U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   -----------

                                   FORM 10-KSB


                                   (Mark One)
         [X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
                       EXCHANGE ACT OF 1934 (FEE REQUIRED)

                   For the fiscal year ended December 31, 2000

                                       or

       [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
                     EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                        For the transition period from to


                        Commission file number 333-34765



                            IXION BIOTECHNOLOGY, INC.
              (Exact Name of Small Business Issuer in Its Charter)


                               DELAWARE 59-3174033

      (State or Other Jurisdiction of (I.R.S. Employer Identification No.)
                         Incorporation or Organization)

                          13709 PROGRESS BLVD., BOX 13
                                ALACHUA, FL 32615
               (Address of Principal Executive Offices) (Zip Code)

                                  386-418-1428
                (Issuer's Telephone Number, Including Area Code)

         Securities registered under Section 12(b) of the Exchange Act:

                                      None

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

                                      None

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. _X__

The issuer's revenue for the most recent fiscal year, ending December 31, 2000,
was $403,782.

The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of March 15,
2001, was approximately $ 4,200,000 based on the most recent sales of
newly-issued common equity. There is no public market for the issuer's common
stock.

The number of shares of the issuers common stock, par value $.01 per share,
outstanding as of March 15, 2001, was 6,861,791.

                      DOCUMENTS INCORPORATED BY REFERENCE:

         DOCUMENT                             PART INTO WHICH INCORPORATED
         --------                            ------------------------------
The Proxy Statement to be used in                      Part III
connection with the annual meeting
of stockholders to be held June 15, 2001
the "Proxy Statement"), to be filed with
the Commission prior to April 30, 2001,
pursuant to Rule 14a-101, Schedule 14A
of the Exchange Act.


                                     PART I

Item 1.  Description of Business.

The Company

Ixion(R) is a biotechnology company focused on the treatment of metabolic
disorders. One major focus is diabetes, a defect in carbohydrate metabolism. Our
diabetes product is based on somatic stem cell technology. We grow in vitro
insulin-producing islets from stem cells obtained from adult donors. The second
major focus is hyperoxaluria, a defect in oxalate metabolism. Excess oxalate,
whether manufactured by the body or absorbed from the diet, causes disease. Our
oxalate technology is the basis for the development of several products
addressing oxalate-related conditions. We are the world's leading company
specializing in oxalate metabolism. We hold worldwide patents or exclusive
licenses to patents in both islet stem cells and preparations for treatment of
oxalate-related disorders.

Ixion licensed its technology and commenced research operations in 1995. Today
we occupy over 8,500 square feet of lab and office space in the Progress
Corporate Park in Alachua, Florida and have 16 full time employees and five part
time employees. Reflecting the six SBIR/STTR grants we were awarded in
1999-2000, we received the Small Business Administration's 2000 National
Tibbetts Award for excellence in research. Ixion is a publicly reporting
company, but is not publicly traded. Q-Med AB (publ), a Swedish public biotech
company, invested $6.75 million in Ixion's initial institutional round in July
2000, which will fund operations through July 2002. Q-Med owns 57% of our common
stock.

Products. Ixion's diabetes development program is aimed at optimizing the growth
of functioning islets in culture. Our cultured islets are based on our islet
producing stem cell technology whereby islet stem cells from adult donors are
cultured and propagated. Our goal is to produce commercial quantities of
cultured functional islets to address the current shortage of transplantable
islets.

In addition to developing our islet replacement therapy, we have an ongoing
discovery program to identify and characterize islet stem and progenitor cells
as well as novel growth factors associated with them. The goal of this program
is to discover factors important in islet stem cell differentiation and to
identify stem cell markers to which we hope to produce antibodies useful in stem
cell isolation and research. All of our potential diabetes products are in the
discovery research stage.

We demonstrated proof of the principle that cultured islets cure diabetes in
mice in 1995. We plan to enter human studies not later than early 2002.

Our primary oxalate technology is based on oxalate degrading enzymes, such as
are expressed from genes from the non-pathogenic anaerobic intestinal bacteria,
Oxalobacter formigenes. O. formigenes produces enzymes, which degrade oxalate in
healthy people. Inadequate colonization of O. formigenes results in reduced
ability to degrade oxalate, leading to excess oxalate. Other conditions lead to
excess oxalate as well. Our oxalate technology allows us to develop a variety of
products from the same basic set of discoveries. Excess oxalate plays a role in
a variety of disorders including

     o        Kidney stones, both human and animal,
     o        Primary Hyperoxaluria,
     o        cardiomyopathy,
     o        cardiac conductance disorders,
     o        cystic fibrosis,
     o        Crohn's disease,
     o        renal failure and toxic death, and
     o        vulvodynia.

Until 2000, Ixion operated as a development stage company. We have earned
limited revenues, the majority of which have been research and development
payments, and we have an accumulated deficit of $5,466,735 from our inception
through December 31, 2000. Operations have been funded primarily by sales of
securities and research grants.

Industry Description

In 2000, the U.S. biotechnology industry was composed of approximately 1,300
companies, public and private. The public market for biotechnology financing was
exuberant in early 2000, before moderating in the second half. The public market
for biotech securities has, in common with technology stocks generally, been
highly volatile. Biotech companies, public and private, raised $36.9 billion in
2000, triple the money raised in 1999. The biotechnology industry is part of the
broader health care industry in the United States, which accounts for
approximately 14% of the country's gross domestic product, or approximately $1
trillion.

Market

Diabetes. Diabetes is the world's most common metabolic disease. It is
inadequately treated with currently available drugs. In 1995, there were over 16
million diabetics in the United States. There were 21 million diabetics in
Europe and as many as 100 million worldwide. Type 1 diabetes patients represent
from 5% to 10% of the total number of diabetics in the U.S., or approximately
800,000 patients. An additional 1.5 million type 2 diabetics also take insulin.
There are approximately 500,000 to 600,000 new patients annually in the U.S., of
which 35,000 to 50,000 are type 1 diabetics. Approximately 25 percent of the new
type 2 patients (or approximately 110,000) will also take insulin.

In 1995, diabetes accounted for over 10% of total U.S. health care expenditures,
or approximately $100 billion. In 1992, the American Diabetes Association
estimated that another $47 billion was spent in indirect costs, such as lost
wages. Other sources have estimated that indirect costs may actually exceed the
direct costs. Complications of the disease include amputations of toes and feet,
blindness, ulcers, nerve damage and cardiovascular, periodontal, and kidney
disease. Approximately 30% to 40% of people with type 1 diabetes will develop
diabetic nephropathy leading to kidney dialysis and renal transplants. Overall,
diabetes is the seventh leading cause of death in the U.S.

Current therapies, including insulin shots or oral hypoglycemic medication,
modulate blood glucose, but cannot consistently maintain the diabetic's blood
glucose at normal levels. The Diabetes Control and Complications Trial, a
nine-year NIH study, demonstrated that maintaining blood glucose at normal
levels reduces by approximately 60% the risk of development and progression of
diabetes complications. However, there is no therapy that supplies insulin in
response to changes in blood glucose with the speed and precision of functioning
islets.

Kidney stones. Kidney stones are a major health care problem in the United
States, and a worse one in other parts of the world. Nearly one in every 1,000
residents in the United States has been hospitalized for stones, and autopsies
have revealed that one in every 100 persons have observable stone formation in
their kidneys. Between seven and ten of every 1,000 hospital admissions in the
United States are for kidney stones, translating to 248,000 hospital admissions
annually. There are approximately one million kidney stone incidents annually,
the seventh leading cause of patients visits to physicians. Nationwide,
approximately 12% of the U.S. male population and 6% of the US female population
will develop stones in their lifetimes, but stones are particularly common in
the region from Virginia to New Mexico, commonly referred to as the "stone
belt." In other parts of the world, particularly the Middle East, Asia, and
India, kidney stones are an even worse problem since hot climates seem to favor
stone formation.

If a stone cannot be passed, it is surgically removed or shattered by
extracorporeal shock-wave lithotripsy. Both treatments are expensive, with
lithotripsy costing approximately $5,000 and surgery costing approximately
$8,000 (including the hospital stay). Approximately 30% of patients with kidney
stones are hospitalized, the remainder pass the stone at home, which, while not
particularly expensive, is exceedingly painful. Based on recent data, the total
annual cost of kidney stones in the United States was conservatively estimated
at $2.39 billion.

Unfortunately, kidney stones usually recur, although for most patients, the time
between episodes can be years. The majority of kidney stones are made of
oxalate, which is an end product of metabolism in the body, and an important
component of a typical diet. The intestinal oxalate degrading bacteria,
Oxalobacter formigenes, plays an important role in oxalate homeostasis, both by
regulating intestinal absorption of dietary oxalate and also its secretion into
intestinal lumen from the blood. We believe that it may be clinically important
to screen patients with oxalate-associated diseases for the presence or absence
of the bacterium. Indeed, recent research indicates an increased risk of kidney
stones in patient populations with significantly decreased intestinal
colonization by O. formigenes. This appears to be particularly true of patients
with cystic fibrosis, who are at materially increased risk of kidney stones as a
result of excessive oxalate absorption from their diets.

Inflammatory Bowel Disease. Inflammatory bowel disease is a general term which
covers two primary chronic disorders that cause inflammation or ulceration in
the small and large intestine: Crohn's disease and ulcerative colitis. The cause
of inflammatory bowel disease is unknown, with many theories, none proven. Many
persons with inflammatory bowel disease also have elevated levels of urinary
oxalate, suggesting that excess oxalate may be a complicating factor in the
disease, or may lead to increased risk of kidney stones. In 1987, the latest
data available, the number of new cases of inflammatory bowel disease in the
United States annually ranged from two to six per 100,000 of population. There
were about 100,000 hospitalizations annually, approximately 64% for Crohn's.

Vulvodynia. Vulvar vestibulitis syndrome ("vulvodynia") is a complex,
multifactorial disorder with painful and debilitating symptoms, including
intense burning, itching, and inflammation, affecting the tissues surrounding
the vagina and urethra. In chronic cases it is very disruptive of a person's
life. Recognition of this condition as a significant, physiological syndrome
appeared in medical journals only a few years ago. There are no population
studies of the incidence or prevalence of vulvodynia although the condition may
affect from 150,000 to 200,000 American women. Because the cause is often
unknown, treatments have been aimed at symptoms and include xylocaine,
acupuncture, hypnotherapy, interferon injections, and, as a last resort in
chronic cases, surgery. Recent research suggests that vulvodynia may be
associated with oxalate, with some investigators reporting significant
improvement following control of dietary oxalate.

Pet Kidney Stone Market. In the U.S. alone, there are approximately 60 million
cats and 53 million dogs. In Europe, there are similar numbers, except that dogs
outnumber cats. Companion animal health care products total approximately $2
billion globally, of which biotechnology-derived products, including the feed
supplement segment, accounted for $680 million in sales.

Catheter-related Urinary Tract Infection. The world market for urological drains
(catheters) was $675 million in 1995. Catheters often foster infection and
account for the leading side effect of an invasive hospital procedure. One major
cause of catheter infection is encrustation by oxalate crystals on the catheter
and subsequent bacterial adhesion. The bacterial adhesions result in lumen
occlusion (of the catheter or stent as well as an anatomical lumen) and urinary
tract infections. Ixion's oxalate technology would permit a coated catheter or
stent capable of inhibiting or dissolving encrusted oxalate crystals, thus
reducing the potential for infection. Of equal importance are the large numbers
of urinary tract devices which have been developed and prototyped yet never
reached their clinical potential because of these problems of encrustation and
infection, particularly in-dwelling devices.

Sjogren's Syndrome. Sjogren's Syndrome is a human autoimmune disease of the
salivary and lacrimal glands resulting in debilitating xerostomia (dry mouth)
and xerophthalmia (dry eyes). The disease presents as a primary autoimmune
disease or as a secondary autoimmune disease concomitant with other connective
tissue diseases or diabetes. Although classified as an orphan disease, it is
grossly under-diagnosed with as many as four million patients (90% of whom are
women).

Primary Hyperoxaluria Type I and Type II. PH1 is a rare autosomal recessive
disease that results from a deficiency of peroxisomal alanine:glyoxylate
aminotransferase (AGT) activity in the liver. There is a very low prevalence,
perhaps approaching 1,500 diagnosed cases in the major pharmaceutical markets.
Primary hyperoxaluria Type II is rarer still. There is no available therapy for
the bulk of affected patients, other than serial liver-kidney transplants. The
disease has a significant infant mortality and is available for Orphan Drug
funding.


Business Strategy

Our corporate goal is to create a sustainable company; one that has a reasonable
chance of generating enough scale to reach a significant market valuation by
successfully developing our diversified product pipeline. The pipeline has
products aimed at kidney stones and other oxalate-related disorders as well as a
product aimed at a cure for type 1 diabetes. We will continue to seek strategic
partners to participate in the development of both types of products. Other
elements of our strategy include the following:

Basic Research. Ixion funds its basic scientific research primarily through
grants from the NIH and other funding agencies as well as cooperative research
and development agreements with the University of Florida and other research
institutions. In addition to the grant applications written by our scientific
personnel, we work with members of our scientific advisory board or other
academic scientists world-wide to support grants written by or with the
collaborator. This program has resulted in six awarded grants since 1999
(totaling $700,000).

Technology Evaluation and Development. We use our affiliation with the
University of Florida Biotechnology Program and the members of our Scientific
Advisory Board to seek out cutting-edge university based biotechnology. Our
scientific and business team will review early stage academic inventions,
identify discoveries which are commercially promising, obtain licenses from the
universities, and develop the discoveries to add value. The University of
Florida, with which we have the closest relationship, is the tenth largest
university in the nation and is the largest research institution in the
Southeast. It typically ranks in the top 10 in the United States in gross
royalties received from patent licenses, and the top 20 in the United States in
the number of U.S. patents obtained.

Our relationship with the scientists at the University of Florida and other
institutions is based upon personal relationships between our management and
members of our Scientific Advisory Board, on the one hand, and other members of
the University of Florida and other institutions' faculties on the other. The
relationship with the University of Florida is helped by our nearby location and
by the business consulting provided by our management to University faculty at
no cost, by arrangement with the Biotechnology Program. We have no formal
agreement providing general access to rights to university research, nor to
advance notice of disclosures by university researchers.

Ixion intends to continue to develop collaborative arrangements with leading
researchers at the University of Florida and at other research institutions in
our core areas to diversify and strengthen our intellectual property estate and
to establish our reputation and credibility in the scientific and medical
communities.

Collaborative Product Development and Marketing with Established Companies.
Ixion hopes to develop products in collaboration with other companies.
Collaborative agreements may call for our partners to provide research funds as
well as clinical and other support during product development, although we may
develop and test ideas independently before entering into a collaborative
agreement. We contemplate that our partners will provide an established and
trained marketing and sales force, as well as manufacturing experience, clinical
trial expertise, support for patent prosecution, and other capabilities.

Independent Product Development. The quality of our scientific team also permits
independent product development. Independently developed products will provide
us with the flexibility either to market the product directly or enter into
agreements with pharmaceutical partners on terms more favorable to us. While
independent product development is riskier than collaborative development, we
may be able to retain a higher proportion of any eventual product revenue
stream.

Product Development - Diabetes

Descriptions of Diabetes Products. Islet replacement therapy to reverse diabetes
or reduce insulin dependency has been limited by, among other things,
significant shortages of human islets suitable for transplant or research, with
only 5,000 or fewer pancreases available for transplant annually. In addition to
the shortage of islets, transplants are subject to immunological attack
resulting in rapid rejection of transplanted tissue. About 20% of the diabetic
population has sufficiently severe complications as to justify islet
transplantation under conditions that require a life-long regime of
immunosuppressive drugs. But the shortage of islets is so pronounced that 3,000
patients die each year while waiting for a pancreas graft. Xenotransplants using
porcine islets face additional difficulties, such as the possibility of
cross-species viral infection, regulatory uncertainty, scientific difficulties,
and cultural barriers. To date, efforts to propagate commercial quantities of
human islets in vitro (in the test tube) from either fetal or adult tissue have
had minimal success.

In the summer of 2000, researchers in Edmonton, Alberta, Canada, reported that
they were able to restore normal blood sugar levels for a year or more in
diabetic patients by transplanting islets obtained from organ donors. Edmonton
established the ability of islet replacement to eliminate insulin dependence and
produce normal blood glucose levels. However, the Edmonton approach has two
material drawbacks: it requires two organ donations per patient, intensifying
the shortage of islets, and it also requires immune suppression.

Ixion's development program is aimed at optimizing the growth of functioning
islets in culture. Our cultured islets are based on our islet producing stem
cell technology whereby islet stem cells from adult donors are cultured and
propagated. Our goal is to produce commercial quantities of cultured functional
islets to address the current shortage of transplantable islets. Because each
patient requires two or more pancreases, and because there are at most 5,000
pancreases available annually, fewer than 2,500 patients (about 1% of the
eligible population) could be helped. Ixion's ability to grow commercial
quantities of islets will overcome this shortage.

Ixion's islet technology permits the successful growth of in vitro
pancreas-derived, pluripotent (e.g., able to differentiate) islet-producing stem
cells (IPSCs) islet progenitor cells, and IPSC-derived islet cells from mice,
dogs, and humans. We have also been successful in propagating human islet cells
from children and adult donors, but have not transplanted such islets to date.

Ixion Cultured Islets. We will grow cell lines of insulin-producing islets from
human adult stem cells. Using these cell lines of insulin-producing islets, we
will provide functioning islets to transplant surgeons in islet transplant
centers to improve the patient's blood glucose management and reduce his
requirement for daily insulin injections.

We are also working to overcome the second material Edmonton drawback: immune
suppression. Our work is focused on two fronts: (1) developing an autologous
version of cultured islets (where we get the stem cells directly from the
patient to be implanted, rather than from organ donors), and (2) developing
hyaluronic acid as a protective encapsulation for transplanted islets. Our
hyaluronic technology will be licensed royalty free from Q-Med AB.

Autologous Cultured Islets. Surgeons trained in ultrasound guided endoscopy (a
minimally-invasive surgery) will supply Ixion with a biopsy of pancreatic tissue
taken from individual diabetic patients. We will grow new insulin producing
islets for each individual patient. The replacement islets will then be
delivered to the surgeon for implantation to improve the patient's blood glucose
management and reduce his requirement for daily insulin injections. Autologous
cultured islets avoid the problems of allogenic immune rejection because they
use the patient's own cells, thus may not require immunosuppressive drugs to
avoid rejection.

NASHA Encapsulation. The second method of reducing or eliminating immune
suppressive drugs involves encapsulating the islets in immunoprivileged
non-animal stabilized hyaluronic acid ("NASHA"). We are working with our
collaborator, Q-Med AB (publ), who is also a significant investor, to develop an
immune-privileged capsule making use of their proprietary NASHA technology.

All diabetes products will be administered in hospitals in an inpatient setting.
Endocrinologists and primary care physicians will prescribe the product and
transplant surgeons will implant the islets. The primary risk holders (i.e.,
those responsible for payment for the products) will be hospitals and managed
care organizations, with some risk being borne by co-paying patients.


Product Development - Oxalate

Description of Oxalate Products. Our therapeutic oxalate product is IxC1, an
oral drug for the therapy of oxalate-related diseases. It is in preclinical
development. Other applications of the oxalate technology include a product to
prevent kidney stones in pets; the XEntrIx(TM) Oxalobacter formigenes Monitor, a
diagnostic test for the presence of O. formigenes; and an oxalate-resistant
catheter for urinary applications. Using the same technology, we could also
formulate a nutritional supplement made from O. formigenes cells, to promote
healthy levels of oxalate.

IxC1 Therapy for Oxalate-Related Disease. IxC1 is an orally administered drug.
IxC1 is targeted at oxalate-related disorders including kidney stones, primary
hyperoxaluria, enteric hyperoxaluria, oxalosis, cardiomyopathy, cardio
conductance disorders, cystic fibrosis, Crohn's disease, and possibly
vulvodynia. Very few satisfactory treatments currently exist for these
disorders. Further development of this product is the subject of a Phase II STTR
application filed with our collaborator at Northwestern University in September
2000. Our current intention is to file an IND for the IxC1 enzymatic therapy for
oxalate-related disorders when resources permit.

Working with collaborators at the Wake Forest University Medical School, we have
initiated a pilot study to measure effectiveness of our oxalate technology in
reducing urinary and serum oxalate in humans fed a controlled oxalate diet. The
open label study, which has been approved by the Wake Forest Institutional
Review Board, will commence in the second quarter of 2001 and is scheduled for
completion in June 2001. This study is also the subject of an SBIR Phase II
application filed in December 2000.

With regard to the veterinary product, we expect to enter into a collaborative
agreement leading to a product development project during 2001. The veterinary
product is in preclinical development. Our diagnostic test for O. formigenes is
the XEntrIx(TM) Oxalobacter formigenes Monitor, a molecular diagnostic for the
rapid and sensitive detection of human O. formigenes. It is also in preclinical
development. We plan to seek FDA clearance for the Monitor in the near future.
Finally, using funds from an award of a Phase I SBIR grant received in 2000, we
are developing a coated prosthetic stent and in-dwelling catheter designed to
prevent oxalate crystal encrustation and bacterial adhesion, to reduce infection
in catherized patients. This product is in the research stage.

Description of Sjogren's Syndrome Product. Ixion has another potential product
in research, aimed at Sjogren's Syndrome, a metabolic defect in the production
of tears or saliva. The product is a simple, non-invasive, ELISA diagnostic test
capable of identifying patients with Sjogren's Syndrome. At present, diagnosis
involves detection of lymphocytic infiltrates in biopsies of the labial gland,
and other markers, none of which is, by themselves, disease specific. The
muscarinic cholinergic-3 marker (M3) may be able to define autoimmune
exocrinopathy. An STTR Phase I award received in September 2000 supports this
research. This project is in the research stage.


Licensed Technology

We have licensed from the University of Florida Research Foundation, on an
exclusive world wide basis, commercial rights in two areas: in vitro grown islet
producing stem cells for curing diabetes, and materials and methods for
detection of oxalate and Oxalobacter formigenes.

Under the UF Research Foundation licenses, we have licensed five issued U.S.
oxalate patents and two issued U.S. islet patents. Still pending under these
licenses are two U.S. oxalate patent applications, one U.S. islet patent
application, and one US/International patent application. We have also filed
internationally on these patent families. One oxalate patent and one islet
patent has been issued in Australia; other countries are pending.

The license agreements require the UF Research Foundation to file and prosecute
the patents and require us to reimburse the costs. They must also take all steps
to defend such patent rights, also at our expense. If the UF Research Foundation
fails to take any such action, we have the right to defend such rights at our
own expense.

Except for royalty rates and certain other immaterial differences, the terms of
our patent licenses with the UF Research foundation are substantially identical.
The UF Research Foundation licensed its rights on an exclusive, worldwide basis
for the life of any patents granted. We have rights under the UF Research
Foundation licenses to all possible uses of the patent applications, any patents
issued from such applications, any divisionals and continuations of such
applications, and to any claims of U.S. and foreign continuation-in-part
applications, and of the resulting patents, which are directed to subject matter
specifically described in such applications.

Under the UF Research Foundation licenses, we paid a license issue fee, are
obligated to pay royalties on our net sales or net sales of our sublicensees,
and must reimburse the UF Research Foundation for patent costs. There are no
minimum annual royalties. We are also obliged to obtain product liability
insurance prior to the sale for commercial purposes of licensed products.

All issued UF-licensed oxalate patents expire in June 2014. A web of claims in
the various issued patents covers our oxalate products. The claims in the
earliest oxalate patents tend to be relatively narrow, but the later patents
contain broader claims including the claim to the DNA encoding for formyl-CoA
transferase, a necessary ingredient of some of our oxalate products. Claims in
pending applications are broader still.

All issued UF-licensed islet patents expire between April 2014 and November
2015. They are primarily process patents, meaning we can bar competitors from
duplicating our particular islet expansion technique, but we can not bar
competitors from developing other, non-infringing techniques to culture islets.
Broader claims, including a claim for the IPSC, islet progenitor cells, and
islet-like structures are included in the pending U.S. application.

A number of pharmaceutical companies, biotechnology companies, universities and
research institutions, and individuals have filed patent applications or
received patents to technologies that are similar to our technologies. We are
aware of patent applications previously filed by and patents already issued to
others that could conflict with our patents or patent applications, either by
claiming the same methods or compounds or by claiming methods or compounds that
could dominate those licensed to us. In addition, we can not assure you that we
are aware of all patents or patent applications that may materially affect our
ability to make, use, or sell any products. United States patent applications
are confidential while pending in the United States Patent and Trademark Office,
and patent applications filed in foreign countries are often first published
months after filing. Any conflicts resulting from third party patent
applications and patents could significantly reduce the coverage of the patents
or patent applications licensed to us and limit our ability to obtain meaningful
patent protection. If patents are issued to other companies that contain
competitive or conflicting claims, we may be required to obtain licenses to
these patents or to develop or obtain alternative technology. We can not assure
you that we will be able to obtain any such license on acceptable terms or at
all. If such licenses are not obtained, we could be delayed in or prevented from
the development or commercialization of our product candidates, which would have
a material adverse effect on us.

Litigation, which could result in substantial cost to us, may also be necessary
to enforce any patents to which we have rights or to determine the scope,
validity, and enforceability of other parties' proprietary rights, which may
affect our product candidates and technology. United States patents carry a
presumption of validity and generally can be invalidated only through clear and
convincing evidence. Our licensors may also have to participate in interference
proceedings declared by the Patent Office to determine the priority of an
invention, which could result in substantial cost to us. There can be no
assurance that our licensed patents would be held valid by a court or
administrative body or that an alleged infringer would be found to be
infringing. Further, with respect to the technology licensed by us from the UF
Research Foundation, they are primarily responsible for any litigation,
interference, opposition, or other action pertaining to patents or patent
applications related to the licensed technology, and we are required to
reimburse them for the costs. As a result, we generally do not have the ability
to institute or determine the conduct of any such patent proceedings unless the
UF Research Foundation does not elect to institute or elects to abandon such
proceedings. In cases where they elect to institute and prosecute patent
proceedings, our rights will be dependent in part upon the manner in which they
conduct the proceedings. The UF Research Foundation could elect not to
vigorously pursue or defend or to settle such proceedings on terms that are not
favorable to us. An adverse outcome in any patent litigation or interference
proceeding could subject us to significant liabilities to third parties, require
disputed rights to be licensed from third parties, or require us to cease using
such technology, any of which could have a material adverse effect on us.

We can not assure you that any existing patent application, or any future patent
application will issue or that any patents, if issued, will provide us with
adequate patent protection with respect to the covered products, their uses,
technology, or processes. In addition, under our licenses, we are required to
meet specified diligence requirements to retain our rights.

In January 1997, we entered into a patent license agreement obtaining exclusive
rights to the issued patent of Dr. Randy S. Fischer and Dr. Roy A. Jensen,
faculty members at the University of Florida, for identifying a difference which
exists between the metabolic pathway of a microbial or plant target organism and
a non-target host species, and then preparing a control agent which perturbs the
metabolic pathway of the target without significantly perturbing the metabolic
pathway of the host. This patent may be useful in the development of
microbicides for drug resistant pathogens such as staphyloccus, enterococcus,
and neisseria. Under the Fischer/Jensen license agreement, we paid a license
issue fee of 1,000 shares of our common stock and are obligated to pay royalties
of 2% on net sales by Ixion or our sublicensees. There are no minimum annual
royalties or due diligence milestones. The Fischer/Jensen license is for the
remainder of the legal life of the patent (expiring in 2010). We hope to
sublicense this patent to a third party.

In June 1997, we entered into a patent license agreement with the Milton J.
Allison Revocable Trust, obtaining exclusive, world-wide rights to the
inventions of Dr. Milton Allison, a member of our Scientific Advisory Board,
relating to the administration of cells of O. formigenes or natural enzymes from
O. formigenes (or other microorganisms) to treat oxalate-related conditions.
Except for royalty rates and patent issue fees, the terms of this license
agreement are substantially similar to the terms of the Fischer-Jensen patent
license discussed above. One patent has issued under this license. An additional
US patent application and foreign applications are pending.

In July 1999 Dr. Michael Humphreys-Beher of the Department of Oral Surgery at
the School of Dentistry at the University of Florida filed an invention
disclosure with the University entitled "Use of M3 Muscarinic/Cholingeric
Receptor in the diagnosis of Sjogren's Syndrome." Dr. Peck and several
other researchers were listed as co-inventors. The University waived its rights
to the invention under its patent policy, and notified Dr. Humphreys-Beher and
the NIH of the waiver. Dr. Humphreys-Beher is in the process of applying to the
original federal funding agency for intellectual property rights for the
invention, and we expect those rights to be assigned to him and the
co-inventors. Under our consulting agreement with Dr. Peck, we will be entitled
to an assignment of his co-inventorship interest in this invention, and we
expect to negotiate a license with Dr. Humphreys-Beher and the other
co-inventors in order to have exclusive rights covering the development of a
diagnostic assay.

Because the inventions covered by our licenses and proposed licenses were made
with federal assistance (which is typical of university-based discoveries), they
are subject to the rights of the federal government under 35 USC Title 18,
"Patent Rights in Inventions Made with Federal Assistance," including "march in"
rights under which the government has the right to require us to grant an
exclusive license under any such inventions to a third party if the government
determines that (1) adequate steps have not been taken to commercialize such
inventions, (2) such action is necessary to meet public health or safety needs,
or (3) such action is necessary to meet the requirement for public use under
federal regulations. The government's rights include a non-exclusive, paid-up,
worldwide license under such inventions for any governmental purpose. The law
also requires any licensor of an invention that was partially funded by federal
grants to obtain a covenant from our exclusive licensee to substantially
manufacture products using the invention in the United States, although this
covenant is subject to a discretionary waiver by the government.

Patents and Trade Secrets

Dr. Peck, our Chief Scientist, is an employee of the University of Florida, and,
like any employee of the University of Florida, is bound by the terms of the
University's patent policy, which requires that any invention conceived of or
developed in the area in which he is employed belongs to the University (subject
to the rights of the federal government described above).

It is our policy to require our directors, employees, consultants, outside
scientific collaborators, and sponsored researchers, and other advisors to
execute confidentiality agreements upon the commencement of employment or
consulting relationships with us. These agreements provide that all confidential
information developed or made known to the individual during the course of his
or her relationship with us is to be kept confidential and not disclosed to
third parties. Ixion also requires signed confidentiality or material transfer
agreements from any company that is to receive confidential data or proprietary
compounds. In the case of employees and consultants, the confidentiality
agreements also generally provide that all inventions conceived by the
individual while rendering services to us shall be assigned to us as our
exclusive property (subject, in the case of Dr. Peck, and other university
employees, to the prior rights of their employers).

As noted above, we have actively sought collaboration with university scientists
under the SBIR and STTR programs as a way of leveraging our scientific
resources. In implementing this practice, we seek to adjust the work plans and
division of responsibilities in such a fashion that any patentable discovery
will be Ixion's sole intellectual property. Where that is not possible, we seek,
at a minimum, that any discovery will be "joint" under the rules of
inventorship, thus ensuring for us the right to use the discovery without
license from the university, although, in the latter case, a license of the
university's joint rights may be desirable to ensure exclusive access to the
invention.

In order to produce or use the XEntrIX(TM)  Oxalobacter  formigenes  Monitor, it
may be necessary to license PCR rights from Roche Diagnostics, Inc., which makes
non-exclusive  licenses  generally  available.   In  addition,  to  produce  our
recombinant  enzymes  for IxC1,  we must enter into a  commercial  license  with
Brookhaven National  Laboratory relating to its T7 technology.  Brookhaven makes
non-exclusive licenses generally available.

Competition

The biotechnology and pharmaceutical industries are characterized by rapidly
evolving technology and intense competition. Our competitors in general include
major pharmaceutical, chemical, and specialized biotechnology companies, many of
which have larger R&D budgets, as well as substantially greater experience in
developing products, in obtaining regulatory approvals, and in manufacturing and
marketing diagnostic and pharmaceutical products. In addition, many
biotechnology companies have formed collaborations with large, established
companies to support research, development, and commercialization of products
that may be competitive with ours. Academic institutions, governmental agencies,
and other public and private research organizations are also conducting research
activities and seeking patent protection and may commercialize products on their
own or through joint ventures.

We expect our products to address a broad range of markets. Our competition will
be determined in part by the potential indications for which our products are
developed and ultimately approved by regulatory authorities. In addition, the
first pharmaceutical product to reach the market in a therapeutic or preventive
area is often at a significant competitive advantage relative to later entrants
to the market. Accordingly, the relative speed with which Ixion or our future
corporate partners can develop products, complete the preclinical and clinical
trials and approval processes, and supply commercial quantities of the products
to the market are expected to be important competitive factors. Our competitive
position will also depend on our ability to attract and retain qualified
scientific and other personnel, develop effective proprietary products, develop
and implement production and marketing plans, contract for and manage
third-party service providers, obtain and maintain patent protection, and secure
adequate capital resources.

Government Regulation

In the United States, the FDA regulates distribution, manufacture, labeling, and
promotion  of  nutritional  supplements,  drugs,  both animal and human  medical
devices, and biologics. In addition, manufacturers of these products are subject
to  other  federal,   state,  and  local   environmental  and  safety  laws  and
regulations. Governments in other countries may impose additional requirements.

Dietary Supplements.  We believe that, in the United States,  should we offer an
oxalate nutritional supplement,  Ox-Control(TM), it will be regulated by the FDA
as a dietary supplement. The FDA regulates many aspects of the safety, labeling,
and  promotion  of dietary  supplements,  but most  dietary  supplements  do not
require FDA pre-approval before they can be commercially  marketed. The category
of dietary  supplements is defined by statute,  and generally  includes products
that, inter alia, contain a dietary ingredient,  are intended for ingestion, and
are labeled as dietary supplements.  If a dietary supplement  ingredient has not
previously  been used in food,  the  manufacturer  or  distributor  must provide
evidence of safety to FDA at least 75 days  before the  product is  commercially
distributed.  In addition,  there are  significant  restrictions on the kinds of
claims  that may be made for  dietary  supplements.  For  example,  if a dietary
supplement  is  claimed to treat or prevent a  disease,  FDA will  consider  the
product a drug and generally require FDA approval prior to commercial marketing.
Also, if a dietary  supplement is claimed to affect the structure or function of
the body, the claim must be  accompanied by a disclosure  that the claim has not
been  evaluated  by the FDA and that the product is not  intended  to  diagnose,
treat,  cure,  or  prevent  any  disease.  Failure  to  comply  with  applicable
requirements  can,  among  other  consequences,  result in  compliance  letters,
seizures,  injunctions,  and criminal  prosecution.  To date, FDA's  enforcement
efforts have been  directed  primarily  toward  preventing  marketers of dietary
supplements from making drug claims without appropriate approvals.

Because O. formigenes enzymes, and O. formigenes itself, have not previously
been used in food, we expect to file a safety notice with the FDA. Any FDA
concerns about safety could slow or preclude the commercial launch of the
product.

FDA Authorization to Market. Drugs, medical devices, or biologics may not be
commercially distributed in the United States unless they have FDA
authorization. Obtaining FDA authorization to market a regulated product
generally involves the submission of preclinical, product characterization,
clinical, and manufacturing information. The process can take a number of years
and the expenditure of significant resources.

Drugs and Biologics. Some of our planned products, such as the diabetes
products, will be regulated as drugs and biologics. The Food, Drug, and Cosmetic
Act and the Public Health Service Act provide that drugs and biologics may not
be commercially distributed within the United States unless they have been
approved by the FDA. The process required by the FDA before drugs and biologics
may be marketed in the United States generally involves five steps:

     o preclinical laboratory and animal testing,
     o submission to the FDA of an investigational new drug application which
       must be effective prior to the initiation of human clinical studies,
     o adequate and well-controlled clinical trials to establish safety and
       efficacy for its intended use,
     o submission to the FDA of a new drug application or biologics license
       application, and
     o review and approval of the new drug application or biologics license
       application by the FDA.

Preclinical testing covers laboratory evaluation of product chemistry and
formulation as well as animal studies to assess the safety, pharmacology,
toxicology, and efficacy of the product. The results of these tests are
submitted to the FDA as part of the investigational new drug application. If a
company is not notified by the FDA within 30 days of submission, the company may
initiate Phase I clinical trials. Clinical trials are typically conducted in
three sequential phases, although the phases may overlap.

     o Phase I represents the initial administration of the drug or biologic to
       a small group of humans, healthy volunteers, to test for safety, dosage
       tolerance, absorption, distribution, metabolism, excretion, and clinical
       pharmacology.
     o Phase II involves studies in a small number of patients to assess the
       efficacy of the product, to ascertain dose tolerance and the optimal dose
       range, and to gather additional data relating to safety and potential
       adverse effects.
     o Once an investigational drug is found to have some efficacy and an
       acceptable safety profile in the targeted patient population, Phase III
       studies are initiated to establish safety and efficacy in an expanded
       patient population and multiple clinical study sites.

The FDA reviews both the clinical plans and the results of the trials and may
request that a company discontinue or expand the trials at any time if there are
significant safety issues.

The results of the preclinical tests and clinical trials of drugs and biologics
are submitted to the FDA in the form of a new drug application (in the case of a
drug) or biologic license application (in the case of a biologic). The FDA may
request additional information, including additional animal studies or clinical
trials that may extend the review process and delay marketing approval. The
manufacturer must also pass a premarket inspection of its compliance with good
manufacturing practices. There can be no assurance that the FDA will authorize
marketing of the product, or that it will do so in a timely manner. Once
granted, a new drug application or product license application may place
substantial restrictions on how the product is marketed. After FDA approval of
the new drug application or biologic license application for the initial
indications, further clinical trials may be necessary to gain approval for the
labeling of the product for additional indications.

The process for  obtaining  the approval for an animal drug is similar,  but not
identical.

Medical Devices. Many of our planned products (such as the in vitro diagnostic
products, including the XEntrIX TM Oxalobacter formigenes Monitor), will be
regulated as medical devices. The FDA regulates the clinical testing,
manufacture, labeling, distribution, and promotion of medical devices. Unless
exempted by regulation, medical devices may not be commercially distributed in
the United States unless they have been approved or cleared by the FDA.

In the United States, medical devices are classified into one of three classes
(class I, II, or III), on the basis of the controls deemed necessary by the FDA
to reasonably assure their safety and effectiveness. Under FDA regulations,
class I devices are subject to general controls (for example, labeling,
premarket notification, and adherence to good manufacturing practices), and
class II devices are subject to general and specific controls (for example,
performance standards, patient registries and FDA guidelines). Generally, class
III devices are those which must receive a premarket approval by the FDA to
ensure their safety and effectiveness (for example, life sustaining,
life-supporting, and implantable devices, or new devices which have not been
found substantially equivalent to legally marketed devices).

There are two review procedures by which medical devices can receive approval or
clearance. Some products may qualify for clearance under a Section 510(k)
procedure, in which the manufacturer provides a premarket notification that it
intends to begin marketing the product, and shows that the product is
substantially equivalent to another legally marketed product (i.e., that it has
the same intended use and is as safe and effective as a legally marketed device
and does not raise different questions of safety and effectiveness than does a
legally marketed device). In some cases, the submission must include data from
human clinical studies. Marketing may commence when the FDA issues a clearance
letter finding such substantial equivalence.

If the medical device does not qualify for the 510(k) procedure  (either because
it is not substantially equivalent to a legally marketed device or because it is
a Class III device required by the statute and implementing  regulations to have
an  approved  application  for  premarket  approval),  the FDA  must  approve  a
premarket approval  application  before marketing can begin.  Premarket approval
applications must demonstrate,  among other matters,  that the medical device is
safe and  effective.  A premarket  approval  application  is typically a complex
submission,  usually  including the results of preclinical and clinical studies,
and preparing an application is a detailed and  time-consuming  process.  Once a
premarket  approval  application  has been  submitted,  the FDA's  review may be
lengthy and may include requests for additional data. The manufacturer must also
pass  a  premarket  inspection  of  its  compliance  with  the  quality  systems
regulations.  We can not be sure that the FDA will  authorize  marketing  of our
products under either the 510(k) procedure or PMA procedure.


Clinical investigations of most devices are subject to the investigational
device exemption requirements, which usually involve FDA review of the
investigation before it may begin. Clinical investigations of many in vitro
diagnostic tests are exempt from the investigational device exemption
requirements, provided the testing meets certain exemption criteria, including
labeling as an "investigational use only" product. In addition, in vitro devices
may be distributed for "research use only," provided they are intended for
laboratory research and labeled for research use. The FDA's current policy is to
encourage manufacturers of in vitro devices for "investigational use only" or
"research use only" to establish a certification program under which these in
vitro devices are distributed to or utilized only by individuals, laboratories,
or health care facilities that have provided the manufacturer with a written
certification of compliance indicating that the "investigational use only"{ or
"research use only" product will be restricted in use and will, among other
things, meet institutional review board and informed consent requirements.

Ixion's Products. The XEntrIX(TM) Oxalobacter formigenes Monitor, when
manufactured by or for us, will be distributed initially for research use and
will not require FDA review prior to distribution for those uses. To market this
product for diagnostic use, we intend to request authorization under the 510(k)
procedure for the XEntrIX TM Oxalobacter formigenes Monitor. Premarket approval
applications may, however, be required.

We believe that our products will require  approval of either a biologic license
application  or  a  new  drug  application   before  they  may  be  commercially
distributed.

Other FDA Obligations. Each manufacturing facility for drugs, medical devices,
or biologics, must be registered with the FDA, and the products manufactured at
that facility must be listed with the FDA. A manufacturer's quality control and
manufacturing procedures must conform on an ongoing basis with good
manufacturing practices. Certain adverse effects and product malfunctions must
be reported to the FDA. Product labeling and advertising must comply with FDA
requirements. In some cases, postmarket testing may be required, or other
requirements imposed. Complying with these requirements requires substantial
time, money, and effort. We intend to rely on our strategic partners for
assistance with these matters.

FDA Enforcement. The FDA inspects manufacturers of drugs, medical devices, and
biologics on a regular basis. Failure to comply with applicable requirements
can, among other consequences, result in civil penalties, injunctions,
suspensions and losses of regulatory approvals, product recalls, seizure of
products, refusal to allow us to enter into supply contracts with the
government, and criminal prosecution.

Non-U.S. Marketing. For marketing outside the United States, we are also subject
to foreign regulatory requirements. Requirements governing the conduct of
clinical trials, product licensing, pricing, and reimbursement vary widely from
country to country. The time required to obtain approvals by foreign countries
may be longer or shorter than that required for FDA approval, and regulatory
requirements for foreign countries may differ significantly from those of the
FDA. In some cases, products may not be exported until FDA approval is obtained.
We intend to rely on our strategic partners both in the United States and abroad
for assistance with these matters.

University Conflicts of Interest. Because Dr. Peck, our Chief Scientist, Dr.
Khan, Dr. Schatz, and Dr. Schuster are employees of the University of Florida,
and other members of our Scientific Advisory Board are employees of other
universities, they, and consequently we, are subject to statutes and guidelines
relating to conflicts of interest. In order for Ixion to conduct business with
the university employers of these members of our Scientific Advisory Board
(including licensing University of Florida technology or entering into research
support agreements or subcontracts), we must obtain and maintain an exemption
for Dr. Peck from the application of the Florida conflict of interest statutes,
and obtain approvals for outside activities for the others.

Exemptions for Dr. Peck are issued pursuant to a monitoring plan that requires
us, among other things, to promptly disclose every material transaction between
us and any employee of the University. Dr. Peck obtained his initial exemption
from the Florida conflict of interest statutes on January 5, 1995, relating to
the academic year ended June 30, 1995. Dr. Peck must renew exemptions annually
at the beginning of each academic year (or upon material alterations in the
terms of the relations between us and him). The approval process can take 12 or
more months.

Manufacturing and Marketing

We have no experience in manufacturing or marketing products on a commercial
scale. Marketing rights for products may be licensed to corporate partners.
Co-marketing arrangements may also be feasible for some products. Ixion also
intends to seek distribution arrangements for our products in countries outside
of the United States. While using third parties for distribution or marketing
permits us to avoid the costs of establishing a distribution or marketing
network in a particular area, this strategy also makes us more dependent on the
efforts of third parties, involves a potential reduction in profit margins, and
may complicate negotiations and other matters associated with technology
licenses.

Diabetes Customers. Our customers for the diabetes products will fall into three
tiers, as is common with pharmaceutical products: the end-user patient, the
attending physicians, and the third-party payers. In the discussion below, we
have discussed who the patients are and what they want and need. However, most
of the effort of building acceptance for our diabetes products will be aimed at
the professional community and the third-party payers.

The end-user patients for our therapeutic diabetic products will be diabetics -
every type 1 diabetic and a significant number of insulin-dependent type 2
diabetics. Pancreatectomized patients (whose numbers we do not know) also need
islets. Almost no one dies of diabetes, but they do die from, or suffer from,
significant complications (resulting from improperly regulated blood glucose
levels), including blindness, kidney failure, amputations, and so on. So, to
begin with, patients very much want to avoid the complications of diabetes. Most
type 1 patients are aware of the results of the DCCT and UKPDS studies, which
demonstrated the positive impact of near-normal control of glucose on secondary
complications of diabetes such as those discussed above, so they will be
receptive to a therapy which improves regulation of, or eliminates, high and low
glycemic excursions.

Diabetics also want to avoid or reduce the need to take insulin shots daily.
They want to reduce or eliminate the life style restrictions imposed by their
disease. They do not want to take immunosuppressive drugs in connection with
islet replacement therapy.

Currently, islet allotransplants require immunosuppression. Immunosuppression
has side effects that would not justify islet allotransplant absent other
factors. Accordingly, in the short term (when allotransplants still require
immunosuppressive drug regimes), the patients who would be candidates for
transplant of Ixion islets will be (i) persons who can make use of our NASHA
Encapsulated Autologous Cultured Islet (where immunosuppression will likely not
be necessary), and (ii) diabetics who presently have severe secondary
complications where the side effects of immunosuppression are preferable to the
complication (such as renal failure) and who cannot get islet transplants
because of the severe shortage of donated pancreases. Approximately 20% of all
type 1 and type 2 insulin dependent diabetics (a total of 340,000 patients) have
sufficiently advanced secondary complication as to qualify them for
consideration of transplant notwithstanding the need for an immunosuppressive
drug regime. This latter group is the target population for the NASHA
Encapsulated Allogeneic Explanted Islet product.

In the long term, when an effective immunoprivileged encapsulation is available,
the sole inclusion criteria would be that the diabetic patient uses insulin.
Implantation of islets either subcutaneously or intraperitoneally will not
require a major operation, hence exclusion will be rare.

For comparison, consider the current exclusion criteria applicable to whole
pancreas transplantation: insufficient cardio-vascular reserve, coronary heart
disease, on-going substance abuse, on-going psychiatric illness, active
infection or malignancy, lack of diabetic complications, extreme obesity, and
inability to understand the nature of transplantation (Current Review of
Diabetes, Ricordi and Hering, 1999). These reflect concerns caused by (i) the
nature of the transplant operation (major and invasive), and (ii) a severe
shortage of whole organs for transplantation. These selection criteria (other
than the inability to understand the nature of transplantation) would not be
relevant to Ixion's diabetes products and minimally invasive implantations.

The attending  physicians  to whom these new diabetes  products will be marketed
will include

     o Endocrinologists and diabetologists (estimated at about 6,000 in the
        U.S.)
     o Internists and family practitioners
     o Transplant surgeons (particularly located in islet transplant centers)

Interestingly, only about 10% of all diabetics (though close to 40% of pediatric
diabetics) are cared for by specialists. Primary care doctors manage the
remainder of the diabetic population. The primary care physicians,
endocrinologists, and transplant surgeons who will be the primary target of
sales efforts can be divided into the following categories:

     o Thought leaders (further divided into supporters, skeptics, and
       diplomats)
     o Early adopters
     o The rest

The primary demand of the physician intermediaries will be that the FDA approve
the product. They will also require substantial professional information in the
form of preclinical and clinical data, reprinted from articles appearing in
recognized peer reviewed journals.

     To have a successful product in the U.S., we must take into account the
third-party reimbursement payers, including Medicare, Medicaid, Blue Cross, Blue
Shield, and other managed care organizations ("MCOs"). Third-party payers are
motivated primarily, but not exclusively, by economic factors. Since the
diabetes products will require substantial up-front payments and will challenge
accepted norms, we can expect payer resistance in the early stages of product
launch, which we will address with a payer task force.

Third-party payers attempt to keep health care costs down by challenging the
price or benefit of medical products and services. Products with long-term
benefits but initial short-term costs are often difficult to sell to managed
care plans or others with short-term payback requirements, because of the
substantial turnover in plan participants. However, we expect patient advocacy
groups and others will be sufficiently vigorous in this area that a payer
campaign will be successful in a short time frame.

Product positioning to achieve maximum coverage from MCOs will be required from
Ixion and its marketing partners. The payer task force required to address this
issue will be composed of a multidisciplinary team, including persons with
clinical, finance, marketing, third-party reimbursement, regulatory, and sales
responsibilities. They will research the core payment issues of outcomes dosing,
revenue projections and pricing, method of administration, product positioning,
labeled indications, and critical audiences.

The payer task force will investigate the need for clinical outcomes research,
will consider the possibility of pharmacoeconomic measures in the clinical
trials, and will determine whether to include HQL (health related quality of
life) measures in the clinical trials. They will also be called upon to identify
coverage, coding, and payment barriers and opportunities, and review key
decision maker information needs. This task force should begin work by January
2002.

Oxalate Product Customers. The customer markets for our various oxalate product
candidates are quite distinct.

     o Oxalate prescription drugs will be targeted toward prescribing
       physicians.
     o Kidney stone products for companion animals may be sold as premium pet
       foods by veterinarians or specialty pet food shops, or in grocery stores
       or other mass-market outlets.
     o Oxalate-related diagnostic products will be targeted at clinical
       laboratories.
     o Oxalate-resistant catheters and stents will be targeted at hospitals and
       nursing homes.
     o The Ox-Control(TM) nutritional supplement will be sold directly to end
       users through dispensing physicians, vitamin and health food stores, and
       by mail order or internet direct retail sales.

Physicians, urologists, and patients are eager for a new treatment modality for
kidney stones and oxalate-related conditions. We believe there will be demand
for the XEntrIX(TM) Oxalobacter formigenes Monitor in the research market and,
upon acceptance by urologists and nephrologists as a clinically useful test, by
certain specialized kidney, nephrogenic, and urologic reference labs.

For the use of the XEntrIX(TM) Oxalobacter formigenes Monitor and our IxC1
therapy in the management of kidney stones, we plan to target the country's
approximately 7,300 in-office urologists. For the use of the XEntrIX(TM)
Oxalobacter formigenes Monitor and IxC1 therapy for managing kidney stone risk
in cystic fibrosis patients, we plan to target the 100 cystic fibrosis treatment
centers in the United States. For the use of the XEntrIX (TM) Oxalobacter
formigenes Monitor and IxC1 therapy in the diagnosis and treatment of
vulvodynia, we intend to approach the market through the 35,000 gynecologists
practicing in the United States.

Marketing Strategy. The strategy for marketing our islet replacement therapy is
to seek endorsement from the American Diabetes Association, the Juvenile
Diabetes Foundation, and by certain specialist societies such as the American
Association of Clinical Endocrinologists and the American Society of Transplant
Surgeons, a process which can begin once studies demonstrating efficacy and
safety of our diabetes products have been published in peer reviewed journals.
Eventually, patient brochures will help primary care physicians explain the
advantages and drawbacks of the products. We do not believe that the physicians
will be price-sensitive, since they will not be the primary risk holders. (The
primary risk holders will be hospitals and patients who have co-pay requirements
in their health plans.) We also believe we can afford a small direct sales force
for the diabetes products.

The marketing strategy for the XEntrIX TM Oxalobacter formigenes Monitor depends
upon educating urologists and nephrologists of its clinical usefulness. The
XEntrIX TM Oxalobacter formigenes Monitor would be used to screen and manage
known stone formers in order to assist the urologist in stratifying and treating
kidney stone patients. The use of the XEntrIX TM Oxalobacter formigenes Monitor
will allow the urologist to make a determination of which of his or her
hyperoxaluric patients have an exogenous hyperoxaluria caused by hyperabsorption
from the diet, resulting from diminished or decimated populations of O.
formigenes. The clinical relevance of the resulting data is the urologist's
capability to identify a specific cause of urolithiasis and to treat it
effectively. XEntrIX TM Oxalobacter formigenes Monitor data will be more
meaningful than 24-hour urinary oxalate data alone in that it accurately
identifies and quantifies the high-risk population of kidney stone formers and
stratifies them with respect to cause.

Kidney stones, while prevalent, are not generally recognized as predictable or
avoidable by many physicians and their patients. Consequently, the promotional
task will be difficult. To meet this challenge, we intend to invest in both
physician education programs, and, assuming funds are available, consumer
awareness campaigns. We can reach the country's over 7,300 in-office urologists
through a direct mail campaign. In addition, working with specialized companies
in the urology market, we propose to inform urologists about our planned new
kidney stone disease management products. In addition, the Scientific Advisory
Board members and other recognized scientists will be encouraged to write
articles for peer review scientific journals to stimulate interest and establish
further credibility in the scientific and medical communities.

A similar approach will be used to approach the gynecological market for our
vulvodynia products and the cystic fibrosis market for the management of kidney
stone risk.

In each case, we intend to participate in urology, nephrology, gynecology, and
other industry trade meetings and to exploit on-line medical databases and our
own web site. Finally, as stated above, we intend to use third-party sales
forces.


Scientific Advisory Board

None of the members of the Scientific Advisory Board is an employee. Scientific
advisors spend only a small portion of their time on our affairs and have
commitments to other institutions that may conflict or compete with their
obligations to us. Scientific advisors collaborate with us on research grant
applications, review and evaluate our research programs, advise us about
technical matters, consult on product planning and feasibility studies, assist
in establishing research priorities, provide guidance on clinical evaluation
programs, alert us to potential collaborators, advise us on new developments,
and recommend personnel.

The Scientific Advisory Board meets periodically as a group. In addition, some
members may meet in smaller groups or individually with our scientists. Ixion
has confidentiality agreements with each scientific advisor providing that all
confidential information shall be our exclusive property. Scientific advisors
are not paid in cash, but are reimbursed expenses, and, pursuant to the 1994
Stock Compensation Plan, receive 5,000 restricted shares of Ixion's common stock
upon joining, and 1,000 restricted shares annually thereafter. They also receive
stock options for 2,500 shares annually after their initial year.

The current members of the Scientific Advisory Board are the following:

Milton J. Allison, Ph.D. Dr. Allison has long been a pioneer in oxalate
research, having discovered and named Oxalobacter formigenes. He is presently
Professor of Microbiology, Immunology, and Preventive Medicine, Iowa State
University and Microbiologist Emeritus of the National Animal Disease Center,
USDA, Ames, Iowa. He earned his Ph.D. from the University of Maryland.

Karl-E. Arfors, Ph.D. Dr. Arfors was a director from 1998 to 2000, when he
resigned as a director to join our Scientific Advisory Board. From 1993 to the
present he has been President of Experimental Medicine, Inc., a company he
founded. Prior to that he held various scientific and executive positions with
Pharmacia, AB. He received his B. Sc. (fil kand), his B.M. (med kand), and the
degree of Fil Lic (genetics) all from the University of Uppsala.

Marguerite Hatch, Ph.D. Dr. Hatch is currently a professor in the
Pediatrics/Nephrology Division of the Northwestern University College of
Medicine. Previously she was a professor in the Nephrology Division and Director
of the Kidney Stone Center at the University of California, Irvine College of
Medicine. Prior to that, she was Director of the New York Kidney Stone Center,
SUNY Health Science Center. She earned her B.Sc. with Honors from the University
College, Dublin, Ireland and her Ph.D. in 1978 from Trinity College, Dublin,
Ireland.

Ross P. Holmes, Ph.D. Dr. Holmes is an associate professor of surgical
sciences-urology at Wake Forest University School of Medicine. Dr. Holmes
graduated with a bachelor's of science degree and PhD in biochemistry from
Australian National University, Canberra. Before joining Wake Forest University,
he was a senior food scientist and research associate in the department of Food
Science at University of Illinois. Holmes has been published extensively on the
topics of oxalate and hyperoxaluria.

Saeedur R. Khan, Ph.D. Dr. Khan is Associate Professor of Pathology at the
University of Florida College of Medicine and a leader in the field of oxalate
research and molecular/microscopy. His current and previous committee
memberships include the NIH Ad hoc Reviewer on Urinary Stone Grants; member,
Center for the Study of Lithiasis and Pathological Calcification; and member of
the Shands Stone Center Committee. He earned his undergraduate degree from Agra
University in Agra, India, his masters of science degree from the Peshawar
University, Peshawar, Pakistan, and his Ph.D. from the University of Florida.

Desmond Schatz, M.D. Dr. Schatz is the Medical Director of the Diabetes Center
and Associate Professor of Pediatric Endocrinology at the University of Florida
Medical School. He is a Diplomate of the American Board of Pediatric
Endocrinology and a member of the American Diabetes Association, the
International Diabetes Federation, and the Immunology of Diabetes Society. He
received his undergraduate degree from St. David's College in Johannesburg,
South Africa, and his medical degree from the University of the Witwatersrand
Medical School in Johannesburg.

Sheldon M. Schuster, Ph.D. Dr. Schuster is Biotechnology Program Director for
the University of Florida's biotechnology program. He is a member of the
American Association for the Advancement of Science and the American Society of
Biological Chemistry and Molecular Biology. He was a co-founder of BioNebraska,
Inc., and is a co-founder and chairman of the scientific advisory board of
AquaGene, Inc. He received his B.S. in biochemistry from the University of
California, Davis and his Ph.D. in biochemistry and pharmacology from the
University of Arizona.

Hans Wigzell, M.D., D.Sc. Dr. Wigzell is presently the Rector of Stockholm's
famed Karolinska Institute. He received his medical degree and doctorate of
science from Karolinska. From 1982 onwards, he has been Chairman of the
Department of Immunology at Karolinska. Among his many honors was his service as
Chairman of the Nobel Committee of Karolinska from 1990 to 1992.


Special Note Regarding Forward-Looking Statements

This annual report on Form 10-KSB of Ixion Biotechnology, Inc. for the year
ended December 31, 2000 contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 194, as amended, which are intended to be
covered by the safe harbors created thereby. To the extent that such statements
are not recitations of historical fact, such statements constitute
forward-looking statements which, by definition, involve risks and
uncertainties. In particular, statements under Item 1, Industry Description and
Outlook, Business Strategy, Product Development, Manufacturing and Marketing;
Item 2, Description of Property, Item 5, Market for Common Equity and Related
Stockholder Matters, and Item 6, Management's Discussion and Analysis or Plan of
operations, contain forward-looking statements. Where, in any forward-looking
statement, Ixion expresses an expectation or belief as to future results or
events, such expectation or belief is expressed in good faith and believed to
have reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished.

Statements in this report regarding the dates on which we anticipate commencing
clinical trials or filing for regulatory approval, constitute forward-looking
statements under the federal securities laws. Such statements are subject to
risks and uncertainties that could cause the actual timing of such clinical
trials or filings to differ materially from those we project. With respect to
such dates, we have made assumptions regarding, among other things,

o the successful and timely completion of preclinical tests, o the approval of
investigational new drug applications for each of our drug candidates by the
FDA, o the availability of a simplified application way to seek market clearance
from the FDA for our molecular diagnostic test, o the availability of adequate
clinical supplies, o the absence of delays in patient enrollment, and o the
availability of the capital resources necessary to complete the preclinical
tests and conduct the clinical trials.

Our ability to commence clinical trials or file for regulatory approval on the
dates anticipated is subject to risks. You should not rely on the dates on which
we anticipate filing regulatory approval or commencing clinical trials.

Statements regarding our research and development plans also constitute
forward-looking statements. Actual research and development activities may vary
significantly from the current plans depending on numerous factors including

     o changes in the costs of such activities from current estimates,
     o the results of the programs,
     o the results of clinical studies referred to above,
     o the timing of regulatory submissions, technological advances,
     o determinations as to commercial potential, and
     o the status of competitive products.

All of the above estimates are based on the current expectations of our
management team, which may change in the future due to a large number of
potential events, including unanticipated future developments.

The following factors are factors that could cause actual results or events to
differ materially from those anticipated, and include, but are not limited to:
general economic, financial and business conditions; labor difficulties;
competition for customers in the biotechnology and pharmaceutical industries;
the costs of research and development of chemical compounds and products; and
changes in and compliance with governmental regulations.



Item 2.  Description of Property.

We lease approximately 8,500 square feet of equipped laboratory space and office
space at 13709 Progress Blvd., Alachua, Florida. The current term of our lease
expires in September 2002, with a one-year renewal option. The building housing
our offices and labs also has common space available for conference rooms and
break rooms, which are included in the rent. An additional 10,000 square foot
lab may be required by January 2002 for clinical trial manufacturing, along with
1,500 square feet of additional office space. Annual expenses for 2000,
including repayment of funds provided by the lessor for tenant improvements and
an emergency generator, were approximately $112,000.

We have developed a small-scale facility in our lab suite to produce preclinical
quantities of our XEntrIX(TM) Oxalobacter formigenes Monitor and bench
quantities of Ox-Control(TM). Commercial scale production will be subcontracted
to contract manufacturers.

We have a graduate membership agreement with the Biotechnology Development
Institute under which we have access to specialized facilities such as animal
rooms, small-scale fermentation capabilities, and glass washing and autoclaving
facilities. As a graduate member, we may also use the specialized equipment
located in the centralized instrument lab in the Biotechnology Development
Institute at no extra cost, and we may use the services of the University's Core
Laboratories including the Recombinant Protein Expression Core, the Flow
Cytometry Core, the Protein Chemistry Core, and the Electron Microscopy Core at
a special graduate membership rate. Our graduate membership also allows us use
of the University's T-1 connection to the Internet, which also supports e-mail
for many of our employees.


Item 3.  Legal Proceedings.

We are not a party to any legal proceedings and are not aware of any threatened
litigation or regulatory action that could have a material adverse effect on our
business, financial condition, or results of operations.


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

There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of the Company's fiscal year.

                                     Part II

Item 5.  Market for Common Equity and Related Stockholder Matters.

Unregistered Sales of Securities

Set forth below is information as to securities sold by Ixion within the past
three years that were not registered under the Securities Act of 1933 (the
"Act"). No underwriters were involved in any of the sales, so there were no
underwriting discounts or commissions. All outstanding securities are deemed to
be restricted securities for the purposes of the Act. All certificates
representing our issued and outstanding restricted securities have been properly
legended and we have issued "stop transfer" instructions to our transfer agent
with respect to such securities, which legends and stop transfer instructions
are presently in effect unless such securities have been registered under the
Act or have been transferred pursuant to an appropriate exemption from the
registration provisions of the Act.

Restricted shares of common stock have been issued to members of the board of
directors, members of the Scientific Advisory Board, and employees and
consultants under our Stock Compensation Plan as follows:

On July 1, 1998, 23,450 shares (1,000 shares to each of two directors, 5,000
shares to a newly-elected director, 1,000 shares to each of five members of the
Scientific Advisory Board, 5,000 shares to a newly-appointed member of the
Scientific Advisory Board, and 6,450 shares to employees and officers for
services, in aggregate, valued at $234,500 (a portion of which is unearned
compensation) or $10.00 per share;

On July 12, 1999, 22,400 shares (1,000 shares to each of three directors, 5,000
shares to each of two newly-elected directors, 1,000 shares to each of six
members of the Scientific Advisory Board, and 3,400 shares to employees and
officers for services, in aggregate, valued at $89,600 (a portion of which is
unearned compensation) or $4.00 per share;

In January, March, June and December of 2000, an aggregate of 1,493 shares to
our Associate Director of Research, Diabetes Division, for services, in the
aggregate, valued at $5,972 (a portion of which is unearned compensation) or
$4.00 per share;

In August, 2000 25,000 shares (1,000 shares to each of five directors, 5,000
shares to a newly-elected director, 1,000 shares to each of seven members of the
Scientific Advisory Board, and 8,000 shares to employees and officers for
services, in aggregate, valued at $100,000 (a portion of which is unearned
compensation) or $4.00 per share;

From September to December of 2000, 20,940 shares to employees and officers for
services, in aggregate, valued at $83,760 (a portion of which is unearned
compensation) or $4.00 per share;

On October 16, 2000, 5,000 shares to a newly-appointed member of the Scientific
Advisory Board valued at $20,000 (a portion of which is unearned compensation)
or $4.00 per share.

We issued the above securities without registration in reliance upon the
exemption provided by Section 4(2) of the Act as a transaction to a limited
number of sophisticated investors which did not involve a public offering,
general solicitation, or general advertisement and the exemption provided by
Rule 701 promulgated under the Act.

On April 16, 1999, we entered into an agreement in principle with Q-Med, AB
(publ), a biotechnology company with headquarters and operations in Uppsala,
Sweden. This agreement was amended on September 9, 1999. Pursuant to the
agreement in principle, we issued a promissory note in the amount of $300,000,
convertible into shares of common stock at a price of $2.00 per share. The
promissory note was converted into 150,000 shares of restricted common stock on
July 7, 1999. The agreement in principle granted Q-Med an option to purchase
37,500 shares of additional shares of common stock monthly as well as up to a
total of 3,900,000 shares by July 15, 2000. Pursuant to the option in the
agreement in principle we issued 412,500 additional shares of restricted common
stock for $825,000, or $2.00 per share, as follows:

             September 7, 1999              37,500 shares at $2.00 per share
             September 10, 1999             37,500 shares at $2.00 per share
             October 18, 1999               37,500 shares at $2.00 per share
             November 18, 1999              37,500 shares at $2.00 per share
             December 10, 1999              37,500 shares at $2.00 per share
             January 12, 2000               37,500 shares at $2.00 per share
             February 10, 2000              37,500 shares at $2.00 per share
             March 14, 2000                 37,500 shares at $2.00 per share
             April, 12, 2000                37,500 shares at $2.00 per share
             May 12, 2000                   37,500 shares at $2.00 per share
             June 19, 2000                  37,500 shares at $2.00 per share

We issued the above securities without registration in reliance upon the
exemption provided by Section 4(2) of the Act as a transaction to a single
sophisticated corporate investor that did not involve a public offering, general
solicitation, or general advertisement and in reliance on the exemption provided
by the provisions of Regulation S.

On July 14, 2000, we entered into a stock purchase agreement with Qvestor, LLC,
a Delaware limited liability company and a wholly-owned subsidiary of Q-Med AB
(publ). Pursuant to the stock purchase agreement, we issued restricted common
stock as follows:

3,337,500 shares to Qvestor, LLC, in exchange for cash of $6,675,000 and an
amount in non-cash consideration that the board determined to be equal in value
to the cash consideration. Cash of $3,321,697 was paid at closing, and the
balance of $3,353,303, is due on or before July 14, 2001. The non-cash
consideration included the right to a royalty-free license to Q-Med's
intellectual property in non-animal, stabilized hyaluronic acid (NASHA) on the
following terms: the license will be exclusive and worldwide for the use of
NASHA for the encapsulation of insulin-producing cells, without right of
sublicense; any improvements (to which we will also have rights) will belong
exclusively to Q-Med; and we will not have the right to manufacture NASHA. Other
non-cash consideration includes Q-Med's right of first refusal to offer to
redeem, at the maturity date on August 31, 2001, from all holders electing not
to convert, up to $787,270 in face amount of our unsecured subordinated
debentures. The offered redemption price would be par, in the case of 10% notes,
or at 1.5 times par for variable notes. Thereafter Q-Med would have the option,
for any redeemed notes acquired, to convert variable notes at a price of $2.10
per share, and 10% notes at a price of $4.20 per share.

257,192 shares of common stock to the chairman and chief executive officer, the
president and chief financial officer, and an employee, in satisfaction of
$1,028,768 in deferred fees and salaries, or $4.00 per share.

We issued the above securities without registration in reliance upon the
exemption provided by Section 4(2) of the Act as a transaction to a limited
number of sophisticated investors that did not involve a public offering,
general solicitation, or general advertisement.

At various dates between November 6, 1995, to August 31, 2000, we issued
warrants to purchase an aggregate of 20,672 shares of restricted common stock,
at an exercise price of $2.00 per share, expiring August 31, 2000, to an
accredited investor and to the University of Florida Research Foundation.
Pursuant to the exercise of those warrants, we issued restricted common stock as
follows:

20,672 shares (18,672 shares to The University of Florida Research Foundation
and 2,000 shares to the individual accredited investor for total consideration
of $41,440 or $2.00 per share.

We issued the above securities without registration in reliance upon the
exemption provided by Section 4(2) of the Act as a transaction to a limited
number of sophisticated investors that did not involve a public offering,
general solicitation, or general advertisement.

Registered sales of securities:

In December, 1997, we commenced the public offering of 400,000 units, for an
aggregate of $4,000,000. Each unit consisted of one share of common stock and
0.25 charitable benefit warrant. Each whole charitable benefit warrant entitled
someone to purchase one share of common stock at a price of $20.00 per share. On
December 10, 1998, we extended the offering through December 10, 1999, and
thereafter through March 31,2000.

In early 1999, we temporarily suspended the offering, converted the securities
offered from units to shares, retroactively reduced the offering price from
$10.00 per unit to $4.00 per share, and withdrew 250,000 shares and all unsold
charitable benefit warrants from registration. We also adjusted the exercise
price for outstanding charitable benefit warrants from $20 per share to $8 per
share and increased the number of shares purchasable upon exercise of those
warrants from 8,605 shares to 21,513 shares. As a result, a total of 51,630
shares were issued to purchasers in the public offering for no additional
consideration. There is no minimum number of shares to be sold in the Offering,
and all funds received have gone immediately to the Company.

The offering terminated on March 31, 2000. We sold the securities directly
(except when sales were to Florida residents, in which case sales were made
through Unified Management Corporation, a Florida-registered broker dealer).

We received proceeds of $516,000 in connection with the public offering.
Offering costs of $124,680 have been offset against the proceeds of the offering
through December 31, 2000. As of March 23, 2000, we had sold a total of 129,000
shares and 21, 513 charitable benefits warrants at an aggregate price of
$516,000. No payments were made to our directors or officers, or to their
associates in connection with the offering.

The net proceeds from the offering were used entirely to fund our operations
during 1998, 1999, and 2000.

Other:

There is no public trading market for our securities.

As of March 23, 2000, there were approximately 180 shareholders of record of our
common stock.

We have never declared or paid any cash dividends on our common stock and do not
intend to pay any cash dividends on our common stock for the foreseeable future.


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

The following discussion and analysis should be read in conjunction with the
financial statements and the related notes thereto included elsewhere in this
report. This report contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Special Note
Regarding Forward-Looking Statements."



Overview

Economic and Industry Outlook

U.S. economic activity seemed to decline toward the end of 2000, with the first
decline in real business equipment investment in several years. While GDP
continued to increase throughout 2000, fourth-quarter growth was the lowest
since 1995. Early indications are that the downward trend will continue at lease
into 2001. Projections, though, are for a steady increase in total U.S.
employment through 2008, with health services listed as one of the five
fastest-growing industries. Research and testing services are projected to grow
by 40% through 2008.

In a highly volatile investment climate, biotechnology companies still managed
to raise about $40 billion in 2000, in investments; more than the previous three
years combined. Annual product approvals have been steadily increasing, with the
largest increase experienced in the last two years. There is a substantial
pipeline of products in clinical trials which may also benefit the industry.

Funds available to biotechnology companies through the National Institutes of
Health have increased $4 billion in the last two years. However,
biopharmaceuticals have received only about 3% of total venture capital
investment. Continued uncertainty in the public markets will most likely have a
negative impact total biotechnology investment from all sources.

The Company

Since our founding in 1993 and until last year, we were principally involved in
research and development, securing patent protection, and raising capital. In
July 2000, with the Q-Med transaction, described below, we have been able to
change our emphasis to product development, with less attention paid to capital
raising. Through 1999 we operated as a development stage company, but in 2000 we
commenced our principal operations, being the development and commercialization
of biopharmaceuticals and medical devices. We have not received any material
revenues, however, from the sale of products. We do not expect any of our drug
or device product candidates (which require regulatory approval) to be
commercially available for at least several years.

   We expect to continue to incur substantial research and development
   costs resulting from

     o ongoing development programs,
     o expansion of current and new research and development programs, and
     o manufacturing of products for use in clinical trials and preclinical
       and clinical testing of our products.

   We also expect that operating, general and administrative costs, including

     o costs of additional administrative personnel,
     o legal and regulatory costs necessary to support preclinical development
       and clinical trials, and
     o costs associated with the creation of a marketing and sales organization,
       if warranted,

will increase in the future, assuming we can finance the increased requirements.
Accordingly, we expect to incur operating losses for the foreseeable future.

Our operating expenses will depend on several factors, including the pace of
research and development. Research and development expenses will depend on the
progress and results of our product development efforts, which we cannot
predict. We may sometimes be able to control the timing of development expenses
in part by accelerating or decelerating preclinical testing and clinical trial
activities. As a result of these factors, we believe that period-to-period
comparisons in the future may not necessarily be meaningful.


Results of Operations

Years Ended December 31, 2000 and 1999
<TABLE>
<S>                  <C>                    <C>                      <C>

                                                                       Percent
                       2000                    1999                    Change
                    ____________            ____________              _________
Revenues:           $  403,782              $   99,486                305.87%
Expenses:            1,851,129               1,225,276                 51.08%
                    ____________            ____________              _________
NET LOSS            $(1,477,347)            $(1,125,790)               28.57%

</TABLE>


Total revenues increased by 306% from $99,486 for the year ended December 31,
1999 to $403,782 for the year ended December 31, 2000 mainly as a result of the
following:

     o Two active NIH research contracts:
     o "Enteric Elimination of Oxalic Acid",
     o "Islets from Islet Progenitor/Stem Cells for Implantation", and
     o  Three new NIH research grants, all beginning on September 1, 2000:
     o "M3 Receptor: Diagnostic Marker for Sjogren's Syndrome",
     o "Oxalobacter Formigenes Diagnostic Kit Development",
     o "Coating of Urinary Protheses to Prevent Encrustation".

  We expect revenue to continue to increase in 2001 because of:

     o the renewal of the "Islets from Islet Progenitor/Stem Cells for
       Implantation"  NIH grant for an additional $100,000 which began on
       September 1, 2000,
     o NIH grant, entitled "M3 Receptor: Diagnostic Marker for Sjogren's
       Syndrome," with payments which began on September 1, 2000,  for $100,000,
     o NIH grant entitled "Oxalobacter Formigenes Diagnostic Kit Development"
       with payments which began on September 1, 2000, for $99,958,
     o NIH grant entitled "Coating of Urinary Protheses to Prevent Encrustation"
       with payments which began on September 1, 2000, for $99,958,


Comparison of G&A Expenses - 2000 vs. 1999
<TABLE>
<S>                        <C>                 <C>                <C>

                                                                    Percent
                                2000                 1999            Change
                           ----------------    -----------------  --------------

Personnel-Related                  286,422              212,888        34.5414%
Professional                        69,263               44,606        55.2779%
Rent &Utilities                     21,654               14,150        53.0343%
Advertising                         20,297                4,896       314.5543%
Consultants                         37,309               61,253       -39.0900%
Other G&A                          163,385              109,608        49.0631%

</TABLE>


Operating, general, and administrative expenses increased 34% from $447,400 for
the year ended December 31, 1999 to $598,330 for the year ended December 31,
2000. These increased expenses reflect:

     o increased personnel and related payroll taxes,
     o increased rental space and associated utilities usage,
     o increased professional fees,
     o increase in other miscellaneous G&A expenses, and
     o support of increased research activities,

offset somewhat by a reduction in consulting and travel-related expenses.

Although, our policy is to keep administrative costs as low as possible, we
expect our operating, general and administrative expenses to continue to
increase in 2001 as a result of increased research activities resulting in a
need for increased administrative personnel.


Comparison of R&D Expenses - 2000 vs. 1999
<TABLE>
<S>                       <C>                                 <C>

                                 2000                                1999
                          ------------------                  ------------------
Personnel-related                399,803                             237,150
Consultants                      356,771                             112,834
Supplies and animal costs        172,333                              64,852
Rent & Utilities                 100,413                              77,287
Deprec & Amort                    63,946                              29,951
Other misc R&D                   116,431.19                          103,254.81

</TABLE>



  Research and development expenditures consist primarily of:

     o payroll-related expenses of  research and development personnel,
     o laboratory and animal maintenance and supplies,
     o laboratory rent and associated utilities,
     o depreciation on laboratory equipment,
     o development activities,
     o payments for sponsored research,
     o scientific advisors,
     o regulatory consultants fees,
     o interest on research and development equipment,
     o amortization of capitalized patent costs.

Research and development expenses increased 93% from $625,329 for the year ended
December 31, 1999 to $1,209,698 for the year ended December 31, 2000. These
increased expenses reflect:

     o increased laboratory personnel,
     o increased consultant's fees, including new project and quality
       management,
     o increased laboratory space and associated utilities,
     o interest charges on the purchase of lab equipment and on deferred fees
       and salaries, and
     o increased laboratory-related supplies and miscellaneous research and
       development expenses.

Our research and development expenses will continue to increase in 2001 due to
an increase in the scale of operations as a result of the Q-Med transaction,
described below, and the receipt of the research grants referred to above.


Comparison of Interest Income and Expense 2000 vs. 1999
<TABLE>
<S>                            <C>                 <C>


                                    2000                 1999
                               ----------------    -----------------
Interest Income                         83,919                2,121
Interest Expense                       127,096              155,697

</TABLE>


Interest expense decreased 18% from $155,697 for the year ended December 31,
1999 to $127,096 for the year ended December 31, 2000 due primarily to the
re-payment of bridge loans to officers in July and the conversion of deferred
administrative fees and salaries, including deferred interest, payable to
related parties, into restricted common shares, also in July, 2000.

Interest Income increased 3,857% from $2,121 for the year ended December 31,
1999 to $83,919 for the year ended December 31, 2000 due to the investment of
the cash in excess of operating needs provided by the Q-Med transaction
described below.


Liquidity and Capital Resources

A total of 129,000 shares were sold and $516,000 raised in the public offering,
which commenced in December, 1997 and terminated on March 31, 2000. These shares
are included in the outstanding shares at December 31, 2000.

   A summarization of the grants received from the National Institutes of Health
for the year 2000 follows

     o On June 5, 1999, we were awarded a $100,000 Phase I grant under the Small
       Business Technology Transfer Program for research in our oxalate
       technology entitled "Enteric Elimination of Oxalic Acid".  We began
       drawing on these funds in July, 1999.  We subcontracted a large portion
       of the grant to the University of California, Irvine but drew down
       approximately $14,000 of the remaining funds in 2000.   The grant period
       ended in June 2000.

     o In September 1999 we also received an award of  $200,000 (covering a
       23-month period) from the NIH to support our diabetes research entitled
       "Islets from Islet Progenitor/Stem Cells for Implantation".  We
       subcontracted $25,000 under this grant, but have utilized approximately
       $130,000 through December 31, 2000, leaving $70,000 available to support
       diabetes research through August 31, 2001, when the grant period expires.

     o In February 2000 we were awarded another $100,000 NIH Phase I grant under
       the SBIR program for research in our oxalate technology entitled
       "Digestion of Food Oxalate".  We began drawing on these funds in
       February, 2000.  We subcontracted approximately $30,000 to Wake Forest
       University, and have received all of the funds available under this grant
       in the year 2000.

     o In September 2000 we were awarded another NIH SBIR award for research
       entitled "M3 Receptor: Diagnostic Marker for Sjogren's Syndrome".  We
       subcontracted about $45,000 to the University of Florida and additionally
       drew on approximately $30,000 of the funds available in 2000, leaving
       $25,000 to support research through February, 2001.

     o Also in September, 2000, we received notice that we had been awarded
       another NIH SBIR grant, for $99,958 and entitled "Coating of Urinary
       Protheses to Prevent Encrustation".  We subcontracted $25,000 to the
       University of Florida, and received another $23,000, leaving
       approximately $50,000 to support research through August of 2001.

     o Also in September, 2000, we received notice that we had been awarded
       another NIH SBIR grant, for $99,958 and entitled "Oxalobactor Formigenes
       Diagnostic Kit Development".  We received approximately $17,000 in grant
       revenues for 2000, leaving approximately $78,000 to support research
       through August of 2001.

     o We have other grant applications pending.

Operations during 2000 were funded primarily from $3,771,697 in the form of
equity investments by Q-Med in connection with the Q-Med transaction described
below, as well as funds from NIH grants. Bridge loans and accrued interest on
bridge loans totaling approximately $443,000 were paid in July, 2000 as part of
the Q-Med transaction. We do not have any bank financing arrangements, other
than business credit cards.

In connection with the Q-Med transaction, a total of $1,028,768 in deferred fees
and salaries payable to related individuals were satisfied through the issuance
of 257,192 shares of restricted common stock reducing our long-term
indebtedness. Q-Med has an option to offer to purchase from any holder electing
not to convert, our unsecured convertible notes, which mature on August 31,
2001. Should no holders convert, and should Q-Med not offer to acquire and
convert unsecured notes, we could be required to redeem up to $787,270 of our
unsecured notes.

At December 31, 2000, we had $2,160,278 in cash and cash equivalents. Until
required for operations, our policy is to invest any excess cash reserves in
bank deposits, money market funds, certificates of deposit, commercial paper,
corporate notes, U.S. government instruments and other investment-grade quality
instruments.

In connection with a sponsored research agreement with Genetics Institute, Inc.
that was concluded during 1997, some patent-related expenses were reimbursed by
Genetics Institute. We may be contractually obligated to repay these reimbursed
expenses in installments over a 36 month period upon a notice to or by Genetics
Institute to the effect that their option to negotiate for a license to our
technology, contained in the sponsored research agreement has expired. We have
not given nor received such notice, and, accordingly, reimbursement has not
commenced. We have accrued $42,317 as a long-term liability pending final notice
under the agreement.

Annual expenses during 2000 for our current three-year lease (with two one-year
renewal options), were approximately $112,000, compared to $95,800 for 1999.
Additionally, repayment of funds provided by lessor for tenant improvements and
an emergency generator, were approximately $10,200 in each year. We expect that
annual lease expenses will increase to around $128,000 for 2001 as a result of
additions to our rented facilities. We will continue to have a need to purchase
additional laboratory equipment. We estimate that we will need to purchase at
least $500,000 of capital laboratory equipment and improvements in 2001.

We incurred negative cash flows from operations in 1999 of approximately
$550,000 and approximately 1,125,000 in 2000. We have spent and expect to
continue to spend, substantial funds to complete our planned product development
efforts, commence clinical trials, and diversify our technology. Our future
capital requirements and the adequacy of available funds will depend on numerous
factors, including

     o receipt of the balance of the payment from the Q-Med transaction
       described below,
     o the successful commercialization of Ox-Control(TM) (our nutritional
       supplement) the XEntrIx(TM) Oxalobacter formigenes Monitor (our
       diagnostic test), and IxC1-62/47 (our lead therapeutic compound),
     o the successful commercialization of our islet replacement therapy
       products,
     o progress in our product development efforts,
     o the magnitude and scope of development efforts,
     o progress with preclinical studies and clinical trials,
     o the cost of contract manufacturing and research organizations,
     o cost of filing, prosecuting, defending, and enforcing patent claims and
       other intellectual property rights,
     o competing technological and market developments, and
     o the development of strategic alliances for the development and marketing
       of our products

The Q-Med Transaction

On April 16, 1999, we entered into an agreement in principle with Q-Med AB
(publ), a biotechnology company based in Uppsala, Sweden. This agreement was
amended on September 9, 1999. Pursuant to the agreement in principle, from April
1999 through June 19, 2000, we received $1,325,000 in cash in exchange for
562,500 shares of restricted common stock, at a cash price of $2.00 per share.
On July 14, 2000, we entered into a stock purchase agreement with Qvestor, LLC,
a Delaware limited liability company, and a wholly-owned subsidiary of Q-Med.
Pursuant to the stock purchase agreement,

     o We issued 3,337,500 shares to Qvestor in exchange for cash of $6,675,000
       and non-cash consideration valued by the board at an equal amount.  Cash
       of $3,321,697 was paid at closing, and the balance of $3,353,303, is due
       on or before July 14, 2001.
     o The non-cash consideration included the right to a royalty-free license
       to Q-Med's intellectual property in non-animal, stabilized hyaluronic
       acid (NASHA) on the following terms:
          o the license will be exclusive and worldwide for the use of NASHA for
            the encapsulation of insulin-producing cells, without right of
            sublicense;
          o any improvements (to which we will also have rights) will belong
            exclusively to Q-Med; and
          o we will not have the right to manufacture NASHA.
     o Other non-cash consideration includes Q-Med's right of first refusal to
       offer to redeem, at the maturity date on August 31, 2001, from all
       holders electing not to convert, up to $787,270 in face amount of our
       unsecured subordinated debentures.  The offered redemption price would be
       par, in the case of 10% notes, or at 1.5 times par for variable notes.
       Thereafter Q-Med would have the option, for any redeemed notes acquired,
       to convert variable notes at a price of $2.10 per share, and 10% notes at
       a price of $4.20 per share.

Q-Med, a growing, profitable Swedish company, develops, manufactures, and sells
natural, specialized medical implants. Q-Med's shares are listed on the
Stockholm stock exchange, and it is not related to or affiliated in any way with
Q-Med, Inc., a Delaware corporation whose shares are listed on the Nasdaq small
cap market. All of Q-Med's products are constructed using a proprietary form of
non-animal, stabilized hyaluronic acid. Hyaluronic acid is a natural
polysaccharide, first isolated in 1934. Its main function in the body is to
lubricate moveable parts like joints and muscles and to transport substances to
and within cells. The majority of Q-Med's revenues are accounted for by
Restylane(R) for the filling out of lips, facial wrinkles, and facial folds.

By virtue of its stock ownership and that of its subsidiary, Qvestor LLC, Q-Med
may be deemed to be the parent of the Company.

We will continue to be required to obtain additional funds through equity or
debt financing, strategic alliances with corporate partners and others, mergers
or the sale of substantially all our assets, or through other sources in order
to bring our drug and device products through regulatory approval to
commercialization. We do not have any material committed sources of additional
financing. We cannot assure you that additional funding, consolidation, or
alliance, if necessary, will be available on acceptable terms, if at all. If
adequate funds are not available, we may be required to delay, scale-back, or
eliminate certain aspects of our operations or attempt to obtain funds through
arrangements with collaborative partners or others that may require us to
relinquish rights to certain of our technologies, product candidates, products,
or potential markets. If adequate funds are not available, our business,
financial condition, and results of operations will be materially and adversely
affected.

Item 7.  Financial Statements.

The financial statements of the Company are set forth beginning on page F-1,
immediately following the signature page of this report.

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

         None.

                                    Part III

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

Item 10.  Executive Compensation.

Item 11.  Security Ownership of Certain Beneficial Owners and Management.

Item 12.  Certain Relationships and Related Transactions.

The information required under Part III, Items 9, 10, 11, and 12, has been
omitted from this report since the Company intends to file with the Securities
and Exchange Commission (the "Commission"), not later than 120 days after the
close of its fiscal year, a definitive proxy statement prepared pursuant to
Regulation 14A, which information is hereby incorporated by reference.

<PAGE>
Item 13.  Exhibits and Reports on Form 8-K.

Exhibits marked by asterisk(s) are included with this Report; other exhibits
have been incorporated by reference to other documents filed by us with the SEC.


Exhibit
Number                        Description

1.1      Agreement with Unified Management Corporation, dated March 18, 1998 (5)
2.1      Stock  Purchase  Agreement with Qvestor,  LLC, dated July 14, 2000.
         (12)
3.1      Certificate of Incorporation of Registrant (1)
3.2      Certificate of Amendment to Certificate of Incorporation of Registrant
         (1)
3.3      Certificate of Amendment to Certificate of Incorporation of Registrant
         (1)
3.4      Bylaws of Registrant, as amended and restated (5)
3.5      Certificate of Amendment of Certificate  of  Incorporation,  dated
         June 11, 1999 (8)
3.6      Certificate of Incorporation, as amended and restated (8)
4.1      Form of Registrant's Common Stock Certificate (2)
4.2      Form of Registrant's Charitable Benefit Warrant Certificate (5)
4.3      Charitable Benefit Warrant Agreement, dated as of December 10, 1997(5)
4.4      Warrant Agreement with Jeffrey W. Seel, dated November 7, 1995 (1)
4.5      Warrant Agreement with the University of Florida Research Foundation,
         Inc., dated November 7, 1995 (1)
4.6      Warrant Agreement with the University of Florida Research Foundation,
         Inc., dated August 1, 1996 (1)
4.7      Warrant Agreement with the University of Florida Research Foundation,
         Inc., dated October 1, 1996 (1)
4.8      Warrant Agreement with the University of Florida Research Foundation,
         Inc., dated November 7, 1996 (1)
4.9      Warrant Agreement with Brandywine Consultants, Inc., dated June 23,
         1997 (2)
4.10     Warrant Agreement with Brandywine Consultants, Inc., dated October 24,
         1997 (2)
4.11     Amendment to Charitable  Benefit Warrant Agreement dated September 30,
         1999 (9)
10.1     Chattel Mortgage Agreement with Carl Therapeutic, Inc., dated as of
         January 1, 1996 (1)
10.2     Consulting Agreement with Brandywine Consultants,  Inc., dated
         December 12, 1996 (1)
10.3     Consulting Agreement with Ammon B. Peck, dated February 21, 1997 (1)
10.4     Consulting Agreement with David C. Peck, dated July 1, 1996 (1)
10.5     Convertible Promissory Note with Weaver H. Gaines, dated March 31, 1993
         (1)
10.6     Convertible Promissory Note with David C. Peck, dated October 15, 1993
         (1)
10.7     Demand Promissory Note, Bridge Loan with Weaver H. Gaines,  dated
         April 15, 1996 (1)
10.8     Demand  Promissory  Note,  Bridge Loan with David C. Peck,  dated
         April 15, 1996 (1)
10.9     Deferred  Compensation Plan Agreement with Weaver H. Gaines,  dated
         January 1, 1994 (1)
10.10    Deferred  Compensation  Plan  Agreement with Ammon B. Peck,  dated June
         1,  1994 (1)
10.11    Deferred  Compensation  Plan Agreement with David C. Peck,  dated April
         1, 1994(1)
10.12    Agreement to Purchase Shares, dated as of October 10, 1994 (1)
10.13    Note Purchase Agreement, dated as of September 13, 1996 (1)
10.14    Incubator  License  Agreement  with the  University  of Florida
         Research Foundation, Inc., dated June 26, 1995 (1)
10.15    Amendment No. 1, dated July 31, 1996 to Incubator  License  Agreement
         with the University of Florida Research Foundation, Inc. (1)
10.16    Amendment No. 2, dated October 1, 1996 to Incubator License Agreement
         with the University of Florida Research Foundation, Inc. (1)
10.17    Amendment No. 3, dated  November 7, 1996 to Incubator  License
         Agreement with the University of Florida Research Foundation, Inc. (1)
10.18    Amendment  No. 4, dated January 21, 1997 to Incubator  License
         Agreement  with the University of Florida Research Foundation, Inc. (1)
10.19    Patent License  Agreement with Randy S. Fischer and Roy A. Jensen for
         U.S. Patent No.  5,187,071,  "Method for the Selective  Control of
         Weeds,  Pests, and Microbes," dated February 11, 1997 (1)
10.20    Patent License  Agreement  with Research  Component with the University
         of Florida Research  Foundation,  Inc.  relating to Oxalobacter
         formigenes, dated January 11, 1995 (4) (a)
10.21    Amendment No. 1 to Patent License  Agreement with Research  Component
         with the  University of Florida  Research  Foundation,  Inc.  relating
         to Oxalobacter formigenes, dated December 20, 1995 (4)
10.22    Amendment No. 2 to Patent License  Agreement with Research  Component
         with the  University of Florida  Research  Foundation,  Inc.  relating
         to Oxalobacter formigenes, dated October 9, 1996 (4) (a)
10.23    Patent License  Agreement  with Research  Component with the University
         of Florida  Research  Foundation,  Inc.  relating to Pancreatic  Stem
         Cells, dated February 17, 1995 (4) (a)
10.24    Amendment No. 1 to Patent License  Agreement with Research  Component
         with the University of Florida Research Foundation,  Inc. relating to
         Pancreatic Stem Cells, dated October 9, 1996 (4) (a)
10.25    Patent License Agreement with Milton J. Allison,  dated June 23, 1997.
         (4) (a)
10.26    Sponsored Research Agreement with Genetics Institute,  Inc., dated June
         5, 1996 (4) (a)
10.27    Employment Agreement with Weaver H. Gaines, dated August 31, 1994 (1)
10.28    Employment Agreement with David C. Peck, dated August 31, 1994 (1)
10.29    1994 Stock Option Plan, as amended (1)
10.30    1994 Board Retainer Plan, as amended (7)
10.31    Consulting Agreement with Ammon Peck, dated October 6, 1994 (1)
10.32    Amendment No. 5 to Incubator License Agreement, dated July 19, 1997 (1)
10.33    Office Lease agreement with Echelon International  Corporation dated as
         of September 18, 1998 (6)
10.34    Amendment No. 3 to Patent License  Agreement with Research  Component
         with the  University of Florida  Research  Foundation,  Inc.  relating
         to Oxalobacter formigenes, dated December 17, 1998 (6) (a)
10.35    BDI  Graduate  Membership  Agreement  with the  Biotechnology
         Development Institute dated November 5, 1998. (6)
10.36    Consulting Agreement with Amersham Pharmacia Biotech,  Inc., dated
         January 3, 1999 (6)
10.37    Interinstitutional  Agreement  with The  University  of Florida
         Research Foundation, dated February 4, 1999 (7) (a)
10.38    Finders' Agreement with East Coast Angels, LLC, dated March 15, 1999.
         (7)
10.39    Agreement in Principle dated April 16, 1999, with Q-Med AB (8)
10.40    1994 Board Retainer Plan, as amended. (8)
10.41    Consulting Agreement with Thomas P. Stagnaro, dated September 21,
         1998 (9)
10.42    Amended and Restated  Agreement in Principle  dated September 7, 1999
         with Q-Med, AB (9)
10.43    Service Contract and Confidentiality  Agreement with BioQuest
         Corporation, dated November 30, 1999. (10)
10.44    1994 Stock Option Plan, as amended. (10)
10.45    Consulting Agreement with Ammon B. Peck, dated March 6, 2000. (11)
10.46    Research  Agreement with the University of Florida dated September 9,
         2000 (filed as exhibit 10.1 to Form 10-QSB for the quarter ended
         September 30, 2000, dated November 15, 2000). (13)
10.47    Consulting  Agreement with Ross P. Holmes, dated September 27, 2000
         (filed as exhibit 10.3 to Form 10-QSB for the quarter ended  September
         30, 2000,  dated November 15, 2000). (13)
*10.48   First Amendment of Lease Agreement with Innovations Partners, Ltd.,
         dated August 15, 2000.
*10.49   Stock Compensation Plan as amended March 30, 2001.
*11.1    Statement regarding  computation of earnings per share (included as
         Note 1 in financial statements)
*23.1    Consent of Independent Accountants.
24       Power of  Attorney  (included  with the  signature  page to the
         registration statement (6)
99.1     Employment Agreement, dated July 14, 2000, with Weaver H. Gaines. (12)
99.2     Shareholders Agreement,  dated July 14, 2000, among the Company, Q-Med,
         AB, Qvestor, LLC, Ammon B. Peck, and Weaver H. Gaines. (12)
99.3     Director's Agreement with David C. Peck, dated July 14, 2000. (12)
99.4     Voting Trust  Agreement  between the  Company,  certain  shareholders,
         and Qvestor, LLC, dated July 14, 2000. (12)
99.5     Side letter, dated July 14, 2000, from Q-Med, AB. (12)
99.6     Agreement and Release with Ammon B. Peck, dated July 14, 2000. (12)
99.7     Agreement and Release with David C. Peck, dated July 14, 2000. (12)
99.8     Agreement and Release with Weaver H. Gaines, dated July 14, 2000. (12)
99.9     Agreement and Release with Theodore L. Snow, dated July 14, 2000. (12)
99.10    Press release dated July 17, 2000, regarding Q-Med, AB, Qvestor,  LLC,
         and the Company. (12)

(a)  Confidential  information  has been omitted  from these  document and filed
     separately with the Commission pursuant to a request for Confidential
     Treatment.

* Filed herewith.

(1)  Incorporated by reference to Form SB-2, File No.  333-334765,  dated August
     29, 1997.
(2)  Incorporated by reference to Amendment 1 to Form SB-2, File No. 333-334765,
     dated November 7, 1997.
(3)  Incorporated by reference to Amendment 2 to Form SB-2, File No. 333-334765,
     dated December 2, 1997.
(4)  Incorporated by reference to Amendment 3 to Form SB-2, File No. 333-334765,
     dated December 9, 1997.
(5)  Incorporated  by reference to Post Effective  Amendment No. 1 to Form SB-2,
     File No. 333-34765, dated January 23, 1998.
(6)  Incorporated  by reference to Post Effective  Amendment No. 2 to Form SB-2,
     File No. 333-33475, dated February 17, 1999.
(7)  Incorporated  by reference  to Form 10-KSB for the year ended  December 31,
     1998, dated March 31, 1999.
(8)  Incorporated  by  reference  to Form 10-QSB for the quarter  ended June 30,
     1999, dated August 15, 1999.
(9)  Incorporated by reference to Form 10-QSB for the quarter ended September
     30, 1999, dated November 15, 1999.
(10) Incorporated  by reference to Form 10-KSB for the year ended  December 31,
     1999, dated March 31, 2000.
(11) Incorporated  by reference to Form 10-QSB for the quarter  ended March 31,
     1999, dated May 15, 2000.
(12) Incorporated by reference to Form 8-K, dated July 14, 2000.
(13) Incorporated  by reference to Form 10-QSB for the quarter ended  September
     30, 2000, dated November 15, 2000.


Item 13(b)   Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter ended December 31, 2000.
<PAGE>
                                   Signatures

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

                          Ixion Biotechnology, Inc.


                          By: /S/ Weaver H. Gaines
                          ________________________________
                          Weaver H. Gaines, Chairman and
                          Chief Executive Officer

In accordance with the requirements of the Exchange Act, this report has been
signed by the following persons on behalf of the Company and in the capacities
indicated on March 17, 2000.

SIGNATURE                                          TITLE

/S/ Weaver H. Gaines
___________________________      Chairman of the Board, Chief Executive Officer,
 Weaver H. Gaines                and Director

/S/ Kimberly A. Ramsey
___________________________      Vice President and Controller
Kimberly A. Ramsey

/S/ Bengt Agerup
___________________________       Director
Bengt Agerup

/S/David M. Margulies
___________________________       Director
David M. Margulies


/S/ Vincent P. Mihalik
___________________________       Director
Vincent P. Mihalik


/S/ David C. Peck
___________________________       Director
David C. Peck

/S/ Thomas P. Stagnaro
___________________________       Director
Thomas P. Stagnaro



/S/Per-Olof Wallstrom
___________________________       Director
Per-Olof Wallstrom
<PAGE>
Ixion Biotechnology, Inc.
Contents
--------------------------------------------------------------------------------




                                                                          Page

Report of Independent Certified Public Accountants                        F-1

Financial Statements:

    Balance Sheet                                                         F-2

    Statements of Operations                                              F-3

    Statements of Stockholders' Equity (Deficit)                          F-4

    Statements of Cash Flows                                              F-5

    Notes to Financial Statements                                         F-7






<PAGE>
Ixion Biotechnology, Inc.
Balance Sheet
December 31, 2000
--------------------------------------------------------------------------------



               Report of Independent Certified Public Accountants

The Board of Directors
Ixion Biotechnology, Inc.

In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Ixion Biotechnology, Inc. at
December 31, 2000 and the results of its operations and its cash flows for the
years ended December 31, 2000 and 1999, in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.


January 19, 2001




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



                                       F-1
<PAGE>
Ixion Biotechnology, Inc.
Balance Sheet December 31, 200

<TABLE>
<S>                                                        <C>

                                     Assets

Current Assets:
  Cash and cash equivalents                                $ 2,160,278
  Accounts receivable                                            1,280
  Prepaid expenses                                              48,573
  Other current assets                                             500
                                                           ___________
      Total current assets                                   2,210,631
                                                           ___________
Property and Equipment, net                                    308,163
                                                           ___________
Other Assets:
  Patents pending, less accumulated
   amortization of $19,275                                      414,648
  Other, less accumulated amortization
   of $10,055                                                     1,461
                                                           ____________
      Total other assets                                        416,109
                                                           ____________
      Total assets                                         $  2,934,903

                      Liabilities and Stockholders' Equity

Current Liabilities:
  Accounts payable                                         $    100,923
  Notes payable                                                 749,163
  Accrued expenses                                              111,868
  Deferred revenue                                                1,281
  Interest payable                                                1,797
                                                           ____________
      Total current liabilities                                 965,032

Long-Term Liabilities:
  Liability under research agreement                             42,317
  Deferred rent, including accrued interest                      25,907
                                                           ____________
      Total long-term liabilities                                68,224
                                                           ____________
      Total Liabilities                                       1,033,256

Commitments (Notes 1 and 10)

Stockholders' Equity:
  Common stock, $.01 par value; authorized
   20,000, issued and outstanding
   6,861,791 shares                                              68,618
  Additional paid-in capital                                10,956,381
  Receivable from shareholders                               (3,353,303)
  Accumulated deficit                                        (5,466,735)
  Less unearned compensation                                   (303,314)
                                                           ____________
      Total stockholders' equity                              1,901,647
                                                           ____________
      Total liabilities and stockholders' equity           $  2,934,903

</TABLE>


   The accompanying notes are an integral part of these financial statements
                                      F-2
<PAGE>
Ixion Biotechnology, Inc.
Statements of Stockholders' Equity (Deficit)
Years Ended December 31, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<S>                                              <C>               <C>

                                                    2000                1999

Revenues:
  Income under research agreement                $     2,450       $     27,833
  Income under research grants                       401,332             71,653
                                                 ___________        ___________
      Total revenues                                 403,782             99,486

Expenses:
  Operating, general and administrative              598,330            447,400
  Research and development                         1,209,698            625,329
                                                 ___________        ___________
      Total expenses                               1,808,028          1,072,729

Other Income (Expense):
  Interest expense                                  (127,096)          (155,697)
  Interest income                                     83,919              2,121
  Other income (expense)                                  76              1,029
                                                 ___________        ___________
      Total other income (expense)                   (43,101)          (152,547)
                                                 ___________        ___________
Net Loss                                         $(1,447,347)       $(1,125,790)
                                                 ___________        ___________
Net Loss per Share (Basic)                       $     (0.30)       $     (0.42)
                                                 ___________        ___________
Weighted Average Common Shares                     4,832,181          2,657,439

</TABLE>


   The accompanying notes are an integral part of these financial statements
                                      F-3


<PAGE>

Ixion Biotechnology, Inc.
Statements of Stockholders' Equity (Deficit)
Years Ended December 31, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>



                                                      Additional                                       Unearned
                                  Common Stock         Paid-In        Accumulated        Notes         Compen-
                               Shares     Amount       Capital          Deficit        Receivable      sation          Total
<S>                            <C>        <C>         <C>             <C>              <C>             <C>             <C>
Balance, December 31, 1998     2,513,914  $25,139     $ 1,664,458     $(2,893,598)     $      -        $ (284,598)     $(1,488,599)
 Sale of stock,
  $10.00 per share                   100        1             999              -              -                -             1,000
 Issuance of stock under Stock
  Compensation Plan,
  $4.00 per share                 22,400      224          89,376              -              -           (89,600)              -
 Conversion of subordinated
  notes payable,
  $2.00 per share                150,000    1,500         298,500              -              -                -           300,000
 Sale of stock, $2.00 per share  187,500    1,875         373,125              -              -                -           375,000
 Offering costs                       -        -           (8,119)             -              -                -            (8,119)
 Adjust for additional shares
  offered in IPO for no
  additional consideration        51,630      516            (516)             -              -                -                -
 Amortization of unearned comp-
  ensation over service period        -        -               -               -              -           132,096          132,096
 Stock issued for services           500        5           1,995              -              -                -             2,000
 Net loss                             -        -               -       (1,125,790)            -                -         (1,125,790)
                                ________   _______      __________     __________       _________       __________       ___________
Balance, December 31, 1999     2,296,044    29,260       2,419,818     (4,019,388)            -          (242,102)       (1,812,412)

 Sale of stock, $4.00 per
  share                           38,300       383         152,817             -              -                -            153,200
 Issuance of stock under
  Stock Compensation Plan,
  $4.00 per share                 50,940       509         203,251             -              -          (203,760)               -
 Warrants exercised for common
  stock at $2.00 per share        20,672       207          41,233             -              -                -             41,440
 Stock issued for services         1,493        15           5,957             -              -                -              5,972
 Conversion of bridge loan
  payable to officer,
  $4.00 per share                  4,650        47          18,554             -              -                -             18,601
 Conversion of deferred fees
  and salaries, $4.00
  per share                      257,192     2,572       1,026,196             -              -                -          1,028,768
 Sale of stock, $2.00
  per share                    3,562,500    35,625       7,089,375             -      (3,353,303)              -          3,771,697
 Amortization of unearned
  compensation over service
  period                              -         -               -              -              -           142,548           142,548
 Offering costs                       -         -             (820)            -              -                -               (820)
 Net loss                             -         -               -      (1,447,347)            -                -         (1,447,347)
                               _________   _______      __________     __________     __________          ________       ___________

Balance, December 31, 2000    $6,861,791   $68,618     $10,956,381    $(5,466,735)   $(3,353,303)        $(303,314)      $1,901,647


</TABLE>

    The accompanying notes are an integral part of these financial statements
                                      F-4
<PAGE>


Ixion Biotechnology, Inc.
Notes to Financial Statements - Continued
Years Ended December 31, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<S>                                           <C>               <C>


                                                  2000              1999

Cash Flows from Operating Activities:
 Net loss                                     $(1,447,347)      $(1,125,790)
 Adjustments to reconcile net loss to
  net cash used in operating activities:
 Depreciation                                      50,220            30,311
 Amortization                                      16,110             5,870
 Write-off of abandoned patents                        -             13,045
 Amortization of debt discount                     57,168            57,168
 Stock issued for consulting services               5,972             2,000
 Stock compensation                               142,548           132,098
 Decrease (increase) in prepaid expenses
  and other current assets                        (44,142)           (3,268)
 Decrease (increase) in accounts receivable        31,645           (26,095)
 Increase (decrease) in deferred revenue            1,281                -
 Increase (decrease) in accounts payable
  and accrued expenses                             11,734           111,387
 Increase in deferred fees and salaries            84,726           224,764
 Increase (decrease) in deferred rent                (348)            1,647
 Increase in interest payable                     (35,133)           26,622
                                               __________         _________
      Net cash used in operating activities    (1,125,566)         (550,241)
                                               __________         _________

Cash Flows from investing Activities:
 Purchase of property and equipment              (246,430)          (81,177)
 Payments for patents and patents pending         (51,570)         (103,751)
                                               __________         _________
      Net cash used in investing activities      (298,000)         (184,928)

Cash Flows from Financing Activities:
 Proceeds from (repayments of) loans
  from officers                                  (396,400)           90,000
 Proceeds from issuance of convertible
  notes payable                                        -            300,000
 Proceeds from issuance of common stock          3,966,341           376,000
 Payment of loan costs and other assets                -              1,114
 Principal (reductions) increases in
  notes payable                                    (7,638)          (15,098)
 Payment of deferred offering costs                  (820)          (13,119)
                                               __________         _________
      Net cash provided by financing
      activities                                3,561,483           738,897
                                               __________         _________

 Net increase in Cash and Cash Equivalents      2,137,917             3,728

 Cash and Cash Equivalents at Beginning
  of Period                                        22,361            18,633
                                               __________         _________

 Cash and Cash Equivalents at End
  of Period                                    $2,160,278         $  22,361


</TABLE>


    The accompanying notes are an integral part of these financial statements
                                      F-5
<PAGE>

Ixion Biotechnology, Inc.
Notes to Financial Statements - Continued
Years Ended December 31, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<S>                                             <C>             <C>

                                                  2000              1999

Supplemental Disclosure of Cash Flow Information:

 Cash paid during the year for:

  Interest                                      $    77,188     $    55,656
                                                ___________     ___________

Supplemental Disclosure of Noncash Investing
 and Financial Activities:

 Conversion of notes payable in exchange
  for 150,000 shares of common stock            $        -      $   300,000
                                                ___________     ___________

 Conversion of deferred fees and salaries
  for 257,192 shares of common stock            $ 1,028,768     $        -
                                                ___________     ____________

 Conversion of bridge loans payable to
  officers in exchange for 4,650 shares
  of common stock                                   18,600              -
                                                ____________    ____________

 Common stock, stock warrants and stock
  options issued for services or
  technology                                    $     8,232     $     2,000
                                                ___________     ____________
 Common stock issued under Board
  Retainer Plan                                 $   203,760     $    89,600
                                                ___________     ____________

</TABLE>


    The accompanying notes are an integral part of these financial statements
                                      F-6
<PAGE>


Ixion Biotechnology, Inc.
Notes to Financial Statements - Continued
Years Ended December 31, 2000 and 1999
--------------------------------------------------------------------------------

Organization and Business:

Organization

Ixion  Biotechnology,   Inc.,  a  Delaware  corporation  (the  "Company"),   was
incorporated  on  March 25,  1993  and to focus on the  treatment  of  metabolic
disorders.   The  Company  is   primarily   engaged  in  the   development   and
commercialization of certain products related to these disorders. Prior to 2000,
the Company operated as a development stage enterprise,  devoting  substantially
all of its efforts to  fundraising  and  carrying on  research  and  development
activities.

Public Offering

In December 1997, the Company  commenced the public offering of 400,000 units of
newly issued  securities for an aggregate of  $4,000,000.  Each unit consists of
one share of Common Stock, $.01 par value, and a .25 Charitable Benefit Warrant.
Each whole Charitable  Benefit Warrant entitles the holder to purchase one share
of the  Common  Stock  at a price  of  $20.00  per  share.  As a  result  of the
transaction with Q-Med,  A.B.  (described  below),  the offering was temporarily
suspended and the board of directors  approved changes in the offering including
a withdrawal from  registration of all unsold  Charitable  Benefit  Warrants,  a
reduction in the number of shares offered from 400,000 to 150,000, a retroactive
reduction  in the  offering  price  to  $4.00  per  share  of  common  stock,  a
concomitant  adjustment in the exercise price for outstanding Charitable Benefit
Warrants (from  $20/share to $8/share),  and an increase in the number of shares
purchasable  upon exercise of those warrants from 8,605 shares to 21,513 shares.
This  action by the Board of  Directors  resulted in an  additional  issuance of
51,630  shares in 1999 to  purchasers  in the public  offering for no additional
consideration,  and a reduction in the maximum potential aggregate offering from
$4,000,000 to $600,000.

The Company  received  proceeds of  $516,000  in its public  offering  which was
completed  March 31,  2000.  Offering costs of $124,680 have been offset against
the proceeds of the offering.

Q-Med Transaction

On April 16, 1999,  the Company  reached an  agreement in principle  with Q-Med,
A.B., a  biotechnology  company based in Uppsala,  Sweden,  which was amended on
September 7,  1999. Under the amended agreement,  the Company agreed to issue an
option to Q-Med to acquire shares of  newly-issued  common stock.  The number of
shares to be  acquired  were the  number  of shares  such  that,  following  the
exercise  of the  option,  Q-Med  would  own  at  least  50%  of  the  Company's
outstanding  shares (on a fully diluted basis).  The cash purchase price for the
option  shares  was set at $2.00 per share to be paid  over a  two-year  period.
Q-Med  purchased  37,500  shares per month (at the $2.00 per share  cash  price)
through the expiration of the option. As additional consideration for the option
shares,  the  Company  received a  royalty-free  license to Q-Med's  non-animal,
stabilized hyaluronic acid technology.  Q-Med agreed to redeem up to $787,000 of
the  convertible  unsecured  notes (Note 4) which note  holders may elect not to
convert in August 2001.

On July 14,  2000, Qvestor,  LLC ("Qvestor"),  a Delaware subsidiary of Q-Med AB
(publ)  exercised  the option  granted in  September  1999 to acquire  3,337,500
shares of the Company's  common stock for cash of  $6,675,000  and certain other
consideration pursuant to a stock purchase agreement.  At closing,  Qvestor paid
cash of $3,321,697 and Q-Med agreed to a world-wide, non-exclusive, royalty free
license of its  hyaluronic  acid  technology  for use with the  Company's  islet
technology.  The balance of the  $6,675,000  cash portion of the purchase  price
will be paid not later than July 14,  2001. Prior to July 14,  2000, Q-Med owned
562,500 shares of the Company's common stock,  which,  together with the Qvestor
purchase, brings the Q-Med group's total common stock ownership to 3,900,000, or
approximately  56% of the Company's  outstanding  shares at  December 31,  2000,
constituting a change in control of ownership of the Company.

Liquidity

The Company  incurred a net loss of $1,447,347  for the year ended  December 31,
2000,  and  as  of  December 31,  2000,  had  a  total  accumulated  deficit  of
$5,466,735.  The Company had deficit  cash from  operations  of  $1,125,566  and
$550,241 for 2000 and 1999, respectively.

   The accompanying notes are an integral part of these financial statements.
                                      F-7

<PAGE>
Ixion Biotechnology, Inc.
Notes to Financial Statements - Continued
Years Ended December 31, 2000 and 1999
--------------------------------------------------------------------------------

1. Organization and Business - Continued:

Liquidity - Continued


The $3,321,697  received from Qvestor and the balance of $3,353,303  expected to
be paid by  July 14,  2001 will be used to fund  continuing  operations  and the
planned  expansion  of the  Company.  The  Company  expects to incur  additional
operating  losses for the next  several  years as the Company  prepares  for the
manufacturing and marketing of its products. Management believes that cash flows
from operations  including  additional SBIR grants,  during 2001,  combined with
cash  from  the  Qvestor   investment  will  be  sufficient  to  meet  its  cash
requirements  in the coming year.  If the funds  available to the Company in the
form of the Qvestor investment are not sufficient,  management  believes that it
can take certain actions such as undertaking  certain expense  reduction actions
to mitigate the impact of such potential events.  However,  should the remaining
portion of the Qvestor  investment  not be  received,  there can be no assurance
that  management's  actions will be  sufficient  to avoid a liquidity  shortfall
during 2001.

2.     Significant Accounting Policies:

Cash and Cash Equivalents

The Company  considers  all highly liquid  instruments  with a maturity of three
months or less at time of purchase to be cash  equivalents.  The Company  limits
its temporary cash investments to domestic obligations rated P1/A1 or Aaa/AAA or
above  by  Moody's   Investors'   Services  or  Standard  &  Poors  Corporation,
respectively.  At times,  such  investments  may be in excess of FDIC  insurance
limits. The Company has not experienced any loss to date on these investments.

Income Taxes

Deferred income taxes are recognized for the tax consequences in future years of
differences  between the tax bases of assets and liabilities and their financial
reporting  amounts at each year end based on enacted tax laws and  statutory tax
rates  applicable to the periods in which the differences are expected to affect
taxable income. A valuation  allowance is provided against the future benefit of
deferred tax assets if it is determined that it is more likely than not that the
future tax benefits associated with the deferred tax asset will not be realized.
Income tax expense is the tax  payable for the period and the change  during the
period in deferred tax assets and liabilities.

Property and Equipment

Property and equipment are stated at cost.  Gains and losses on disposition  are
recognized in the year of the disposal. Expenditures for maintenance and repairs
are expensed as incurred.

Depreciation is computed using the straight-line method over the estimated lives
of the assets (3-5 years).

Patents and Patents Pending

Patents  pending  consist  of  direct  costs  incurred  in  connection  with the
applications  for patents.  Amortization  of these costs over the estimated life
will begin upon issuance or they will be expensed  immediately  if rejected.  At
December 31, 2000, the Company has been issued 5 U.S. patents, 2 foreign patents
and  purchased  another  patent  through the  issuance of 1,000 shares of common
stock.  Patents are being amortized over 13-17 years.  The Company  periodically
evaluates  the  recoverability  of  intangibles  and measures any  impairment by
comparison  to estimated  undiscounted  cash flows from future  operations.  The
factors  considered by management in performing this  assessment  include trends
and prospects as well as the effects of  obsolescence,  demand,  competition and
other economic factors.

Revenue Recognition

The Company has  received  funding from the U.S.  government  and, in some cases
certain  corporations,  in support of  research in return for  permitting  those
corporations  exclusive  review of certain  research  results for  limited  time
periods.  Revenues  for 2000 and 1999 consist  primarily of proceeds  from Small
Business  Innovative  Research  Program  (SBIR)  and Small  Business  Technology
Transfer  Research (STTR) grants from the National  Institutes of Health ("NIH")
to fund various  research.  Grant revenues are not contingent upon any specified
results of the studies.  Grant revenues are recognized  over the duration of the
study to which the grant relates as  reimbursable  costs are  incurred.

   The accompanying notes are an integral part of these financial statements.
                                      F-8
<PAGE>
Ixion Biotechnology, Inc.
Notes to Financial Statements - Continued
Years Ended December 31, 2000 and 1999
--------------------------------------------------------------------------------

Revenue related to future performance is deferred and recognized as revenue when
earned.

2. Significant Accounting Policies - Continued:

Revenue Recognition - Continued

In December 1999, the SEC staff issued a Staff  Accounting  Bulletin ("SAB") No.
101, Revenue Recognition in Financial  Statements (SAB 101). Among other things,
SAB 101 discusses the SEC staff's view on accounting for non-refundable up-front
fees received in connection with collaboration agreements.  SAB 101 is effective
for the Company's fiscal year ending December 31,  2000. The Company's policy of
revenue recognition is consistent with this bulletin.

Research and Development

Research and development costs are charged to expense as incurred.

Other Assets

Other assets consists of loan costs  associated with the issuance of convertible
notes.  Loan  costs  are  being  amortized  on  a  straight-line   basis,  which
approximates the effective interest method, over the term of the notes.

Deferred Rent

Deferred  rent  represents  a portion of the rent  payable  under the  Company's
former facilities license with the Biotechnology  Development  Institute ("BDI")
and accrued interest thereon. The deferred amount bears non-cash interest at 12%
on the  outstanding  balance,  compounded  annually.  The Company will repay the
liability through a 1% royalty on net sales of any products developed during its
tenancy at the BDI,  such royalty not to exceed the  outstanding  balance.  Also
included in deferred  rent is a portion of rent of the current  36-month  lease,
amortized  over the  length  of the  lease to  straight-line  the  effect of the
graduated payments.

Stock Based Compensation

The Company applies APB Opinion No. 25 and related Interpretations in accounting
for stock issued to employees under this plan.  Compensation  expense  resulting
from stock  options  issued  under the Stock Option Plan (Note 6) is measured at
the grant date based upon the  difference  between  the  exercise  price and the
market value of the common  stock.  All stock options  issued to employees  were
granted at an  exercise  price  equal to the market  value at the date of grant.
Stock-based compensation  arrangements involving non-employees are accounted for
under  Statement of  Financial  Accounting  Standards  No. 123,  Accounting  for
Stock-Based  Compensation  ("SFAS  123").  The Company  provides the  disclosure
requirements of SFAS 123 for employee arrangements.

Net Loss Per Share

Basic net loss per share is computed using the weighted average number of common
shares outstanding for the period.  Diluted net loss per share is not presented,
as the effects of including  potentially  dilutive securities in the computation
is  antidilutive.  Common  stock  equivalent  shares  consist of stock  options,
warrants and convertible notes payable.  For the year ended  December 31,  2000,
options to purchase  115,500 shares of common stock,  warrants to purchase 6,000
shares of common stock,  and notes payable  convertible  into 311,557  shares of
common  stock were  excluded  from the  calculation  of earnings per share since
their inclusion would be antidilutive.

Use of Estimates

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

   The accompanying notes are an integral part of these financial statements.
                                      F-9
<PAGE>
Ixion Biotechnology, Inc.
Notes to Financial Statements - Continued
Years Ended December 31, 2000 and 1999
--------------------------------------------------------------------------------

2. Significant Accounting Policies - Continued:

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Certain  Derivative  Instruments and Certain Hedging  Activities,
and  its  amendments,  Statements  No.  137 and  138,  in June  1999  and  2000,
respectively.   This  statement  will  require  the  Company  to  recognize  all
derivatives  on the  balance  sheet  at  fair  value.  As the  Company  has  not
traditionally  entered into any  derivative  arrangements,  the Company does not
anticipate that the adoption of this statement will have a significant effect on
its results of operations or financial position.


3. Property and Equipment:

Property and equipment consists of the following as of December 31, 2000:
<TABLE>
     <S>                                        <C>
     Furniture and fixtures                     $   2,489
     Computer equipment                            32,874
     Office equipment                               3,163
     Leasehold improvements                        20,713
     Laboratory equipment                         361,333
                                                _________
                                                  420,572
     Less accumulated depreciation               (112,409)
                                                _________
                                                $ 308,163
</TABLE>


4. Notes Payable:

In September  1996, the Company  completed the private  placement of $787,270 in
Convertible  Unsecured Notes due 2001. The private placement  provided investors
with the option of either  10%  Convertible  Unsecured  Notes  ("10%  Notes") or
Variable Conversion Rate Convertible Unsecured Notes ("Variable Notes"). The 10%
Notes accrue interest at the stated rate until maturity, or conversion,  and pay
interest  quarterly.  The 10% Notes are convertible into shares of the Company's
common stock, at any time prior to maturity,  at a conversion price of $4.20 per
share.  The Variable Notes are  non-interest  bearing and are  convertible  into
shares of the Company's common stock, at any time prior to maturity, at variable
conversion  prices ranging from $4.20 to $2.10. The variable  conversion  prices
are  based  on the  length  of time  the  investor  holds  the  notes  prior  to
conversion,  declining at the rate of $.10 per quarter commencing November, 1996
from the  initial  conversion  price of $4.20  which is greater  than the market
value  of the  common  stock  at the date of  issuance.  The  fair  value of the
beneficial conversion feature of $285,835 at September 1996 has been recorded as
debt discount, reducing notes payable and increasing additional paid-in capital.
The debt  discount is being  amortized  using the  straight-line  method,  which
approximates the effective interest method,  over the term of the Variable Notes
and to the date of the deepest  discount.  As of December 31,  2000,  there were
$215,600 of 10% Notes and $571,670 of the Variable Notes  outstanding  ($533,563
net of  unamortized  debt  discount of $38,107 at  December 31,  2000).  Accrued
interest on the 10% Notes totaled $1,797 as of December 31, 2000.

In  October  1998,  upon  the  expiration  of its  lease  at  the  Biotechnology
Development  Institute,  the Company entered into a new lease agreement at a new
facility.  As part of this  new  agreement,  the  Company  acquired  $26,450  of
leasehold  improvements and lab equipment from the lessor. Amounts due for these
capital  additions  are to be repaid over 36 months,  the  original  term of the
lease,  with interest at 10%. The balance due under this agreement was $7,791 at
December 31, 2000.

   The accompanying notes are an integral part of these financial statements.
                                      F-10
<PAGE>
Ixion Biotechnology, Inc.
Notes to Financial Statements - Continued
Years Ended December 31, 2000 and 1999
--------------------------------------------------------------------------------

4. Notes Payable - Continued:

Future  principal  maturities  of  notes  payable  for  each of the  five  years
subsequent to December 31, 2000 are as follows:
<TABLE>
     <S>                                            <C>

     Year Ending
        2001                                        $   787,270
            Less: Unamortized debt discount             (38,107)
                                                    ___________
            Total                                   $   749,163

</TABLE>

5. Income Taxes:

The  components  of the  Company's net deferred tax asset and the tax effects of
the primary  temporary  differences  giving rise to the  Company's  deferred tax
asset are as follows as of December 31, 2000:
<TABLE>
     <S>                                            <C>

     Net operating loss carryforward                $ 2,159,361
                                                    ___________

     Deferred tax asset                               2,159,361
     Valuation allowance                             (2,159,361)
                                                    ___________

     Net deferred tax asset                         $       -

</TABLE>


Any tax benefits for the years ended  December 31, 2000 and 1999 computed  based
on  statutory  federal  and state  rates  are  offset  by  valuation  allowances
established  since  realization  of the deferred tax benefits are not considered
more likely than not.


6. Stockholders' Equity:

Common Stock Warrants

On  August 31,  2000,  18,672  shares of common  stock were issued for  warrants
exercised by the  University of Florida at a price of $2.00 per share (issued in
partial  payment of rent for the  Company's  facilities  pursuant to the License
Agreement  between the University of Florida Research  Foundation,  Inc. and the
Company).

Also, on August 31,  2000, 2,000 shares of common stock were issued for warrants
exercised by an individual at a price of $2.00 per share.

There were no common stock warrants issued during 1999 or 2000.

Common stock warrants outstanding at December 31, 2000 are as follows:
<TABLE>
     <S>                     <C>                      <C>

     Number                  Exercise Price           Expiration Date

     6,000                   $ 5.00                   February 2002 -
                                                      October 2002

</TABLE>
   The accompanying notes are an integral part of these financial statements.
                                      F-11
<PAGE>
6. Stockholders' Equity - Continued:

Common Stock Warrants - Continued

As  discussed  in Note 1, as part of the public  offering  commenced in December
1997,  the Company sold units which consist of one share of common  stock,  $.01
par value, and a .25 Charitable  Benefit Warrant.  Each whole Charitable Benefit
Warrant  entitles the holder to purchase one share of common stock at a price of
$20 per share. Four units were required to acquire one whole Charitable  Benefit
Warrant.  As a result of the  transaction  with Q-Med,  A.B.,  the  offering was
temporarily  suspended  and the  Board  of  Directors  approved  changes  in the
offering  including a  withdrawal  from  registration  of all unsold  Charitable
Benefit Warrants, an adjustment in the exercise price for outstanding Charitable
Benefit Warrants (from $20/share to $8/share),  and an increase in the number of
shares  purchasable upon exercise of those warrants from 8,605 shares to 21,513.
Approved  qualified  charitable  organizations may exercise  Charitable  Benefit
Warrants  at any time  until  the  expiration  date  (December 9,  2007,  unless
extended);  holders other than approved qualified  charitable  organizations may
not  exercise  except  between  December 9,  2006  and  December 9,   2007.  The
Charitable Benefit Warrants,  will be detached from the common stock immediately
on purchase. At December 31, 2000, there were 21,513 Charitable Benefit Warrants
outstanding.

Stock Option Plan

The Company has a stock option plan under which  500,000  shares of common stock
are reserved  for  issuance  upon  exercise of options  granted to  non-employee
directors,  officers,  employees,  members of the Scientific  Advisory Board and
consultants  of the  Company.  Options  granted  to  members  of the  Scientific
Advisory Board generally vest at the rate of 25% at the end of each  three-month
period following the grant. All other options  generally vest at the rate of 20%
per year and are  exercisable  within ten years  after  date of grant.  Activity
under the Company's stock option plan is set forth below:
<TABLE>
      <S>                                           <C>           <C>

                                                                     Exercise
                                                    Shares            Price

     Outstanding at December 31, 1998               100,900
       Granted                                       73,000          $ 4.00
       Exercised                                         -
       Forfieted                                       (400)         $10.00
                                                    ________
     Outstanding at December 31, 1999               173,500
       Granted                                      116,400          $ 4.00
       Exercised                                         -
       Forfieted                                    (87,500)      $4.00 - $10.00
       Cancelled                                    (86,900)      $4.00 - $4.40
                                                    ________
     Outstanding at December 31, 2000               115,500


</TABLE>
   The accompanying notes are an integral part of these financial statements.
                                      F-12
<PAGE>
Ixion Biotechnology, Inc.
Notes to Financial Statements - Continued
Years Ended December 31, 2000 and 1999
--------------------------------------------------------------------------------

6. Stockholders' Equity - Continued:

Stock Option Plan - Continued

The status of options outstanding at December 31, 2000 is as follows:
<TABLE>
      <S>               <C>              <C>                    <C>                 <C>

                                           Weighted               Weighted
      Exercise                             Average                Average             Number
       Price             Shares          Remaining Life         Exercise Price      Exercisable

      $  0.02             2,000            3.67 years           $  0.02               2,000
      $  0.75             3,500            4.42 years           $  0.75               3,500
      $  3.00             8,000            5.45 years           $  3.00              11,853
      $  4.00            65,000            8.95 years           $  4.00              13,782
      $  4.40            37,000            8.62 years           $  4.40              10,482
                        ________                                                    ________
                        115,500                                                      41,617

</TABLE>

Given the  limited  time  period  that the  Company's  stock  has been  publicly
registered,  as well as the lack of history to estimate patterns of exercise and
option term, fair value disclosures  required under SFAS No. 123 are provided as
a range from low to high for the  expected  term and  volatility.  Fair value is
estimated  using  the  Black-Scholes  option  pricing  model  and the  following
assumptions:
<TABLE>
     <S>                             <C>                    <C>

                                         2000                  1999
                                     Low     High           Low    High

     Discount Rate                   6.16%   6.03%          5.83%  6.11%

     Volatility                        30%   100%             30%    60%

     Option Life (Years)               5      9               5      9

</TABLE>

The weighted  average fair value of options  granted to other than  non-employee
consultants  during fiscal year 2000 and 1999 was in the range of $1.52 to $2.90
and $3.67 to $7.16  per  option,  respectively.  Had  compensation  cost for the
Company's stock-based  compensation plan been determined based on the fair value
at the grant dates for these awards  consistent with the method of SFAS No. 123,
the Company's reported net loss and loss per share for fiscal year 2000 and 1999
would have been as follows:
<TABLE>
     <S>                                 <C>                 <C>

                                             Low                 High

     2000 Net Loss                      $ 1,476,263          $ 1,505,678
     2000 Loss Per Share                      (0.30)               (0.31)

     1999 Net Loss                        1,201,439            1,272,414
     1999 Loss Per Share                      (0.45)               (0.48)


</TABLE>
   The accompanying notes are an integral part of these financial statements.
                                      F-13
<PAGE>
6. Stockholders' Equity - Continued:

Stock Compensation Plan

The Company does not pay cash  compensation  to outside  members of the Board of
Directors or to members of the Company's Scientific Advisory Board. Accordingly,
the Stock Compensation Plan reserves 250,000 shares of common stock to be issued
to non-employee  directors,  members of the Scientific Advisory Board, officers,
employees and consultants.

New outside members of the Board or the Scientific  Advisory Board receive 5,000
shares upon  joining,  and all will  receive  1,000 shares  annually  during the
pendency of the Stock  Compensation  Plan.  Shares  either vest upon delivery or
time of  service.  For the  shares  which  vest over time of  service,  unearned
compensation  equivalent  to the fair  value  at the  date of  grant is  charged
against capital deficiency and amortized over the service period to compensation
expense.  Shares which vest upon delivery are recorded as  compensation  expense
upon issuance.

At December 31, 2000, a total of 162,660 shares had been granted under the Stock
Compensation  Plan.  Compensation  expense  recognized in  connection  with such
awards under the Stock Compensation Plan for the years ended  December 31,  2000
and 1999 was $142,549 and $132,098,  respectively.  Total unearned  compensation
related to Stock Compensation Plan awards was $303,313 at December 31,  2000 and
will be recognized as expense over future periods of service.


7. Related-Party Transactions:

Through 1999, the  Chairman/Chief  Executive Officer and President made loans to
the  Company  pursuant  to the  terms of bridge  loan  agreements.  Under  these
agreements,  the Company borrowed a total of  approximately  $90,000 in 1999. In
March 2000, an officer  converted  $18,600  principal amount of these loans into
4,650 shares of common stock.  At the Q-Med closing (Note 1), $442,957 in bridge
loans  and  accrued  interest  were  repaid  to  the  officers.  Following  this
repayment, no bridge loans remain outstanding.

Through 2000, the Company deferred the payment of salaries of the Chairman/Chief
Executive Officer, the President and the Senior Vice  President/Chief  Scientist
pursuant to  agreements  between the Company and such  executives.  Amounts bore
interest,  compounded annually, at a rate established by the Board of Directors,
and was  reset  annually  at the rate on  30-year  treasury  bonds in  effect on
January 1  of any given year plus 1%.  The rate  during  2000 was 7.47%.  At the
Q-Med  closing,  as a condition of the stock purchase  agreement,  $1,028,768 of
these  deferred fees and salaries due to officers and employees  were  satisfied
through the issuance of 257,192 shares of restricted common stock. 62,289 shares
vested  immediately;  50% of the balance vest on July 13,  2001, and 1/12 of the
remaining  balance vest monthly  thereafter.  At  December 31,  2000, no fees or
salaries have been deferred.

8. Sponsored Research Agreement:

On June 5,  1996, the Company entered into an agreement with Genetics Institute,
Inc.  ("GI")  relating  to Islet  Producing  Stem  Cells  Technology.  Under the
agreement,  GI sponsored certain research by the Company and provided funding of
$275,000 over a 12-month period, plus patent expenses of approximately  $35,000.
The agreement with GI was not extended after the initial  12-month  period.  The
revenue under this contract was recognized on a pro rata basis  consistent  with
the period over which the  research was  conducted  as well as upon  delivery of
certain  research  reports.  Under the  agreement,  the  Company is  required to
reimburse GI for certain  patent costs if GI does not exercise its option for an
exclusive  license  for the  technology.  As of  December 31,  2000,  GI has not
exercised  their right for an exclusive  license to this technology and costs of
$42,317 are recorded as a liability.

   The accompanying notes are an integral part of these financial statements.
                                      F-14
<PAGE>
Ixion Biotechnology, Inc.
Notes to Financial Statements - Continued
Years Ended December 31, 2000 and 1999
--------------------------------------------------------------------------------

9. Risks and Uncertainties:

The  Company's  product  candidates  are in an early stage of  development.  The
Company has not completed the development of any products and, accordingly,  has
not  received  any  regulatory  approvals  or  commenced  marketing  activities.
Significant revenues have not been generated from the sale of its products.

The Company's development and commercialization rights for its proposed products
are  derived  from its license  agreements  with the  University  of Florida and
others.  A  deterioration  in the  relationship  between  the  Company  and  the
University of Florida could have a material adverse effect on the Company.

The  Company is aware of  potentially  significant  risks  regarding  the patent
rights licensed by the Company  relating to Islet  Progenitor/Stem  Cells and to
its  oxalate  technology.  The  Company  may not be able  to  commercialize  its
proposed diabetic products due to patent rights held by third parties other than
the Company's licensors.


10. Commitments:

Lease

In 2000, the Company  increased its rental space to  approximately  8,500 square
feet and  extended  its term through  October 31,  2002 with the first  one-year
option renewal.  Total rent expense under this lease was approximately  $112,000
and $87,500 during 2000 and 1999,  respectively.  Future minimum rental payments
under this lease at December 31, 2000 are as follows:
<TABLE>
     <S>                                        <C>

     Year Ending
        2001                                    $ 127,725
        2002                                      131,529

</TABLE>


Other

The Company  issued  1,000 shares of  restricted  common stock in exchange for a
patent in February 1997. In addition to the issuance of stock,  the Company will
be required to pay  royalties  of 2% of net sales,  if any,  generated  from the
patented technology.

The Company has licensed the  exclusive  rights to  technology in two areas from
the University of Florida Research  Foundation.  The Company is obligated to pay
royalties on net sales of the Company or their sublicensees on products in these
areas.  As there have been no product sales to date,  there have been no amounts
owed under these license agreements.


   The accompanying notes are an integral part of these financial statements.
                                      F-15