing step to remove such
impurities.

     The Company believes that most competing technologies in cell rupture
processing frequently contaminate the cell contents with membrane debris, and/or
by introducing contamination from media breakdown, requiring additional
downstream separation and purification and resulting in lower yield. Further,
such technologies usually require a greater number of passes to adequately
process cells. The Company believes that competing equipment and processes
generally require more treatment cycles in order to attain a similar result to
that produced on Microfluidizer equipment.  Also, in many instances even
repetitive treatment cycles on such competing equipment will not yield a similar
result to that obtained with the use of Microfluidizer processing.

     There are several competing technologies that can be used to manufacture
liposomes. However, the Company believes that these production methods suffer
from their lot size limitations, lack of consistency, requisite use of
detergents or emulsifiers and an inability to operate in a continuous process
mode.

     Characterization of the Company's competition is difficult, in that the
Company sells its equipment both in multiple industries and to several different
segments within those industries.   There
<PAGE>

                                      -9-



are certain applications, mostly low to mid pressure ranges, in which certain
competitors enjoy a large market share. Among these competitors would be APV
Gaulin, APV Rannie, and Niro Atomizer Food & Dairy, Inc. However, in those
applications requiring high (12,000-20,000 psi) or ultra-high (21,000-40,000
psi) operating pressures there is far less competition. Also, the Company
believes that, in certain applications, due to competitors' limitations, desired
results may only be achieved by use of the Company's equipment.

RESEARCH AND DEVELOPMENT:
------------------------

     The Company's research and development efforts are focused on developing
new mixing techniques for the process industries and further enhancing the
functionality, reliability and performance of existing products.  Research and
development costs were $691,466, $450,477 and $459,240 in 1995, 1996, and 1997
respectively. Certain costs of cooperative undertakings discussed below are
included in the research and development expenditures.

COOPERATIVE RESEARCH ARRANGEMENTS:
---------------------------------

     The Company subsidizes research and development activities centered around
Microfluidizer processing technology at a number of research centers and
universities.  The Company's subsidy of these activities takes the form of
substantial reduction or elimination of the customary rental charges for the
Microfluidizer equipment provided for use. Currently, the Company is subsidizing
research and development in the following fields at the following universities:
The University of Massachusetts, Lowell - biotechnology; Lehigh University -
polymer chemistry; Universite  Laval (Quebec) - food science; Worcester
Polytechnic Institute ("WPI") - catalytic chemistry; and Purdue University -
pharmaceuticals.  In addition to their research activities, these universities
provide the Company with contacts at industrial companies that may utilize the
Microfluidizer processing technology.

     In addition to providing subsidies, the Company has entered into the
following research arrangements:

     Worcester Polytechnic Institute (WPI)
     -------------------------------------

     The Company has supported research and development at WPI since 1988.  In
1992, the Company entered into a cooperative venture with WPI to develop, patent
and license for WPI, for its commercial applications, the Microfluidizer process
technology in the following fields: (i) the production of catalysts used in
chemical and petroleum processing; (ii) the manufacture of advanced ceramic
materials; and (iii) the destruction of volatile organic compounds and other
organic contaminants in process waste water. The Company and WPI applied for
United States and foreign patents in 1992 and 1993, respectively, which cite the
Microfluidizer processing technology as enabling the above process technologies.
The two applied-for United States patents were both granted and issued to WPI in
the United States in 1995. In 1996 one applied for patent was granted to WPI in
France for European entry in the PCT countries. Patent issuance for these
process
<PAGE>

                                      -10-

technologies in several other foreign jurisdictions is either pending or in the
latter stages of prosecution.

     Based upon market research and technical evaluation to date, the Company is
focusing its activities on the synthesis of advanced zeolite and metal oxide
catalysts using the WPI process technology.  A catalyst is a substance that
initiates, accelerates and determines the course of a chemical reaction.  The
Company believes that properties of proprietary catalysts may improve industrial
process economics by making more efficient use of raw materials, reducing energy
requirements and increasing product yields.  The Company believes that the
catalytic materials produced by the Microfluidizer process may result in
improved efficiency and extended life, compared with conventional catalysts.

     Catalytica, Inc.(Catalytica)
     ----------------------------

     In 1993, the Company entered into a licensing agreement as co-licensee with
Catalytica, and WPI, and concurrently formed a collaboration with Catalytica.
WPI granted to Microfluidics and Catalytica, jointly, an exclusive, worldwide
license to develop and commercialize the Microfluidizer process technology
developed at WPI for the synthesis of nanometer size, high purity, solid state
metal oxide materials.  Microfluidics and Catalytica are currently focusing on
technically refining this process with the objectives of licensing the process
to catalysts manufacturers, or producing advanced catalysts for resale.

     In November of 1994, the Company and Catalytica were jointly awarded a $2
million matching funds grant under the Advanced Technology Program of the United
States Department of Commerce's National Institute of Standards and Technology.
The Advanced Technology Program is designed to assist in funding emerging,
economically important projects with well defined research and development,
technology and business objectives.  The grant was awarded to the Company and
Catalytica to develop and demonstrate the ability, using patented Microfluidizer
equipment, to synthesize nanometer size catalysts providing enhanced performance
for use in the chemical and petroleum refining industries. The project targets
three types of nanometer-size catalysts:  mixed metal oxides used in chemical
manufacturing, non-crystalline zeolites used for petrochemical production and
colloidal catalysts used for processing by the petroleum refining industry.  In
1996, the Company delivered to Catalytica a highly modified Microfluidizer
system which functions as a "continuous chemical reactor" for advanced materials
formulation. This project will end its ATP funding component in March 1998 and
Catalytica and MFIC plan to continue development of the advanced catalytic
materials market during 1998. There can be no assurances that this project will
result in technology useful for the chemical and petroleum refining industries
or that any revenue will be generated from the results of this project.

PATENTS AND PROPRIETARY RIGHTS PROTECTION:
-----------------------------------------

     To protect its proprietary rights, the Company relies on a combination of
U.S. patent and trademark laws, trademark laws, trade secrets, confidentiality
agreements, contractual provisions and technical means.  In the event of patent
infringement or breach of confidentiality, there can be no
<PAGE>

                                      -11-


assurance that these measures will be adequate or that the Company will have
sufficient resources to prosecute or prevail in an action against a third party.
In addition, the Company has not sought patent or trademark protection for its
interaction chamber in any country other than the United States and, as such,
its proprietary rights are not subject to the protection of patent or trademark
laws of foreign countries where the Company's equipment is sold. The Company's
process patent expires March 13, 2007 and its equipment patent expires August 6,
2002. In 1997 the Company completed development of a novel adaptation of its
Microfluidizer equipment - a "Multi-Stream Continuous Chemical Reactor". In
August 1997, the Company filed a patent application for the device and its
processes with the United States Patent and Trademark Office.

MANUFACTURING:
-------------

     At present, the Company subcontracts the manufacture of many of the
components of its equipment to many third parties, with the Company undertaking
the remaining fabrication, assembly and performance testing.  The Company has
selected certain primary suppliers based upon pricing terms and the quality of
their products.  The Company believes that there are adequate available
alternate manufacturing sources and suppliers for the Company's components and
raw materials.

GOVERNMENT REGULATION:
---------------------

     Certain of the Company's customers utilize the Microfluidizer equipment in
processes and production that are subject to governmental regulation. For
example, the manufacturing and marketing of pharmaceutical products requires the
approval of the Food and Drug Administration ("FDA") within the United States
and of comparable agencies in foreign countries.  The FDA has established
mandatory procedures, safety standards and protocols that apply to the
manufacture, clinical testing and marketing of new pharmaceutical products in
the United States.  The process of seeking and obtaining FDA approval of a new
product often takes a number of years and often involves the expenditure of
substantial resources.  The FDA approval process contributes to the extremely
long lead times that are attendant to manufacturing equipment orders for these
applications.

     Further, in addition to product approvals, the FDA imposes requirements as
to manufacturing practices, record keeping and reporting ("Good Manufacturing
Practices" or "GMP"). GMP-regulated companies are subject to inspections by the
FDA (inclusive of Microfluidizer equipment) and product approvals may be
withdrawn if GMP are not met.

     At present, the Company's customers include companies who are making FDA
approved drugs and preparations for external use and companies who utilize
Microfluidizer equipment for the formulation or production of FDA approved
parenteral (injectable) drugs or compounds.

     Various laws, regulations and recommendations relating to safe working
conditions, laboratory practices and the purchase, storage, movement, import and
export, use and disposal of harmful or potentially harmful substances that may
be used in connection with the Company's research work are or may be applicable
to its activities.  These laws include, among others, the United States Atomic
Energy Act, the Clean Air Act, the Clean Water Act, the Occupational Safety and
Health Act,
<PAGE>

                                      -12-


the National Environmental Policy Act, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act, national restrictions on technology
transfer, import, export and customs regulations and other present and possible
future local, state or Federal regulation. The extent of adverse governmental
regulation which might result from future legislation or administrative action
cannot be accurately predicted. Certain agreements that may be entered into by
the Company involving exclusive license rights may also be subject to national
or supranational antitrust regulatory control, the effect of which cannot be
predicted.

BACKLOG:
-------

     The Company's backlog of accepted and unfilled orders at March 16, 1998 and
March 21, 1997 was $601,781 and $926,758 respectively. Revenue is not recognized
until equipment is shipped. Backlog as of any particular date should not be
relied upon as indicative of the Company's net revenues for any future period.

EMPLOYEES:
---------

     The Company has approximately 42 full-time employees as of March 16, 1998.
None of the Company's employees are covered by a collective bargaining
agreement, and the Company considers its relations with its employees to be
satisfactory.  The Company believes that its future success will depend in large
part on its ability to attract and retain highly skilled employees.

ITEM 2.   PROPERTIES

     The Company rents approximately 32,000 square feet of offices, production
and research and development facilities in Newton, Massachusetts for
administrative, development and production activities at an average annual
expense of approximately $223,000. A portion of the space is sublet to several
entities at an aggregate  annual charge of approximately $34,000. The lease term
expires on May 31, 2001.  The Company has an option to extend the lease for an
additional year, and, if there is no assignment of the lease, for an additional
second year.  The Company believes that this facility will be adequate for
operations for the next three years.

ITEM 3.   LEGAL PROCEEDINGS

     Not applicable.

ITEM 4.   SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

     Not applicable.
<PAGE>

                                      -13-

                                    PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS

     The Company's Common Stock is traded on The Nasdaq National Market under
the symbol "MFIC".  The following table sets forth the range of quarterly high
and low bid quotations for the last two fiscal years, as furnished by the
National Association of Securities Dealers Automated Quotation System.  The
quotations represent interdealer quotations without adjustment for retail
markups, markdowns, or commissions, and may not necessarily represent actual
transactions.

<TABLE>
<CAPTION>


Quarters Ended    12/31     9/30     6/30    3/31   12/31     9/30   6/30   3/31
                   1997     1997     1997    1997    1996     1996   1996   1996
<S>               <C>    <C>      <C>      <C>     <C>     <C>      <C>    <C>
Common Stock
Low               2        1-13/16  1-14/32  1-3/4   1-3/16   1-1/2   1-5/8  1-1/2
High              3-1/4    2-5/8    2-9/32   3-1/16  2-1/32   1-15/16 2-5/8  2-3/8
</TABLE>

     As of March 16, 1998, there were approximately 429 holders of record of the
Company's Common Stock.

     The Company has never paid any cash dividends on its Common Stock and
presently anticipates that no dividends on its Common Stock will be declared in
the foreseeable future. The Company's current policy is to retain all of its
earnings to finance future growth. In, addition, pursuant to loan covenants
contained in the Company's loan agreement with its commercial leader, the
Company may not pay dividends without the commercial lender's prior approval.
<PAGE>

                                      -14-


ITEM 6.   SELECTED FINANCIAL DATA

     The selected financial information presented below is derived from the
audited consolidated financial statements of the Company for the five years
ended December 31, 1997.  The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and related
Notes included elsewhere in this Form 10-K.

SELECTED INCOME STATEMENT DATA

<TABLE>
<CAPTION>


                                     Year Ended    Year Ended    Year Ended     Year Ended     Year Ended
                                    December 31,  December 31,  December 31,   December 31,   December 31,
                                        1997          1996          1995           1994           1993
<S>                                 <C>           <C>           <C>            <C>            <C>
Total revenues....................    $7,105,706    $6,273,768   $ 5,273,399    $ 7,298,416    $6,778,098
Operating expenses................     6,702,410     5,922,885     6,556,747      6,796,397     5,897,569
Operating income (loss)...........       403,296       350,883    (1,283,348)       502,019       880,529
Net interest income...............       159,256       100,612        98,675         43,608        23,705
Other income......................        50,012        50,009
Gain on sale of investments and
 assets...........................        91,863                     174,776                       34,096
                                      ----------    ----------   -----------    -----------    ----------
Income (loss) before taxes and
 cumulative effect of accounting
 change...........................       704,427       501,504    (1,009,897)       545,627       938,330
Income tax benefit (provision)....       403,630                  (1,107,422)       791,058       (55,979)
                                      ----------    ----------   -----------    -----------    ----------
Income (loss) before
 cumulative effect
 of accounting change.............     1,108,057       501,504    (2,117,319)     1,336,685       882,351
                                      ----------    ----------   -----------    -----------    ----------

Cumulative effect of change in
 accounting for income taxes......                                                                290,609
                                      ----------    ----------   -----------    -----------    ----------
Net income (loss).................    $1,108,057    $  501,504   $(2,117,319)    $1,336,685    $1,172,960
                                      ==========    ==========   ===========     ==========    ==========

Basic Earnings per Share:
Income (loss) before cumulative
 effect of  accounting change.....     $     .23     $     .10    $     (.43)    $      .26    $      .20
Cumulative effect of change in
 accounting for income taxes......                                                                    .07
                                      ----------    ----------   -----------     ----------    ----------
Net income (loss) per share.......     $     .23     $     .10   $      (.43)     $     .26    $      .27
                                      ==========    ==========   ===========     ==========    ==========

Diluted Earnings per Share:
Income (loss) before cumulative
 effect of accounting change......    $      .22    $      .10   $      (.43)    $      .27   $       .20
Cumulative effect of change in
 accounting for income taxes......                                                                    .07
                                      ----------    ----------   -----------    -----------   -----------
Net income (loss) per share.......    $      .22    $      .10   $      (.43)   $       .27   $       .27
                                      ==========    ==========   ===========    ===========   ===========

SELECTED BALANCE SHEET DATA

Working capital...................    $6,805,556    $6,072,621    $5,599,714    $ 6,626,006    $5,758,763
Total assets......................     8,872,218     7,183,324     6,715,986      9,192,505     7,455,910
Stockholders' equity..............     7,538,143     6,428,523     6,029,081      8,069,524     6,467,414
</TABLE>

Earnings Per Share for the years ended December 31, 1993 through 1996 have been
restated in conformity with Statement of Financial Accounting Standard Number
128, "Earnings Per Share."







<PAGE>

                                      -15-



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

     OVERVIEW
     --------

     During 1997 Microfluidics International Corporation realized the benefit of
many of the changes made in the latter half of 1995 and in 1996.  In 1997 the
Company posted four consecutive quarters of profitability and revenue growth.
Nineteen ninety-seven was the first full year of operations under the new
management team and of the Sales/Marketing reorganization and staffing. Revenues
grew by 13% over the previous year, while operating income increased by
approximately 15% over 1996. The Company also posted diluted per share earnings
of $0.22 in 1997 versus $0.10 per share in 1996. Of this $0.12 increase,
approximately $0.04 was related to operating profit while the balance resulted
from an income tax benefit from the realization of net operating losses.
<PAGE>

                                      -16-

RESULTS OF OPERATIONS

     FISCAL 1997 COMPARED TO FISCAL 1996
     -----------------------------------

     Total Company revenues for the year ended 12/31/97 ("fiscal 1997") were
$7,105,706 as compared to revenues of $6,273,768 for the year ended 12/31/96
("fiscal 1996"), representing an increase of $831,938, or 13%. This increase in
revenues was primarily the result of increased unit shipments in foreign
markets, offset in part by a decrease in unit shipments in North America.  For
fiscal 1997, foreign sales increased 47% to $3,035,416 from $2,060,000 for
fiscal 1996. During fiscal 1997, there were no increases in prices. All sales,
both domestic and foreign, are payable in U.S. dollars. As a result, there is no
foreign currency risk. North American sales were $4,070,290 for fiscal 1997,
compared to $4,213,766 for fiscal 1996, a decrease of $143,476, or 3%, due to a
decrease in demand. Management believes that the increased foreign unit
shipments were due to an increase in the demand in the various foreign markets
for the Company's products. There can be no assurance that such levels of demand
will continue to generate increased unit shipments or revenues.

     Sales of the M-110 Laboratory Series decreased by approximately $860,000,
to $2,295,324, or 32% of revenues in 1997, from $3,155,682, or 50% of revenues
in 1996, while the M-210 Series sales increased by approximately $751,000 to
$1,727,953 in 1997, or 24% of revenues, from $977,045 in 1996, or 16% of
revenues. A significant portion of the decrease in laboratory sales in 1997 was
attributable to the absence of sales of the M-140K machine, a decrease of
approximately $346,000. The other significant factor was the decrease in sales
of the M-110EH machine in North America from 1996 to 1997 of approximately
$355,000. It is management's belief, based on past sales experience for units of
this type, that the market demand for sales of these machines should improve in
the coming fiscal year. The Company's sale of large volume production units in
fiscal 1997 increased to five units, from one unit in fiscal 1996, representing
an increase of approximately $859,000.

     Cost of goods sold for fiscal 1997 was $3,265,593, or 46% of revenue, as
compared to $2,847,224, or 45% of revenue, in fiscal 1996. The increase in the
absolute dollar amount of cost of goods sold in 1997 primarily reflects the
increased number of large volume production units sold.

     The Company's three major product lines have different profit margins, as
well as multiple profit margins within each product line. In the course of the
periods compared, there may be significant changes in the cost of revenues as a
percentage of revenue, depending on the mix of product sold. Also, the cost of
sales as a percent of revenue will differ between laboratory and pilot plant
units sold, due to the difference in costs between air driven and electric-
hydraulic units.

     Total operating expenses for fiscal 1997 were $3,436,817, or 48% of
revenues, as compared to $3,075,661, or 49% of revenues for fiscal 1996, an
increase of $361,156, or 12%. Research and development expenses increased to
$459,240, or 6% of revenues in fiscal 1997 from $450,477 in fiscal 1996,
primarily due to a $60,000 increase in costs related to a research project,
partially offset by an increase in grant reimbursement funds from the United
States Department of Commerce to $137,403 in 1997 from $103,824 in 1996, and
also by a decrease in payroll and related costs of
<PAGE>

                                      -17-


$19,517, from $370,956 in 1996 to $351,439 in 1997. Sales and marketing expenses
in fiscal 1997 increased to $1,748,146, or 25% of revenues, from $1,674,941, or
27% of revenues, in fiscal 1996 as a result of an increase in payroll and
related costs of approximately $154,000, from $794,768 in 1996 to $949,015 in
1997, an increase in consulting expense of approximately $23,000, from $10,429
in 1996 to $33,359 in 1997, offset by a decrease in commissions of approximately
$147,000, from $456,398 in 1996 to $308,914 in 1997. General and administrative
expenses increased to $1,229,430, or 17% of revenues, in fiscal 1997 from
$950,243 in fiscal 1996, or 15% of revenues. The principal reasons for the
increase were an increase in payroll and related costs of approximately $98,000,
from $456,978 in 1996 to $555,253 in 1997, and an increase in professional fees
of approximately $62,000, from $104,710 in 1996 to $167,071 in 1997.

     Interest income increased 58% to $159,256 in fiscal 1997 from $100,612 in
fiscal 1996. No interest expense was incurred in either fiscal 1997 or fiscal
1996. This increase is principally due to an increase in the amount available
for investment.

     The Company sold 10,000 shares of Polymedica Industries, Inc. in fiscal
1997 that resulted in a gain of $91,863.

     The Company received other income of $50,012 for fiscal 1997. The other
income resulted from royalty income from the sale of the Company's Dermasome(R)
product line in December, 1995. The final such royalty payment was received in
December, 1997.

     The Company, based on financial results known as of  December 31, 1997, has
determined that it no longer requires a 100% valuation of its deferred tax
benefits. As a result, the Company has recognized $403,630 as a tax benefit for
the fiscal year ended December 31, 1997.

FISCAL 1996 COMPARED TO FISCAL 1995
-----------------------------------

     Total Company revenues for the year ended 12/31/96 ("fiscal 1996") were
$6,273,768 as compared to revenues of $5,273,399 for the year ended 12/31/95
("fiscal 1995"), representing an increase of $1,000,369, or 19%. This increase
in revenues was primarily the result of increased unit shipments in North
America, offset by a decrease in unit shipments in foreign markets. During
fiscal 1996, there were no increases in prices. For fiscal 1996, North American
sales increased 52% to $4,213,766 from $2,775,000 for fiscal 1995. Foreign sales
were  $2,060,000 for fiscal 1996, compared to $2,497,248 for fiscal 1995, a
decrease of $437,248, or 18%, due to a decrease in demand. Management believes
that overall, the increased unit shipments were due to an increase in the demand
in the various markets for the Company's products.

     Sales of the M-110 Laboratory Series increased by approximately $818,000,
to $3,155,682, or 50% of sales,  in 1996 from $2,337,878, in 1995, while spare
part sales increased by approximately $658,000 to 28% of sales, to $1,778,000 in
1996, from $1,120,000 in 1995. Sales of the M-210 Series decreased by
approximately $109,000 to 16% of sales to $977,045, in 1996 from $1,086,318, or
21% of sales, in 1995. Sales of the HC Series decreased by approximately
$130,000, to 1% of sales, to $86,370,  in 1996, from $216,488, in 1995. In
addition, the Company's
<PAGE>

                                      -18-


sale of large volume production units in fiscal 1996 was one unit, down from two
units in fiscal 1995, representing a decrease of approximately $257,000.

     Cost of goods sold for fiscal 1996 was $2,847,224, or 45% of revenue, as
compared to $2,813,801, or 53% of revenue, in fiscal 1995.  The increase in the
absolute dollar amount of cost of goods sold in 1996 primarily reflects the
increased number of units sold. The decrease in the cost of goods sold as a
percentage of revenue was primarily the result of a 7% decrease in material cost
to $2,295,285 in 1996, or 36% of revenue, from $2,263,606 in 1995, or 43% of
revenue.

     Total operating expenses for fiscal 1996 were $3,075,661, or 49% of
revenue, as compared to $3,742,946, or 71% of revenue for fiscal 1995, a
decrease of $667,284, or 18%. This was a result of management's efforts to
control costs. Research and development expenses decreased to $450,477 in fiscal
1996 from $691,466 in fiscal 1995, primarily due to a reduction in payroll and
related expenses from $507,159 to $370,996, and a decrease in research and
development expenses from $141,153 to $32,709 of which approximately $97,000 was
due to a reduction in costs related to a research project to solve equipment
performance problems in the field. Sales and marketing expenses in fiscal 1996
decreased to $1,674,941, or 27% of revenue, from $1,895,274, or 36% of revenue,
in fiscal 1995 as a result of a conscientious effort by management to make more
cost effective expenditures in this area. Key line items reduced and the amount
of the reductions were: payroll and related expenses of $90,048; travel and
entertainment of $70,473; advertising expenses of $31,105, and delivery expenses
of $30,858.  General and administrative expenses deceased to $950,243, or 15% of
revenue,  in fiscal 1996 from $1,156,206 in fiscal 1995, or 22% of revenue. The
line items reduced and the amount of the reductions were: professional fees of
$59,837; investor relations of $50,514, and payroll and related expenses of
$35,158.

     Interest income increased 2% to $100,612 in fiscal 1996 from $98,675 in
fiscal 1995. This increase is due to an increase in the amount available for
investment. No interest expense was incurred in either fiscal 1996 or fiscal
1995.

     The Company received other income of $50,009 for fiscal 1996. The other
income resulted from royalty income of $4,168 per month due to the sale of the
Company's Dermasome(R) product line in December, 1995.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has financed its operations primarily through the use of cash
and cash equivalents on hand, and cash flows from operations.

     The Company generated cash of $1,289,874,  $1,014,631 and $182,545 from
operations in 1997, 1996, and 1995, respectively. In 1997, this amount was
principally the result of net income increased by an increase in current
liabilities of $519,274 and decreased by a non-cash  tax benefit of $413,630 and
an increase in inventories of $145,170.  In 1996, this amount was principally
the result of net income from operations, increased by a decrease in both
inventory and accounts receivable and other receivables.  In 1995, this amount
was principally the result of a net loss from
<PAGE>

                                      -19-


operations, increased by an income tax provision, and a decrease in inventory
and accounts receivable and other receivables.

     The Company generated cash from investing activities in 1997 of $23,424,
principally from the sale of investments for $91,863, offset by the purchase of
fixed assets of $68,439. The Company utilized $21,636, and  $9,017  for
investing activities in 1996 and 1995, respectively. Net cash used for investing
activities in each period related primarily to the purchase of fixed assets and
leasehold improvements. In addition in 1995, cash needed for investing
activities also included the purchases of an intangible asset, offset by
proceeds from the sale of the Dermasome(R) business ($101,800), as well as a
$93,239 gain on the sale of 10,000 shares of PolyMedica Industries, Inc. stock.
As of December 31, 1997, the Company has no material commitments for capital
expenditures.

     For financing activities, the Company utilized cash of $16,638 and $109,859
in 1997 and 1996, respectively,  and generated cash of $56,079 in 1995.  In both
1997 and  1996, this amount was principally the result of the purchase of
treasury stock offset, in part, by the issuance of stock under the Company's
employee stock option and purchase plans. In 1995 these amounts were principally
the result of purchases of common stock under both the employee stock purchase
plan, and the employee stock option plan.

     The cash and cash equivalents balance at December 31, 1997 was $4,083,214,
an increase of $1,296,660 from the December 31, 1996 balance of $2,786,554.

     The Company maintains a line of credit with a financial institution equal
to the lesser of $750,000 or 80% of the domestic accounts receivable that are
less than 60 days old.  The available line, as of March 15, 1998, was $282,074.
The qualified accounts receivable balance as of March 16, 1998 was $352,592.

     The Company believes that cash flows from operations, together with
existing cash balances, will be sufficient to meet its working capital
requirements for at least the next twelve months.

     The Company may, from time to time, consider an acquisition of
complementary businesses, products or technologies, although it has no present
understandings, commitments or agreements with respect to any such acquisitions.

     YEAR 2000 DISCLOSURE

     The Company has considered the potential problems that may arise because of
the year 2000 as it relates to the Company's internal information systems. It is
the Company's opinion that, having considered the systems that the Company
presently utilizes, the year 2000 should not present material problems nor
material costs with respect to its' own internal information systems. To date,
the Company is unaware of any situations of noncompliance that would materially
adversely affect its operations or financial condition. There can be no
assurance, however, that instances of noncompliance which could have a material
adverse effect on the Company's operations or financial condition will not be
identified; that the systems of other companies with
<PAGE>

                                      -20-


which the Company transacts business will be corrected on a timely basis; or
that a failure by such entities to correct a Year 2000 problem or a correction
which is incompatible with the Company's information systems would not have a
material adverse effect on the Company's operations or financial condition.

NEW ACCOUNTING PRONOUNCEMENTS

     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information".  SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and is effective for the Company's 1998
financial statements.   The Company is reviewing disclosure options and will
present such information in the first quarter of 1998 to the extent required.
SFAS No.131 establishes standards for reporting annual and interim operating
segment information and is effective for the Company's 1998 annual financial
statements and interim reporting beginning in 1999.  The Company has reviewed
this new standard, and has determined that it has one business segment.
Therefore, no additional information in the year ended December 31, 1998
statement will be required.


BUSINESS OUTLOOK

     The Company believes that this report may contain forward-looking
statements that are subject to certain risks and uncertainties. These forward-
looking statements include statements regarding  expansion of sales,
profitability, liquidity, the adequacy of the Company's facilities, product
performance, the development of the Company's products, patents, patent
applications, competition and potential strategic arrangements. Such statements
are based on management's current expectations and are subject to a number of
factors and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements.  Such factors and
uncertainties include, but are not limited to, the uncertainty that the
performance advantages of the Microfluidizer equipment will be realized
commercially or that a commercial market for Microfluidizer equipment will
continue to develop; the dependence by the Company on key customers; the loss of
the services of one or more of the Company's key employees, which could have a
material adverse impact on the Company; the development of competing or superior
technologies and products from manufacturers, many of which have substantially
greater financial, technical and other resources than the Company; the cyclical
nature of the materials processing industry, which has historically negatively
affected the Company's sales of Microfluidizer equipment during industry
downturns and which could do so in the future; the impact of government
regulation; the uncertainty that existing patents will be held valid if
challenged, that any additional patents will be issued or that the scope of any
patent protection will exclude competitors; the availability of alternate
manufacturing sources and suppliers; the availability of additional capital to
fund expansion on acceptable terms, if at all; and general market and economic
conditions.
<PAGE>

                                      -21-



ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The following Consolidated Financial Statements of the Company and its
Subsidiaries appear on the following pages of this Form 10-K.

<TABLE>
<CAPTION>
                                                                  Page
<S>                                                               <C>

Report of Independent Auditors                                     F-1

Report of Independent Accountants                                  F-2

Consolidated Balance Sheets as of December 31, 1997 and 1996       F-3 & F-4

Consolidated Statements of Operations for the years ended
    December 31, 1997, 1996 and 1995                               F-5

Consolidated Statements of Cash Flows for the years ended
    December 31, 1997, 1996 and 1995                               F-6

Consolidated Statements of Changes in Stockholders' Equity
    for the years ended December 31, 1997, 1996 and 1995           F-7

Notes to Consolidated Financial Statements                         F-8

</TABLE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE

     The Company has previously reported information relating to this item on a
Form 8-K filed with the Securities and Exchange Commission on December 9, 1997.


                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS
---------

     The information concerning directors of the Company required under this
item is incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, to be filed with the Commission not later
than 120 days after the close of the Company's fiscal year ended December 31,
1997.
<PAGE>

                                      -22-


EXECUTIVE OFFICERS
------------------

     The information concerning executive officers of the Company required under
this item is incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, to be filed with the Commission no later
than 120 days after the close of the Company's fiscal year ended December 31,
1997.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1997.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

     The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1997.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1997.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (A)(1.) CONSOLIDATED FINANCIAL STATEMENTS.

             The following Consolidated Financial Statements are included in
             Item 8:

             Report of Independent Auditors

             Report of Independent Accountants

             Consolidated Balance Sheets as of December 31, 1997 and 1996

             Consolidated Statements of Operations for the years ended
             December 31, 1997, 1996 and 1995
<PAGE>

                                      -23-


               Consolidated Statements of Cash Flows for the years ended
               December 31, 1997, 1996 and 1995

               Consolidated Statements of Changes in Stockholders' Equity for
               the years ended December 31, 1997, 1996 and 1995

               Notes to Consolidated Financial Statements

     (A)(2.)   FINANCIAL STATEMENT SCHEDULES.

               All schedules are omitted because they are not applicable or the
               required information is shown in the financial statements or the
               notes thereto.

     (A)(3.)   LIST OF EXHIBITS.

   Exhibit
   Number      Description of Exhibit
   ------      ----------------------

   3.3(a)      Certificate of Incorporation for the Company, as amended (filed
               as Exhibit 2A to Registration Statement No. 0-11625 on Form 8-A
               and incorporated herein by reference).

   3.3(b)      Amended and Restated By-Laws for the Company Company's Annual
               Report on Form 10-K for the (filed as Exhibit 3.3(b) to the
               fiscal year ended December 31, 1996 and incorporated herein by
               reference).

 **3.10(a)     1987 Stock Plan (filed as Exhibit 10(g) to the Company's Annual
               Report on Form 10-K for the fiscal year ended December 31, 1987
               and incorporated herein by reference).

 **3.10(b)     1986 Employee Stock Purchase Plan (filed as Exhibit 4 to the
               Company's Registration Statement on Form S-8 filed June 9, 1986
               and incorporated herein by reference).

   3.10(c)     1989 Non-Employee Directors Stock Option Plan, as amended,
               (filed as Exhibit 10.1 to the Company's registration statement on
               Form S-8 filed October 22,1996 and incorporated herein by
               reference).

   3.10(d)     Loan Agreement between The First National Bank of Boston and
               Microfluidics International Corporation dated as of December 10,
               1993 (filed as Exhibit 10.1 to Form 8-K filed on December 27,
               1993 and incorporated herein by reference).
<PAGE>

                                      -24-

  3.10(e)     Lease for 30 Ossipee Road, Newton, Massachusetts dated May 23,
              1997 between Microfluidics International Corporation and J. Frank
              Garrity, Trustee of 1238 Chestnut Street Trust under Declaration
              of Trust dated May 23, 1969, recorded with Middlesex South
              Registry of Deeds in Book 11682, Page 384. (filed as Exhibit
              3.10(a) to the Company's Form 10-Q for the quarterly period ended
              June 30, 1997 and incorporated herein by reference).

  3.10(f)     Letter of Understanding between Microfluidics International
              Corporation and Worcester Polytechnic Institute dated as of April
              3, 1992 (filed as Exhibit 3.10(f) to the Company's Form 10-K for
              the fiscal year ended December 31, 1993 and incorporated herein by
              reference).

  3.10(g)     Agreement between Microfluidics International Corporation and
              Catalytica, Inc. Form 10-K for the fiscal year ended December 31,
              1993 and incorporated herein dated as of October 18, 1993 (filed
              as Exhibit 3.10(g) to the Company's by reference) with amendments
              dated September 1, 1994 and March 31, 1995.

  3.10(h)     Amendment to agreement dated September 1, 1994 between
              icrofluidics International Corporation and atalytica, Inc. dated
              as of October 18, 1993 filed as Exhibit 3.10(g) to the Company's
              Form 10-for the fiscal year ended December 31, 1993, and
              incorporated herein by reference).

  3.10(i)     Amendment to agreement dated March 31, 1995 between Microfluidics
              International Corporation and Catalytica, Inc. dated as of October
              18, 1993 (filed December 31, 1993, and incorporated herein by
              reference). as Exhibit 3.10(g) to the Company's Form 10-K for the
              fiscal year ended

  3.10(j)     License Agreement among Microfluidics International Corporation,
              Worcester Polytechnic Institute and Catalytica, Inc. dated as of
              October 18, 1993 (filed as Exhibit 3.10(h) to the Company's Form
              10-K for the fiscal year ended December 31, 1993 and incorporated
              herein by reference).

**3.10(k)     Agreement, dated July 27, 1995, between Microfluidics
              International Corporation and Michael T. Rumley. (filed as Exhibit
              3.10(i) to the Company's Form 10-K for fiscal year ended December
              31, 1995 and incorporated herein by reference).

**3.10(l)     Letter, dated August 16, 1995, from Microfluidics International
              Corporation to Michael T. Rumley. (filed as Exhibit 3.10(j) to the
              Company's Form 10-K for fiscal year ended December 31, 1995 and
              incorporated herein by reference).

**3.10(m)     Letter, dated December 31, 1995 from Microfluidics International
              Corporation to Irwin J. Gruverman. (filed as Exhibit 3.10(k) to
              the Company's Form 10-K for fiscal year ended December 31, 1996
              and incorporated herein by reference).

  3.10(n)     Warrant for the Purchase of Shares of Common Stock, dated July 15,
              1993, in favor of Ladenburg, Thalmann & Co. Inc. (filed as Exhibit
              3.10(l) to the Company's Form 10-K for fiscal year ended December
              31, 1996 and incorporated herein by reference).
<PAGE>

                                      -25-

**3.10(o)     Letter, dated December 31, 1996, from Microfluidics International
              Corporation to Irwin J. Gruverman.(filed as Exhibit 3.10(o) to the
              Company's Form 10-K for fiscal year ended December 31, 1996 and
              incorporated herein by reference).

  3.10(p)     Agreement between Microfluidics International Corporation and
              Catalytica, Inc. dated January 1,1995 regarding participation in
              and management of the Advanced Technology Program (ATP). (filed as
              Exhibit 3.10(p) to the Company's Form 10-K for fiscal year ended
              December 31, 1996 and incorporated herein by reference).


  3.10(q)     Consulting Agreement with James Little. (filed as Exhibit 3.10(q)
              to the Company's Form 10-K for fiscal year ended December 31, 1996
              and incorporated herein by reference).

  3.10(r)     Subsidiaries of the Registrant. (filed as Exhibit 3.21 to the
              Company's Form 10-K for fiscal year ended December 31, 1996 and
              incorporated herein by reference).

* **3.10(s)   Letter dated December 31, 1997, from Microfluidics International
              Corporation to Irwin J. Gruverman and G & G Diagnostics Corp.

**3.10(t)     1988 Stock Plan as amended (filed as Exhibit 10(a) to the
              Company's Form 10-Q for the quarterly period ended March 31, 1997,
              and incorporated herein by reference).

 *3.11        Statement regarding computation of per share earnings.

**3.23(a)     Consent of Deloitte & Touche LLP.

 *3.23(b)     Consent of Coopers & Lybrand L.L.P.

 *3.27        Financial Data Schedule.

_____________________
* Filed herewith

**Management contracts or compensatory plan or arrangement required to be filed
  as an exhibit to this Form 10-K pursuant to Item 14(c) of this report.


     (B)  REPORTS ON FORM 8-K.

              The Company filed a Current Report on Form 8-K regarding changes
              in its Certifying Accountant dated as of December 5, 1997.

<PAGE>

                                      -26-




     (C)  EXHIBITS.

          The Company hereby files as part of this Form 10-K the Exhibits listed
          in Item 14(a)(3) as set forth above.

     (D)  FINANCIAL STATEMENT SCHEDULES.

          See (a)(2) above.
<PAGE>

                        REPORT OF INDEPENDENT AUDITORS
                        ------------------------------

To the Board of Directors and
Stockholders of Microfluidics
International Corporation:

We have audited the accompanying consolidated balance sheet of Microfluidics
International Corporation and Subsidiaries as of December 31, 1997, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the year then ended  These financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, such financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Microfluidics
International Corporation and Subsidiaries as of December 31, 1997, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.


DELOITTE & TOUCHE LLP


Boston, Massachusetts
February 20, 1998



                                      F-1


<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS
                       ---------------------------------

To the Board of Directors and
Stockholders of Microfluidics
International Corporation:

We have audited the accompanying consolidated balance sheets of Microfluidics
International Corporation and Subsidiaries as of December 31, 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Microfluidics
International Corporation and Subsidiaries as of December 31, 1996, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.



                                            COOPERS & LYBRAND L.L.P.


Boston, Massachusetts
February 12, 1997


                                      F-2
<PAGE>

/1/MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                December 31,
                                                         -------------------------
                                                            1997          1996
                                                         -----------  ------------
<S>                                                      <C>          <C>
ASSETS
Current Assets:
Cash and cash equivalents                                $4,083,214    $2,786,554
Marketable securities                                        55,638        67,437
Accounts receivable, less allowance of $40,000
 and $41,076 in 1997 and 1996, respectively               1,396,088     1,605,932
Other receivables                                           140,989        53,873
Inventories                                               2,436,938     2,291,768
Prepaid expenses                                             26,764        21,858
                                                         ----------    ----------
      Total current assets                                8,139,631     6,827,422
Equipment and Leasehold Improvements, at cost
      Furniture, fixtures and office equipment              335,467       312,664
      Machinery and equipment                               261,592       226,395
      Leasehold improvements                                125,322       114,883
                                                         ----------    ----------
                                                            722,381       653,942
Less: Accumulated depreciation and amortization           (570,555)     (509,091)
                                                         ----------    ----------
                                                            151,826       144,851
Patents, Licenses and Other Intangible assets-(net of
    accumulated amortization of $379,549 in 1997
    and $335,629 in 1996)                                   167,131       211,051
Deferred Income Taxes                                       413,630
                                                         ----------    ----------
      Total assets                                       $8,872,218    $7,183,324
                                                         ==========    ==========
</TABLE>

                See notes to consolidated financial statements

                                      F-3
<PAGE>

MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)

<TABLE>
<CAPTION>


                                                              December 31,
                                                       --------------------------
                                                            1997          1996
                                                       ------------  ------------
<S>                                                    <C>           <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable and other accrued expenses            $   939,796   $   602,939
Accrued compensation                                        76,269        36,567
Accrued vacation pay                                        37,294        37,295
Customer advances                                          280,716        78,000
                                                       -----------   -----------
    Total current liabilities                            1,334,075       754,801

Commitments and contingencies

Stockholders' Equity

    Common Stock, par value $.01 per share,
    20,000,000 shares authorized; 5,136,804
    and 5,094,781 shares issued
    in 1997 and 1996, respectively                          51,368        50,948
Additional paid-in capital                              10,442,840    10,374,508
Accumulated deficit                                     (2,360,359)   (3,468,416)
Unrealized appreciation on marketable securities            55,638        67,437
Less:  Treasury Stock, at cost, 220,719 and 192,119
       shares in 1997 and 1996, respectively              (651,344)     (595,954)
                                                       -----------   -----------

    Total stockholders' equity                           7,538,143     6,428,523
                                                       -----------   -----------

    Total liabilities and stockholders' equity         $ 8,872,218   $ 7,183,324
                                                       ===========   ===========
</TABLE>


                                      F-4

                See notes to consolidated financial statements
<PAGE>

MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                              Years ended December 31,
                                              ------------------------
                                           1997         1996         1995
                                       -----------  ----------  ------------
<S>                                    <C>          <C>         <C>

Revenues                                $7,105,706  $6,273,768  $ 5,273,399

Cost of goods sold                       3,265,593   2,847,224    2,813,801
Research and development                   459,240     450,477      691,466
Selling, general and administrative      2,977,577   2,625,184    3,051,480
                                        ----------  ----------  -----------
Total cost and expenses                  6,702,410   5,922,885    6,556,747
                                        ----------  ----------  -----------

Income (loss) from operations              403,296     350,883   (1,283,348)

Interest income                            159,256     100,612       98,675
Other income                                50,012      50,009
Gain on sale of investments                 91,863                   93,239
Gain on sale of assets                                               81,537
                                        ----------  ----------  -----------

Income (loss) before income taxes          704,427     501,504   (1,009,897)
Income tax benefit (provision)             403,630               (1,107,422)
                                        ----------  ----------  -----------

Net income (loss)                       $1,108,057  $  501,504  $(2,117,319)
                                        ==========  ==========  ===========
Basic earnings per share:

Average shares outstanding: basic        4,914,722   4,941,711    4,939,989
                                        ==========  ==========  ===========

                                        ----------  ----------  -----------
Net income (loss) per share             $      .23  $      .10  $      (.43)
                                        ==========  ==========  ===========

Diluted earnings per share:

Average shares outstanding: diluted      4,966,998   4,948,506    4,939,989
                                        ==========  ==========  ===========

                                        ----------  ----------  -----------
Net income (loss) per share             $      .22  $      .10  $      (.43)
                                        ==========  ==========  ===========

</TABLE>


                                      F-5

                See notes to consolidated financial statements
<PAGE>

MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>


                                                              Years ended December 31,
                                                     --------------------------------------
                                                         1997         1996          1995
                                                     ----------    ----------   -----------
<S>                                                  <C>           <C>          <C>
Cash flows from operations:
Net income (loss)                                    $1,108,057    $  501,504   $(2,117,319)
Reconciliation of net income to cash
  used by operations:
Depreciation and amortization                           105,383        95,101        93,410
Issuance of common stock employee compensation           30,000        24,000
Bad debt expense                                         19,877        10,000        40,000
Gain on sale of investments                             (91,863)                    (93,239)
Gain on sale of assets                                                              (81,537)
Income tax (benefit) provision                         (403,630)                  1,146,429
Increase (decrease) in cash due to change in:
  Receivables and other receivables                     102,852       111,214     1,197,003
  Inventories                                          (145,170)      164,621       388,300
  Prepaid expenses                                       (4,906)       40,295        45,574
  Current liabilities                                   569,274        67,896      (436,076)
                                                     ----------    ----------   -----------
Net cash from operations                              1,289,874     1,014,631       182,545

Cash flows from (used by) investing activities:
Purchase of intangible asset                                                        (96,680)
Proceeds from sale of investments                        91,863                      93,239
Proceeds from sale of assets                                                        101,800
Purchase of fixed assets and leasehold improvements     (68,439)      (21,636)     (107,376)
                                                     ----------    ----------   -----------
Net cash from (used by) investing activities             23,424       (21,636)       (9,017)

Cash flows from (used by) financing activities:
Issuance of Common Stock under employee stock
  purchase plan                                          21,788        21,861        21,724
Issuance of Common Stock under employee stock
  option plan                                            16,964         9,663        42,729
Treasury stock purchased                                (55,390)     (141,383)       (8,374)
                                                     ----------    ----------   -----------
Net cash from (used by) financing activities            (16,638)     (109,859)       56,079

Net increase in cash and cash
  equivalents                                         1,296,660       883,136       229,607
Cash and cash equivalents at beginning of year        2,786,554     1,903,418     1,673,811
                                                     ----------    ----------   -----------
Cash and cash equivalents at end of year             $4,083,214    $2,786,554   $ 1,903,418
                                                     ==========    ==========   ===========

Supplemental disclosure of cash flow information:
Treasury stock acquired by the exercise
  of employees' stock repurchases                    $     --      $            $      (695)
                                                     ==========    ==========   ===========
</TABLE>



                                      F-6

                See notes to consolidated financial statements
<PAGE>

MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
                                  NUMBER OF     COMMON
                                  SHARES OF     STOCK AT    ADDITIONAL
                                   COMMON         PAR        PAID-IN    ACCUMULLATED
                                   STOCK         VALUE       CAPITAL       DEFICIT
                                   -----         -----       -------    -------------
<S>                             <C>           <C>          <C>           <C>
-------------------------------------------------------------------------------------
Balance at December 31, 1994    5,021,348      $50,212     $10,254,572   $(1,852,601)
-------------------------------------------------------------------------------------
Changes in unrealized appreciation
  on marketable securities
Stock options exercised            27,875          280          43,144
Proceeds from employee stock
   purchase plan                    8,980           90          21,634
Treasury stock
Net Loss                                                                  (2,117,319)
-------------------------------------------------------------------------------------
Balance at December 31, 1995    5,058,203       50,582      10,319,350    (3,969,920)
-------------------------------------------------------------------------------------
Changes in unrealized depreciation
   on marketable securities
Stock options exercised             6,550           66           9,597
Stock in lieu of salary            16,000          160          23,840
Proceeds from employee stock
   purchase plan                   14,028          140          21,721
Treasury stock
Net income                                                                   501,504
-------------------------------------------------------------------------------------
Balance at December 31, 1996    5,094,781       50,948      10,374,508    (3,468,416)
-------------------------------------------------------------------------------------
Changes in unrealized depreciation
  on marketable securities
Stock options exercised             9,175           91          16,873
Stock in lieu of salary            20,000          200          29,800
Proceeds from employee stock
  purchase plan                    12,848          129          21,659
Treasury stock
Net income                                                                 1,108,057
-------------------------------------------------------------------------------------
Balance at December 31, 1997    5,136,804      $51,368     $10,442,840   $(2,360,359)
-------------------------------------------------------------------------------------
<CAPTION>
                                  UNREALIZED
                                APPRECITATION     NUMBER OF
                                  ON MARKET-      SHARES OF
                                    ABLE          TREASURY   TREASURY
                                  SECURITIES       STOCK      STOCK        TOTAL
                                  ----------       -----      -----        -----
<S>                             <C>              <C>       <C>         <C>
----------------------------------------------------------------------------------
Balance at December 31, 1994       $62,843       101,839   $(445,502)  $ 8,069,524
----------------------------------------------------------------------------------
Changes in unrealized appreciation
  on marketable securities          20,797                                  20,797
Stock options exercised                                                     43,424
Proceeds from employee stock
   purchase plan                                                            21,724
Treasury stock                                     5,180      (9,069)       (9,069)
Net Loss                                                                (2,117,319)
----------------------------------------------------------------------------------
Balance at December 31, 1995        83,640       107,019    (454,571)    6,029,081
----------------------------------------------------------------------------------
Changes in unrealized depreciation
  on marketable securities         (16,203)                                (16,203)
Stock options exercised                                                      9,663
Stock in lieu of salary                                                     24,000
Proceeds from employee stock
   purchase plan                                                            21,861
Treasury stock                                    85,100    (141,383)     (141,383
Net income                                                                 501,504
----------------------------------------------------------------------------------
Balance at December 31, 1996        67,437       192,119    (595,954)    6,428,523
----------------------------------------------------------------------------------
Changes in unrealized depreciation
  on marketable securities         (11,799)                                (11,799)
Stock options exercised                                                     16,964
Stock in lieu of salary                                                     30,000
Proceeds from employee stock
  purchase plan                                                             21,788
Treasury stock                                    28,600     (55,390)      (55,390)
Net income                                                               1,108,057
----------------------------------------------------------------------------------
Balance at December 31, 1997     $  55,638       220,719   $(651,344)  $ 7,538,143
----------------------------------------------------------------------------------
</TABLE>
                                      F-7
                See notes to consolidated financial statements
<PAGE>

                    MICROFLUIDICS INTERNATIONAL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     1.   CONSOLIDATION

          The consolidated financial statements of the Company include the
          accounts of the Company and its wholly owned subsidiaries,
          Microfluidics Corporation ("MFC") and MediControl Corporation
          ("MediControl").

          All significant intercompany transactions have been eliminated.

     2.   CASH EQUIVALENTS

          The Company considers securities with maturities of three months or
          less, when purchased, to be cash equivalents.

     3.  MARKETABLE SECURITIES

          The Company's marketable securities are categorized as available for
          sale securities as defined by the Statement of Financial Accounting
          Standards No. 115, "Accounting for Certain Investments in Debt and
          Equity Securities" (SFAS 115). Unrealized holding gains and losses,
          net of tax, are included as a component of stockholders' equity until
          realized. For the purpose of computing realized gains and losses, cost
          is identified on a specific identification basis.

     4.   INVENTORIES

          Inventories are stated at the lower of cost or market. Cost is
          determined on a first-in, first-out basis.



                                      F-8
<PAGE>

     5.   EQUIPMENT AND LEASEHOLD IMPROVEMENTS

          The Company's equipment and leasehold improvements are recorded at
          cost. Depreciation is computed on the straight-line method, based upon
          useful lives of three to five years.  Leasehold improvements are
          amortized on the straight-line method based upon the shorter of the
          estimated useful lives or remaining life of the lease.  Expenditures
          for maintenance and repairs are expensed as incurred.  Upon retirement
          or sale of property and equipment, the cost of the disposed asset and
          the related accumulated depreciation are removed from the accounts and
          any resulting gain, or loss is credited or charged to operations.

     6.   PATENTS, LICENSES, AND OTHER INTANGIBLE ASSETS

          Patents, patent applications and rights are stated at acquisition
          cost.  Amortization of patents is recorded using the straight-line
          method over the shorter of the legal lives or useful life of the
          patents.  The Company periodically reviews the carrying value of
          intangible assets and impairments are recognized if the expected
          future operating cash flows derived from such intangible assets is
          less than their carrying value.

     7.   INCOME TAXES

          The Company provides for income taxes based on the provisions of
          Statement of Financial Accounting Standards (SFAS) No. 109,
          "Accounting for Income Taxes," which requires recognition of deferred
          tax assets and liabilities based on the expected future tax
          consequences of events that have been included in the financial
          statements or tax returns.  Under this method, deferred tax assets and
          liabilities are determined based upon the difference between the
          financial statement and tax basis of assets and liabilities using
          enacted tax rates in effect for the year in which the differences are
          expected to be reversed.  Under SFAS No. 109, the effect on deferred
          tax assets and liabilities of a change in tax rates is recognized as
          income or loss in the period that includes the enactment date.

     8.   REVENUE RECOGNITION

          Product sales and related cost of sales are reflected in income when
          goods are shipped.



                                      F-9
<PAGE>

     9.   EARNINGS (LOSS) PER SHARE

          In February 1997, the Financial Accounting Standards Board released
          Statement of Financial Accounting Standards ("SFAS") No. 128,
          "Earnings per Share", effective for fiscal periods ending after
          December 15, 1997.  The Statement simplifies the standards for
          computing earnings per share ("EPS") and makes them comparable to
          international EPS standards.  The statement replaces primary EPS with
          basic EPS.  Basic EPS is computed by dividing income available to
          common stockholders by the weighted average number of common shares
          outstanding for the period.   Diluted EPS reflects the potential
          dilution that could occur if securities or other contracts to issue
          common stock were exercised or converted into common stock or resulted
          in the issuance of common stock.  Diluted EPS is computed similarly to
          fully diluted EPS previously presented.  In accordance with the
          standard, all prior period EPS data has been restated.

          A reconciliation of the numerators and denominators of the basic and
          diluted EPS computations for income from continuing operations is
          shown below. Options to purchase 893,873, 1,074,105, and 996,600
          shares of common stock were outstanding for the years ended 1997, 1996
          and 1995, respectively, but were excluded from the computation of
          diluted EPS because the options' exercise price was greater than the
          average market price of common shares, or were anti-dilutive in 1995,
          as the Company incurred a loss.


<TABLE>
<CAPTION>

                                             1997       1996        1995
                                             ----       ----        ----
<S>                                       <C>         <C>         <C>
     Average Shares Outstanding:Basic      4,914,722   4,941,711   4,939,989
                                          ==========  ==========  ==========
     Basic Earnings per Share:

     Net income (loss) per share          $      .23  $      .10  $     (.43)
                                          ==========  ==========  ==========
     Effect of Dilutive stock options         52,276       6,795
                                          ----------  ----------  ----------

     Average Shares Outstanding:Diluted    4,966,998   4,948,506   4,939,989
                                          ==========  ==========  ==========

     Net income (loss) per  share         $      .22  $     . 10  $     (.43)
                                          ==========  ==========  ==========
</TABLE>

     10.  USE OF ESTIMATES

          The process of preparing consolidated financial statements in
          conformity with generally accepted accounting principles requires the
          use of estimates and assumptions that affect the reported amounts of
          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 these estimates.



                                      F-10
<PAGE>

     11.  NEW ACCOUNTING PRONOUNCEMENTS

          In June 1997, the Financial Accounting Standards Board issued SFAS
          No. 130, "Reporting Comprehensive Income" and SFAS No.131, "Disclosure
          about Segments of an Enterprise and Related Information". SFAS No.130
          establishes standards for reporting and displaying comprehensive
          income and is effective for the Company's 1998 financial statements.
          The Company is reviewing disclosure options and will present such
          information in the first quarter of 1998 to the extent required. SFAS
          No.131 establishes standards for reporting annual and interim
          operating segment information and is effective for the Company's 1998
          annual financial statements and interim reporting beginning in 1999.
          The Company has reviewed this new standard and has determined that it
          has one business segment, and is reviewing the additional disclosure
          requirements of this statment.

     12.  Fair Value of Financial Instruments

          Marketable securities are carried at fair value, based on quoted
          market prices, in the accompanying consolidated balance sheets. The
          carrying amount of cash and cash equivalents, accounts receivable,
          accounts payable and accrued liabilities approximates fair value due
          to the short term nature of these accounts.

B.  INDUSTRY SEGMENT AND MAJOR CUSTOMERS

          The Company has one business segment: the development, manufacture,
          marketing and sale of process and formulation equipment. The Company's
          sales are primarily to companies with processing needs in the
          chemical, pharmaceutical, food, cosmetic, and biotechnology
          industries.

          Mizuho Industrial Co. Ltd. (a distributor) accounted for 20% of
          revenues in 1997, 17% of revenues in 1996 and 21% of revenues in 1995.
          One other distributor (Inland) accounted for 10% of revenues in 1996.
          A reduction or delay in orders from Mizuho or other significant
          customers could have a material adverse effect on the Company's
          results of operations. Sales in Europe were approximately $1,453,000,
          $772,000, and $984,000, and sales in Asia were approximately
          $1,582,000, $1,288,000, and $1,514,000 in 1997, 1996 and 1995,
          respectively, of the total revenues.

C.  MARKETABLE SECURITIES

          At December 31, 1997 and 1996, respectively, the Company held 3,940
          and 13,940 shares of PolyMedica Industries, Inc., a publicly traded
          company, at zero cost through its wholly owned subsidiary MediControl.
          The Company also, as a result of a spinoff by PolyMedica Industries,
          Inc., held 6,720 shares in another publicly traded company, Cardiotech
          International, Inc. The total market value of these marketable
          securities at December 31, 1997 and 1996 was $55,638 and $67,437,
          respectively.

          In both 1997 and 1995, the Company sold 10,000 shares of PolyMedica
          Industries, Inc. at a gain of $91,863 and $93,239 respectively.



                                      F-11
<PAGE>

D.  INVENTORIES

          The components of inventories are as follows at December 31:

<TABLE>
<CAPTION>

                                 1997         1996
                             -----------  -----------
<S>                          <C>          <C>

          Raw materials       $1,277,094   $1,525,398
          Work in process        649,946      434,717
          Finished goods         509,898      331,653
                              ----------   ----------
                              $2,436,938   $2,291,768
                              ==========   ==========
</TABLE>

E.   INTANGIBLE ASSETS

          The Company purchased the rights and title of certain liposome and
          microemulsion technology devices from Arthur D. Little in 1985.  The
          unamortized license fee and patent are included in intangible assets
          and are being amortized using the straight line method over the useful
          life of the patent, 17 years.  Patents and other intangible assets
          were purchased in 1991 as a result of a share exchange by MediControl
          stockholders. These patents and other intangible assets were being
          amortized using the straight line method over five years.  In
          addition, in 1995, the Company capitalized $96,680 of patent costs
          related to the cooperative-venture described in Note K.  Amortization
          charged to expense was $43,920 in both 1997 and 1996, and $53,412 in
          1995.

F.   LINE OF CREDIT

          In December 1993, the Company entered into a loan and security
          agreement (the "Agreement") for a line of credit with a local bank.
          The available line or borrowing base is equal to the lesser of
          $750,000 or 80% of net outstanding amount of base accounts, as defined
          in the agreement. At December 31, 1997, $424,203 was available for
          borrowing.

          The line is collateralized by all inventory, accounts receivable,
          general intangibles, machinery and equipment and all other property of
          the Company, excluding leased inventory and certain intangible assets.
          There were no borrowings under this line of credit arrangement during
          1997 or 1996.



                                     F-12
<PAGE>

G.   EMPLOYEE BENEFITS

          Effective January 1, 1990, the Company offered a 401(k) profit-sharing
          plan (the "Plan"), to its employees.  All Company and related entity
          employees who are eighteen years of age and have completed one hour of
          service are eligible to participate in the Plan.  Employees may
          contribute from 1% to 20% of their compensation.  Until 1997, the
          Company's contribution was discretionary, with contributions made from
          time to time as management deemed advisable. The Company made matching
          contributions of $17,466 in 1997 and no matching contributions during
          1996 or 1995. Plan administration expenses of $1,500, $3,564, and
          $2,755 were incurred by the Company in 1997, 1996 and 1995,
          respectively.  The Company instituted a cafeteria plan in 1992, giving
          the employees certain pre-tax advantages on specific payroll
          deductions.


H.    INCOME TAXES

          The provision/(benefit) for income taxes for the years
          ended are as follows:

<TABLE>
<CAPTION>
                                           FEDERAL      STATE        TOTAL
<S>                                      <C>          <C>         <C>
                 DECEMBER 31, 1997:
          Current                         $   9,544    $    456   $   10,000
          Deferred                         (365,482)    (48,148)    (413,630)
                                          ---------    --------   ----------
               Total                      $(355,938)   $(47,692)  $ (403,630)
                                          =========    ========   ==========
                 DECEMBER 31, 1996:
          Current                        $            $           $        -
                                                  -           -
          Deferred                                -           -            -
                                          ---------    --------   ----------
               Total                      $       0    $      0   $        0
                                          =========    ========   ==========
                 DECEMBER 31, 1995:
          Current                         $       -    $  6,643   $    6,643
          Deferred                          939,615     161,164    1,100,779
                                          ---------    --------   ----------
               Total                      $ 939,615    $167,807   $1,107,422
                                          =========    ========   ==========
</TABLE>



                                      F-13
<PAGE>

          The approximate tax effect of each type of temporary difference and
          carryforward before and after allocation of the valuation allowance is
          as follows at December31:


<TABLE>
<CAPTION>

                                                  1997          1996          1995
                                                  ----          ----          ----
<S>                                          <C>           <C>           <C>
          Net operating loss                 $ 1,015,976   $ 1,012,386   $ 1,112,967
          Research and development credit        183,344       183,344       174,655
          Inventory capitalization               172,773       144,063       176,688
          Other                                   74,518        31,348        30,437
          Marketable securities                  (22,255)      (26,975)      (33,456)
          Depreciation and amortization          (10,726)      (15,338)      (17,747)
                                             -----------   -----------   -----------

          Net deferred tax asset before
              valuation allowance              1,413,630     1,328,828     1,443,544
          Valuation allowance                 (1,000,000)   (1,328,828)   (1,443,544)
                                             -----------   -----------   -----------

          Net deferred tax asset after
              valuation allowance            $   413,630   $         0   $         0
                                             ===========   ===========   ===========

</TABLE>

          The Company has a net operating loss tax carryforward of approximately
          $2,086,000 and research and development tax credit carryforwards of
          approximately $183,000 expiring at various dates beginning in 2001
          through 2012.  Ownership changes may result in future limitations on
          the utilization of net operating losses and research and development
          tax credit carryforwards.

          Based on the financial results known at December 31, 1997, the Company
          has established a valuation allowance against the deferred tax asset
          due to the uncertainty of earning sufficient taxable income to realize
          the benefit of these assets. Therefore the Company has decreased the
          valuation allowance by $328,828 in 1997 and decreased the valuation
          allowance by $114,716 in 1996 to reflect this uncertainty.

          The following schedule reconciles the difference between the federal
          income tax rate and the effective income tax rate for the years ended
          December 31,

<TABLE>
<CAPTION>


                                             1997       1996       1995
                                             ----       ----       ----
<S>                                        <C>        <C>        <C>
          Federal income tax rate            34.0%      34.0%      34.0%
          State income tax net                6.0%         -          -
          Permanent differences               0.7%       2.7%       6.0%
          Unbenefitted NOL                      -      (36.7)%    (40.0)%
          Change in valuation allowance     (98.0)%        -      148.0%
                                           ------     ------     ------

          Total effective tax rate          (57.3)%        0%       148%
                                           ======     ======     ======

</TABLE>

                                      F-14
<PAGE>

I.   STOCKHOLDERS' EQUITY

     The Company adopted the 1988 Stock Plan as the successor plan to the 1987
     Stock Plan, which, as amended at the 1997 stockholders' meeting, authorizes
     the grant of Stock Rights for up to 2,350,000 shares of Common Stock and
     the 1989 Non-Employee Director Stock Option Plan which, as amended at the
     1996 stockholders' meeting, authorizes the grant of nonqualified stock
     options for up to 500,000 shares of Common Stock.

     Additionally, the Company has an employee stock purchase plan. Under the
     employee stock purchase plan, participants are granted options to purchase
     the Company's common stock twice a year at the lower of 85% of market value
     at the beginning or end of each period. Calculation of the number of
     options granted, and subsequent purchase of these shares, is based upon
     voluntary payroll deductions during each six month period. The number of
     options granted to each employee under this plan, is limited to a maximum
     amount of 1000 for each six month period. The number of shares issued
     pursuant to this plan totaled 12,848 in 1997, 14,028 in 1996, and 8,980 in
     1995.

     The Company applies APB Opinion No. 25 and related interpretations in
     accounting for its plans. FASB Statement No. 123 "Accounting For Stock-
     Based Compensation"("SFAS 123") was issued by the FASB in 1995 and, if
     fully adopted, changes the method for recognition of cost on plans similar
     to those of the Company. Adoption of SFAS 123 is optional. Proforma
     disclosures as if the Company adopted the cost recognition requirements
     under SFAS 123 in 1995 are presented below.

     The Company's stock option plans provide for the granting of nonqualified
     stock options that 1.) are granted at prices which equate to or are above
     the market value of the stock on the date of the grant; 2.) vest ratably
     over a three and one half to four year service vesting period and 3.)
     expire ten years subsequent to award.

     A summary of the status of the Company's stock options as of December 31,
     1997, 1996, and 1995 and changes during the year ended on those dates is
     presented below:

<TABLE>
<CAPTION>

                                                      1997                      1996                  1995
                                                    Wgtd. Avg.                 Wgtd Avg.            Wgtd. Avg.
                                          Shares    Exer. Price  Shares       Exer. Price  Shares   Exer Price
                                          ------    -----------  ------       -----------  ------   ----------
<S>                                      <C>        <C>          <C>          <C>          <C>      <C>
Outstanding, at beginning of year
                                         1,080,900      $2.62    996,600        $3.09      783,150     $3.61
Option shares:
    Granted                                114,000       1.75    369,300         1.65      281,500      1.80
    Exercised                               45,175       1.44      6,550         1.48       27,875      1.56
    Cancelled                              203,575       2.57    278,450         3.12       40,175      4.88
                                         ---------  ---------  ---------    ---------    --------- ---------
Outstanding, at end of year                946,150      $2.37  1,080,900        $2.62      996,600     $3.09
                                         =========  =========  =========    =========    ========= =========

</TABLE>



                                      F-15
<PAGE>

<TABLE>
<CAPTION>
                                                      1997       1996        1995
                                                      ----       ----        ----
<S>                                               <C>         <C>         <C>
Price Range of Outstanding Options at Year End    $1.47-6.25  $1.16-7.44  $1.16-7.44
                                                  ==========  ==========  ==========

Options Exercisable at Year End                      522,000     496,763     489,938
                                                  ----------  ----------  ----------

Options Available for Future Grant                 1,253,125     582,550     435,900
                                                  ==========  ==========  ==========
Weighted Average Fair Value of Options
Granted During the Year                           $     0.84  $     0.88  $     1.04
                                                  ----------  ----------  ----------

</TABLE>
The fair value of each option granted during 1997, 1996 and 1995 is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions: (i) dividend yield of 0%; (ii) expected volatility of
60%; (iii) risk-free interest rate of 5.51% in 1997,  4.50% in 1996 and 4.854%
in 1995; and (iv) Expected life of five years.

Had compensation cost for the Company's 1997,1996 and 1995 grants for stock-
based compensation plans been determined consistent with SFAS 123, the Company's
net income, and net income per share for 1997, 1996 and 1995 would approximate
the proforma amounts below:

<TABLE>
<CAPTION>
                                        As Reported                        Proforma
                                        -----------                        --------
                                   1997       1996       1995         1997       1996        1995
                               ----------  --------  ------------  ----------  --------  ------------
<S>                            <C>         <C>       <C>           <C>         <C>       <C>
Net Income/(Loss)              $1,108,057  $501,504  $(2,117,319)  $1,013,667  $357,235  $(2,142,746)
                               ==========  ========  ===========   ==========  ========  -----------
Net Income/(Loss) per Share
-Diluted                       $      .22  $    .10  $      (.43)  $      .20  $    .07  $      (.43)
                               ==========  ========  ===========   ==========  ========  ===========

</TABLE>

During 1995, employees delivered shares to the Company in payment for shares
they were purchasing upon exercise of the stock options they held.  The
aggregate amount of shares received during 1995 was 180 shares. No shares were
delivered by employees during 1997 and 1996.

As partial compensation for financial advisory services rendered to the Company
by Ladenburg Thalmann & Co., Inc., an investment banking firm ("Ladenburg"), the
Company on July 15, 1993 granted to Ladenburg a warrant to purchase up to 75,000
shares at a per share purchase price of $4.50 commencing on July 14, 1994 and
exercisable until July 14, 1998.

At December 31, 1997, the Company has reserved 2,230,300 shares for issuance
under the above mentioned stock plans and warrants.

                                      F-16
<PAGE>

J.   COMMITMENTS AND CONTINGENCIES

     At December 31, 1997 the Company had an operating lease for the rental of
     its facilities which requires the following minimum payments during the
     following years:


<TABLE>
<CAPTION>

                         Minimum Payments
                    --------------------------
<S>                                 <C>

                    1998              $211,209
                    1999               230,328
                    2000               237,000
                    2001                98,750
                                      --------
                    Total             $777,287
                                      ========
</TABLE>

     Rent expense for 1997,1996, and 1995 was approximately $170,000, $150,000,
     and $150,000 respectively.  The current lease is due to terminate on May
     31, 2001.  The Company has an option to extend the lease for an additional
     year, and, if there is no assignment of the lease, for an additional second
     year.

K.   COOPERATIVE VENTURE

     In 1992, the Company formed a cooperative venture with Worcester
     Polytechnic Institute to develop, patent, and license for commercial
     application the Microfluidizer processing technology in certain fields.
     Expenditures for this venture were approximately $ 0 both in 1997 and 1996
     and $48,000 in 1995.  The costs in connection with patent applications of
     $96,680 have been included in intangible assets.

     In September of 1993, the Company signed a license and research and
     development agreement with Catalytica, Inc., as joint licensee, to further
     the studies of the venture with Worcester Polytechnic Institute, as
     licensor. The Company spent $286,256, $216,301 and $247,162 in 1997, 1996
     and 1995, respectively , for this venture. The Company was reimbursed
     $137,403, $103,824 and $118,638  in 1997, 1996 and 1995, respectively, from
     a government grant awarded jointly to Catalytica, Inc. and the Company in
     relation to this project. The remainder of the expenditures were included
     in research and development expense.



                                      F-17
<PAGE>

L.   SALE OF ASSETS

     On December 27, 1995, the Company sold to ChemMark Development, Inc.
     ("ChemMark") its business of manufacturing and distributing proprietary
     cosmetic liposomal formulations, sold under the trade name Dermasome/(R)/.
     In return for ChemMark's payment of $50,000, the Company transferred to
     ChemMark its Dermasome/(R)/ trademark, its customer list, its products
     list, all unfilled Dermasome/(R)/ orders, and all products and product
     literature.  Additionally, the Company granted to ChemMark a two year,
     world-wide, exclusive license to use the Company's proprietary technology
     and know-how and to manufacture and distribute Dermasome products.  In
     exchange, the Company received a one-time, non-refundable $50,000 rights
     grant acquisition fee, and the payment over the license term of a
     percentage royalty equal to ten percent (10%) of the net sales realized by
     ChemMark on the sale of products derived from the Company's technology.
     Notwithstanding the amount of such percentage royalty, ChemMark was
     obligated to pay a minimum royalty payment in the amount of $100,000,
     payable in 22 equal monthly installments of $4,168, with a final payment of
     $8,333 due upon the second anniversary of the agreement.  As security for
     ChemMark's performance of its obligations to the Company, the Company
     retained a security interest in the Trademark.  The Company recognized a
     gain of $81,537 on the sale of the Dermasome/(R)/ business in 1995.

M.   RELATED PARTY TRANSACTIONS

     During 1997, 1996 and 1995, the Company and an entity controlled by Mr.
     Gruverman, the Company's Chairman, entered into an arrangement whereby such
     entity reimbursed the Company for a portion of certain administrative
     expenses.  The Company was reimbursed approximately $74,125, $72,610,  and
     $31,155 by such entity during 1997, 1996 and 1995, respectively.  The
     Company reimbursed the entity controlled by Mr. Gruverman $0,$ 0,  and
     $53,478 for consulting services (other than those of Mr. Gruverman) paid by
     such entity on behalf of the Company in 1997, 1996 and 1995, respectively.



                                     F-18
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, in the city of Newton,
Commonwealth of Massachusetts, on the 24th day of March, 1998.

                                              MICROFLUIDICS INTERNATIONAL
                                              CORPORATION


                                              By: /s/ Michael A. Lento
                                                  --------------------
                                                  Michael A. Lento
                                                  President
<PAGE>

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

Signature                      Title                            Date
---------                      -----                            ----
<S>                           <C>                              <C>
/s/ Irwin J. Gruverman        Chief Executive Officer          March 24, 1998
----------------------        (Principal Executive Officer),
Irwin J. Gruverman            Chairman of the Board of
                              Directors and Secretary


/s/ Michael A. Lento          President and Treasurer          March 24, 1998
--------------------          (Principal Financial and
Michael A. Lento              Accounting Officer)
                              Director


/s/ James N. Little           Director                         March 24, 1998
-------------------
James N. Little


/s/ Vincent Cortina           Director                         March 24, 1998
-------------------
Vincent Cortina
</TABLE>
<PAGE>

                                 EXHIBIT INDEX

Exhibit
Number         Description of Exhibit
------         ----------------------

  3.3(a)       Certificate of Incorporation for the Company, as amended (filed
               as Exhibit 2A to Registration Statement No. 0-11625 on Form 8-A
               and incorporated herein by reference).

  3.3(b)       Company's Annual Report on Form 10-K for the fiscal year ended
               December 31, 1996 Amended and Restated By-Laws for the Company
               (filed as Exhibit 3.3(b) to the and incorporated herein by
               reference).

**3.10(a)      1987 Stock Plan (filed as Exhibit 10(g) to the Company's Annual
               Report on Form 10-K for the fiscal year ended December 31, 1987
               and incorporated herein by reference).

**3.10(b)      1986 Employee Stock Purchase Plan (filed as Exhibit 4 the
               Company's Registration Statement on Form S-8 filed June 9, 1986
               and incorporated herein by reference).

  3.10(c)      1989 Non-Employee Directors Stock Option Plan, as amended,
               (filed as Exhibit 10.1 to the Company's registration statement on
               Form S-8 filed October 22,1996 and incorporated herein by
               reference).

  3.10(d)      International Corporation dated as of December 10, 1993 (filed as
               Exhibit 10.1 to Form 8-K filed on December 27, 1993 and
               incorporated herein by reference). Loan Agreement between The
               First National Bank of Boston and Microfluidics

  3.10(e)      Lease for 30 Ossipee Road, Newton, Massachusetts dated May 23,
               1997 between Microfluidics International Corporation and J. Frank
               Garrity, Trustee of 1238 Chestnut Street Trust under Declaration
               of Trust dated May 23, 1969, recorded with Middlesex South
               Registry of Deeds in Book 11682, Page 384. (filed as Exhibit
               3.10(a) to the Company's Form 10-Q for the quarterly period ended
               June 30, 1997 and incorporated herein by reference).

  3.10(f)      Polytechnic Institute dated as of April 3, 1992 (filed as Exhibit
               3.10(f) to the Company's Form 10-K for the fiscal year ended
               December 31, 1993 and incorporated herein by Letter of
               Understanding between Microfluidics International Corporation and
               Worcester reference).


  3.10(g)      Agreement between Microfluidics International Corporation and
               Catalytica, Inc. dated as of October 18, 1993 (filed as Exhibit
               3.10(g) to the Company's Form 10-K for the fiscal year ended
               December 31, 1993 and incorporated herein by reference) with
               amendments dated September 1, 1994 and March 31, 1995.
<PAGE>

  3.10(h)      Corporation and Catalytica, Inc. dated as of October 18, 1993
               (filed as Exhibit3.10(g) to the Company's Form 10-K for the
               fiscal year ended December 31, 1993, and Amendment to agreement
               dated September 1, 1994 between Microfluidics International
               incorporated herein by reference).

  3.10(i)      Corporation and Catalytica, Inc. dated as of October 18, 1993
               (filed as Exhibit 3.10(g) to the Company's Form 10-K for the
               fiscal year ended December 31, 1993, and Amendment to agreement
               dated March 31, 1995 between Microfluidics International
               incorporated herein by reference).


  3.10(j)      License Agreement among Microfluidics International Corporation,
               Worcester Polytechnic Institute and Catalytica, Inc. dated as of
               October 18, 1993 (filed as Exhibit 3.10(h) to the Company's Form
               10-K for the fiscal year ended December 31, 1993 and incorporated
               herein by reference).


**3.10(k)      Agreement, dated July 27, 1995, between Microfluidics
               International Corporation and Michael T. Rumley. (filed as
               Exhibit 3.10(i) to the Company's Form 10-K for fiscal year ended
               December 31, 1995 and incorporated herein by reference).

**3.10(l)      Letter, dated August 16, 1995, from Microfluidics International
               Corporation to Michael T. Rumley. (filed as Exhibit 3.10(j) to
               the Company's Form 10-K for fiscal year ended December 31, 1995
               and incorporated herein by reference).

**3.10(m)      Letter, dated December 31, 1995 from Microfluidics International
               Corporation to Irwin J. Gruverman. (filed as Exhibit 3.10(k) to
               the Company's Form 10-K for fiscal year ended December 31, 1996
               and incorporated herein by reference).

  3.10(n)      Warrant for the Purchase of Shares of Common Stock, dated July
               15, 1993, in favor of Ladenburg, Thalmann & Co. Inc. (filed as
               Exhibit 3.10(l) to the Company's Form 10-K for fiscal year ended
               December 31, 1996 and incorporated herein by reference).

**3.10(o)      Letter, dated December 31, 1996, from Microfluidics International
               Corporation to Irwin J. Gruverman.(filed as Exhibit 3.10(o) to
               the Company's Form 10-K for fiscal year ended December 31, 1996
               and incorporated herein by reference).

  3.10(p)      Agreement between Microfluidics International Corporation and
               Catalytica, Inc. dated January 1,1995 regarding participation in
               and management of the Advanced Technology Program (ATP). (filed
               as Exhibit 3.10(p) to the Company's Form 10-K for fiscal year
               ended December 31, 1996 and incorporated herein by reference).

  3.10(q)      Consulting Agreement with James Little. (filed as Exhibit 3.10(q)
               to the Company's Form 10-K for fiscal year ended December 31,
               1996 and incorporated herein by reference).

  3.10(r)      Subsidiaries of the Registrant. (filed as Exhibit 3.21 to the
               Company's Form 10-K for fiscal year ended December 31, 1996 and
               incorporated herein by reference).
<PAGE>

* **3.10(s)    Letter dated December 31, 1997, from Microfluidics International
               Corporation to Irwin J. Gruverman and G & G Diagnostics Corp.

**3.10(t)      1988 Stock Plan as amended (filed as Exhibit 10(a) to the
               Company's Form 10-Q for the Quarterly Period ended March 31,
               1997, and incorporated herein by reference).

*3.11          Statement regarding computation of per share earnings.

*3.23(a)       Consent of Deloitte & Touche LLP

*3.23(b)       Consent of Coopers & Lybrand L.L.P.

*3.27          Financial Data Schedule.

_______________________
*  Filed herewith

** Management contracts or compensatory plan or arrangement required to be filed
   as an exhibit to this Form 10-K pursuant to Item 14(c) of this report.