=======================================================================
                     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, 1997

[ ] 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)

                12085 RESEARCH DRIVE
                     ALACHUA, FL                            32615
         (Address of Principal Executive Offices)         (Zip Code)

                                  904-418-1428
                (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,
1997, was $221,452.

     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
27,  1998,  was  approximately  $8,400,000  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  Company's  common  stock,  par value $.01 per
share, outstanding as of March 27, 1998, was 2,471,744..

                      DOCUMENTS INCORPORATED BY REFERENCE:

     DOCUMENT                                    PART INTO WHICH INCORPORATED
     --------                                    ----------------------------
The Proxy Statement to be used in connection            Part III
with the annual meeting of stockholders to be
held June 12, 1998 (the "Proxy Statement"), to
be filed with the Commission prior to April 30,
1998, pursuant to Rule 14a-101, Schedule 14A
of the  Exchange Act.


<PAGE>



PART I

Item 1.  Description of Business.

                                    Business

                                   The Company

         Ixion Biotechnology,  Inc. ("Ixion" or the "Company"), was organized as
a Delaware  corporation in 1993. It is a development  stage,  discovery research
biotechnology  company,  with several  product  candidates in  development.  The
Company is the holder of  world-wide  exclusive  licenses to patents and pending
patents in two key areas:  diabetes  and  oxalate-related  disorders.  Ixion has
executive offices and development laboratories at the Biotechnology  Development
Institute,  a small business incubator operated by the Biotechnology  Program at
the University of Florida.

         Ixion   is   developing   diabetes   products   based   on  its   Islet
Progenitor/Stem  Cell ("IPSC")  technology,  including a proprietary  line of in
vitro (in test tube) islet stem cells for use in islet transplantation  therapy.
This development program is aimed at optimizing the growth of functioning islets
or islet  progenitors  in vitro from IPSCs which Ixion has  established  in cell
cultures.  The  transplantation  of islets is the only known  potential cure for
Type I diabetes.  The Company  believes that  successful  islet  transplantation
therapy will provide better management of diabetes than  conventional  treatment
with insulin and other metabolic regulators.  Conventional  treatment can result
in  hyper-  and  hypo-glycemic  episodes  which  are a major  cause of  diabetic
complications.  Ixion's  technology is intended to ameliorate  this condition by
implanting  functional  islets  into the body in  order  to  materially  improve
control of blood glucose levels.

         In addition to developing its cell transplantation  therapy,  Ixion has
an ongoing discovery program to identify and characterize IPSCs as well as novel
growth  factors  associated  with them.  The goal of this program is to discover
factors  important  in islet  cell  differentiation  and to  identify  stem cell
markers to which the  Company  hopes to produce  antibodies  useful in stem cell
isolation. All of the Company's potential diabetes products are in the discovery
research stage.

         Diabetes  is a  chronic,  complex  metabolic  disease.  Type  I  (often
referred  to as  Insulin  Dependent  Diabetes  or  IDD) is  characterized  by an
inability to produce  insulin due to the  destruction  of the  insulin-producing
cells of the pancreatic islets of Langerhans. Type I diabetes also leads to many
serious  conditions  ranging from death from diabetic coma or insulin shock,  to
end  stage  renal   disease,   blindness,   amputations,   nerve   damage,   and
cardiovascular  and  periodontal  disease.  Over 16 million people in the United
States have  diabetes,  of whom five to ten percent (or about 800,000  patients)
have Type I, the most  severe form of the  disease,  and must take  insulin.  An
additional one and one-half  million Type II patients also take insulin.  Annual
expenditures on all forms of diabetes are over $100 billion.

         The Company is also developing products based on its oxalate technology
for the  diagnosis  and  treatment of  oxalate-related  diseases.  The Company's
oxalate  technology  is  based  on  genes  from  the  non-pathogenic   anaerobic
intestinal bacteria,  Oxalobacter formigenes,  which produce enzymes responsible
for oxalate degradation in healthy people.  Inadequate colonies of O. formigenes
result in reduced  ability to degrade  oxalate.  Excess oxalate from dietary and
metabolic  sources  plays a role in a  variety  of  disorders  including  kidney
stones,  hyperoxaluria,  cardiomyopathy,  cardiac conductance disorders,  cystic
fibrosis,  Crohn's  disease,  renal  failure  and toxic  death,  and,  possibly,
vulvodynia

         There are approximately one million kidney stone incidents  annually in
the United  States.  Annual  expenditures  on kidney stones exceed $1.8 billion.
There are  approximately  25,000 cystic fibrosis  patients in the United States;
these patients are at materially  increased risk of kidney stones as a result of
excess oxalate.  There are from 5,000 to 16,000 new cases of Inflammatory  Bowel
Disease  annually,  resulting  in  100,000  hospitalizations,  60% from  Crohn's
Disease which is associated with enteric  hyperoxaluria.  Vulvodynia,  a chronic
multifactorial disorder, believed to be in some degree oxalate-related,  results
in painful and debilitating symptoms affecting the tissue surrounding the vagina
and urethra.  There are no population  studies of the incidence or prevalence of
vulvodynia,  but estimates  range as high as 150,000 to 200,000 U.S.  women with
this  condition.  Very  few  effective  treatments,  if  any,  exist  for  these
disorders.

         The most  developed  products  in  Ixion's  development  pipeline  area
diagnostic and a therapy for the management of oxalate-related disorders.

         The  diagnostic  component  of the  Company's  oxalate-related  disease
management  product is a DNA-based  molecular  diagnostic test for the rapid and
sensitive  detection of human O. formigenes (the "Ixion  Oxalobacter  formigenes
Monitor").  The current tests for O.  formigenes are laborious,  time consuming,
and unreliable,  and are limited by (1) the  difficulties  of anaerobic  culture
methods, (2) the inability to standardize and accurately quantitate the presence
of the  bacteria,  and (3) the fact  that the  tests  cannot  be  automated.  In
addition,  the  current  tests  are not  sensitive  and are  poorly  suited to a
clinical setting.  The Ixion Oxalobacter  formigenes Monitor, on the other hand,
can  accurately  and reliably  detect very small  numbers of O.  formigenes,  is
quantitative, and is capable of automation.

         The  therapeutic  component of the  Company's  oxalate-related  disease
management  product is an orally  administered  pill consisting of a recombinant
form of two enzymes  normally found in O. formigenes and responsible for oxalate
degradation  ("IxC1-62/47").  The Company  believes that the  administration  of
IxC1-62/47 will greatly diminish the recurrence of calcium oxalate kidney stones
and will have positive therapeutic effects on other oxalate-related disorders.

         The Company intends to file an Investigational New Drug application for
its  IxC1-62/47  enzyme  therapy  for  oxalate-related  diseases  and  a  510(k)
submission for premarket clearance for the Ixion Oxalobacter formigenes Monitor,
with  the  Food  and  Drug   Administration,   during  1998.  See   -"Government
Regulation."

         Ixion is in the development  stage,  has earned only limited  revenues,
the  majority of which have been  research  and  development  payments,  and has
incurred  accumulated deficits of $1,979,359 from its inception through December
31, 1997.  During the last two fiscal years,  the Company has spent  $946,761 on
research and development.

Industry Description and Outlook

         In 1997, the U.S.  biotechnology industry was composed of approximately
1,300  companies,  public  and  private.  The public  market  for  biotechnology
financing  was  restrained  during  1997 with the  industry  raising  about $2.5
billion compared to $4.9 billion in 1996. Total financings  (excluding milestone
payments and equity purchases by corporate  partners)  amounted to $5.8 billion.
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.

         Diabetes.  Diabetes is the world's most common  metabolic  disease.  In
1995,  there were over 16 million  diabetics in the United States.  There are 21
million  diabetics  in  Europe  and as many  as 100  million  worldwide.  Type I
patients compose 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 II 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 I diabetics.  Approximately  25
percent of the new Type II 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 I diabetes will
develop diabetic  nephropathy  leading to kidney dialysis and renal transplants.
Overall, diabetes is the fourth leading cause of death in the U.S.

         Current  therapies,  including insulin shots,  amylin therapy,  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. The Company believes that approximately 500,000
insulin dependent  diabetics are candidates for islet  transplantation  and that
successful  transplantation  of islets  capable of  providing  constant  glucose
control  will  ameliorate  the   complications  of  the  disease.   While  islet
transplantation is the only known potential cure for Type I diabetes, transplant
therapy is an early stage  procedure  and results,  as is common for early stage
procedures,  for  the  adult  islet  transplants  performed  to date  have  been
disappointing. Although there can be no assurance, the Company believes that the
success rate of transplant therapy will improve over time.

         Oxalate-related  Diseases.  Excess  oxalate  appears  to be a factor in
diseases like calcium-oxalate kidney stones, primary hyperoxaluria, and possibly
vulvodynia.  It is  also  a  complication  in a  variety  of  other  conditions,
including various lipid malabsorption  disorders  (including  Inflammatory Bowel
Disease,  Crohn's disease,  cycstic  fibrosis,  and  jujuno-ileal  bypasses) and
cardiomyopathy,  cardiac  conductance  disorders,  and renal  failure  and toxic
death.

         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
1000  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  1000  hospital
admissions in the United  States are for kidney  stones;  this is  approximately
248,000 hospital admissions annually. There are approximately one million kidney
stone  incidents  annually,  the  seventh  leading  cause of  physician  visits.
Nationwide,  approximately  12% of the U.S.  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 the
average  lithotripsy  costing $4,617 and surgery  costing $8,308  (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 1993 data, the total
annual cost of kidney stones in the United States was  conservatively  estimated
at $1.83 billion annually.

         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  control,  both by
regulating  intestinal absorption of dietary oxalate and also its secretion into
intestinal  lumen  from the blood by  maintaining  a  transepithelial  gradient.
Indeed,   recent  research   indicates  an  increased  risk  of  kidney  stones,
particularly  recurrent kidney stones, in patient populations with significantly
decreased intestinal colonization by O. formigenes. Thus the Company believes it
is clinically important to screen and treat patients with calcium-oxalate kidney
stones for the absence of the bacterium.

         Inflammatory  Bowel  Disease,  Crohn's  Disease,  and Cystic  Fibrosis.
Inflammatory  Bowel  Disease  ("IBD") 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 IBD is unknown,
with many theories,  none proven.  Many persons with IBD and Crohn's disease are
also hyperoxaluric, suggesting that excess oxalate may be a complicating factor,
or may lead to  increased  risk of  kidney  stones.  In 1987,  the  latest  data
available,  the number of new cases of IBD in the United States  annually ranged
from  two to six  per  100,000  of  population.  There  are  about  100,000  IBD
hospitalizations annually,  approximately 64% for Crohn's disease. Patients with
cystic fibrosis, appear to be at materially increased risk of kidney stones as a
result of excess oxalate. There are about 25,000 cystic fibrosis patients in the
United States.

         Vulvodynia.  Vulvar vestibulitis syndrome  ("vulvodynia") is a complex,
multifactorial  disorder with painful and  debilitating  symptoms  affecting the
tissue surrounding the vagina and urethra,  including intense burning,  itching,
and  inflammation.  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 decade 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 is associated with oxalate,
with some investigators  reporting significant  improvement following control of
dietary oxalate.

         Other Oxalate-Related Markets. Two additional products which could make
use of Ixion's oxalate  technology  include improved kidney dialysis devices and
an improved urological  catheter.  As of 1996, there were approximately  287,000
U.S.  hemodialysis  patients and approximately 300,000 more in Europe and Japan.
The use of the Ixion oxalate technology could significantly reduce the time that
patients  spend in dialysis by  increasing  the  efficiency  of oxalate  removal
during the process.

         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 the
build-up of oxalate crystals on the catheter. The Ixion oxalate technology would
allow an improved  catheter  which would inhibit or dissolve  encrusted  oxalate
crystals, thus reducing the potential for infection.

 Business Strategy

         The Company intends to market its initial  diagnostic  products,  while
working with strategic partners to take its planned therapeutic products through
clinical trials into the market.

         Basic  Research.  Ixion  has  used  and  intends  to  continue  to  use
cooperative  research and development  agreements with the University of Florida
for basic  discovery  research.  The  University of Florida is the tenth largest
university  in the  nation  and  is  the  largest  research  institution  in the
Southeast.  In 1995,  it ranked  ninth in the United  States in gross  royalties
received from patent licenses,  and sixteenth in the United States in the number
of U.S. patents obtained.

         Technology  Evaluation  and  Development.  The Company plans to use its
affiliation  with the University of Florida  Biotechnology  Program to seek out,
evaluate, license, and develop cutting-edge university based biotechnology.  The
Company's  scientific  and  business  team  will  review  early  stage  academic
inventions,   identify  discoveries  which  are  scientifically  innovative  and
commercially  promising,  obtain licenses from the  University,  and develop the
discoveries  to add value by confirming  the initial  observations.  Discoveries
that  support the  Company's  core  technologies  will be  retained  for further
development;  the remainder will be licensed-out to generate  immediate  royalty
revenue.

         The Company's  relationship  with the  scientists at the  University of
Florida is based upon personal  relationships  between  Ixion's  management  and
University of Florida members of the Company's Scientific Advisory Board, on the
one hand, and other members of the  University of Florida  faculty on the other.
These  relationships are facilitated by the Company's location at the University
of  Florida's  research  park and by the business  consulting  provided by Ixion
management  to  University   faculty  at  no  cost,  by  arrangement   with  the
Biotechnology  Program.  The Company has no formal agreement  providing  general
access to rights to University research, nor to advance notice of disclosures by
University researchers.

         The  University's   faculty  has  only  recently  begun  to  engage  in
commercial collaborations in significant numbers, thus many promising commercial
discoveries have not been exploited,  for example, the Company recently licensed
an anti-microbial  patent from two members of the University of Florida faculty.
See "Business-Licensed  Technology." In addition, academic intellectual property
is often embryonic and, therefore,  too risky, expensive, and time consuming for
large pharmaceutical and biotechnology  companies to acquire and develop. Ixion,
on the  other  hand,  is in a  position  to  perform  "applied  basic"  research
inexpensively, either in its labs or through cooperative research agreements, in
order to add value to the  technology  such that it is of  greater  interest  to
commercial licensees. By increasing the maturity stage of the technology,  Ixion
hopes to capture an enhanced return upon licensing-out for royalty and milestone
payments. See Figure 1, below.



                                             Discovery supports core technology.
                                            /  Ixion develops product.
                                           /

                                          /
                                         /
University-Discovered           Ixion   /    Substantial commercial potential,
  Very Early Stage    --------Evaluation-----    but not  within core focus.
    Technology                          \      Ixion develops technology,
                                         \       then licenses out.
                                          \
                                           \
                                            \
                                             Discovery lacks  commercial
                                                 promise or no Ixion
                                                 capability for further
                                                 development.
                                               Ixion declines license.


                Figure 1 - Ixion Technology Opportunity Strategy

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

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

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

         Contract  Clinical Trial and  Manufacturing  Services.  Initially,  the
Company has elected to retain contract  vendors to support  clinical studies and
product  development.  Moreover,  it will not  initially  construct its own good
manufacturing practices ("GMP") manufacturing  facilities. By contracting with a
qualified  manufacturing  company, Ixion will be able to obtain immediate access
to the necessary GMP and regulatory  skill base at low entry costs.  The Company
thus expects to minimize the time to market,  maintain  control over development
candidates, and reduce its financial risk when product risk is the greatest.

Product Development

         The Company's  first target  products for diabetes will be a population
of cultured  islet or pancreatic  cells for use in diabetes  treatment,  and its
first target products for oxalate-related diseases will be the Ixion Oxalobacter
formigenes Monitor and the IxC1-62/47  enzymatic  treatment for  oxalate-related
conditions.  The Company also plans other  products that will detect and measure
the  presence  of oxalate in urine or blood.  Certain of these  products  may be
suitable for use in research  applications and, subject to certain  limitations,
would  not  require  FDA   approval   prior  to  use  in  that   context.   (See
"Business-Government Regulation," below.)

         Genetics Institute Sponsored Research Agreement. In connection with its
potential diabetes products,  in June 1996, the Company entered into a sponsored
research   agreement   with  Genetics   Institute,   Inc.   ("GI"),   a  leading
biopharmaceutical   firm.  The  sponsored  research  agreement  related  to  the
Company's  IPSC  technology  and  granted  GI an  option  to a  right  of  first
negotiation for an exclusive world-wide license to the Company's IPSC technology
and any  improvements  or developments  relating to IPSC technology  which arise
during the term of the agreement. This agreement expired in 1997, and GI did not
exercise its option.

         Descriptions  of Planned  Diabetes  Products.  Ixion intends to develop
products  to  enhance  research  into  the  disease  of  diabetes,  as  well  as
therapeutic  approaches  where  Ixion's  proprietary  technology  offers  unique
solutions.

         Islet  transplantation to reverse diabetes or reduce insulin dependency
has been limited by, among other things, immunological attack resulting in rapid
rejection of transplanted  tissue. In addition to the immunologic  difficulties,
there are  significant  shortages of human islets  suitable  for  transplant  or
research, with only 4,000 or fewer pancreases available for transplant annually.
Xenotransplants using porcine islets face additional  difficulties,  such as the
possibility of cross-species  viruses. 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.  The Company  believes  that a source of
reproducible  islet cells would  significantly  improve the speed and results of
research into transplanted islets.

         Ixion's  IPSC  technology  permits  the  successful  growth of in vitro
pancreatic-derived,  pluripotent  (e.g., able to differentiate)  islet-producing
cells from mice.  When mouse cells were  implanted into  clinically  prediabetic
mice, the implanted mice were  successfully  weaned from insulin until they were
sacrificed for  histological  studies.  The Company has also been  successful in
propagating  human  islet  cells from  children  and adult  donors,  but has not
transplanted such islets at the date of this report.

         The following table summarizes the current status of the Company's IPSC
research and development program for diabetes products.


<PAGE>



                  Product Development-Diabetes IPSC Technology


        Product          Planned Research Products                Status (1)

                             Indications

Cultured IPSCs      Implantation in vivo of encapsulated          Research
 or Islets          cells for study of protected
                    implantations to reverse diabetes

Genetically         Implantation in vivo without                  Research
 Engineered IPSCs   encapsulation for study of
                    unprotected implantations
                    to reverse diabetes

Islet Growth        Promotion of cell growth                      Research
 Factors            and differentiation of
                    pancreatic explants

Nucleic Acid        Genetic and phenotype analysis                Concept
 Probes


Surface             Analysis of health or disease                 Concept
Antibodies          of biopsy specimens

                    Identification of cells

                    Enrichment of specific cell types

                    Isolation and identification of
                    cells by stage of differentiation

                    Production of knock-out lines of
                    pancreatic cells


                       Planned Clinical Products

Cultured IPSCs      Encapsulated implantation in vivo             Concept
 or Islets          to reverse diabetes

Genetically         Transplantation without                       Concept
 Engineered         encapsulation (or other
 IPSCs              means of immunologic protection) in
                    vivo to reverse diabetes

Islet Growth        Correct disease deficiencies                  Concept
Factors
                    Promote greater efficiency
                    in culturing cells for transplantation

                    Elucidation of diabetes disease process

                    Monitor disease stages


(1) "Concept"  includes  feasibility,  theoretical  market,  and product  design
studies  based  on  laboratory  or other  data.  "Research"  includes  discovery
research, development of the product's physical form and specifications, and its
initial production.  "Preclinical"  denotes efficacy,  pharmacology,  safety, or
toxicology studies in animal models.

         Descriptions of Planned Oxalate Products. At the present time, there is
no commercial  method of rapidly and easily detecting the presence or absence of
O. formigenes in the body or of measuring  oxalate levels in a patient's  blood.
The  current  tests  for  O.  formigenes  are  laborious,  time  consuming,  and
unreliable,  and  are  limited  by (1) the  difficulties  of  anaerobic  culture
methods, (2) the inability to standardize and accurately quantitate the presence
of the  bacteria,  and (3) the fact  that the  tests  cannot  be  automated.  In
addition,  the  current  tests  are not  sensitive  and are  poorly  suited to a
clinical setting.

         The only  commercially  available  tests for  levels of  oxalate in the
human  body are  currently  performed  in  clinical  labs by  measuring  oxalate
concentrations in urine.  Available assays for measuring oxalate levels in urine
also have major  drawbacks:  the samples  require  careful  processing to remove
inhibitory substances, the tests are complex and cumbersome, and they often fail
to provide consistent  results.  Accordingly,  such tests cannot be performed in
many hospital labs or in a doctor's office. Ixion's planned oxalate products are
designed to address these drawbacks.

         The Ixion Oxalobacter  formigenes  Monitor.  Ixion's oxalate technology
consists  of  cloned,  sequenced,  and  expressed  genes  encoding  the  oxalate
degrading  enzyme and  formate  degrading  enzyme  from the  intestine  dwelling
bacteria,  Oxalobacter formigenes.  Ixion's Dr. Sidhu, in collaboration with Dr.
Milton Allison, a member of Ixion's Scientific Advisory Board and the discoverer
of O.  formigenes,  has used these  genes to  construct  a  DNA-based  molecular
diagnostic  test (the  "Ixion  Oxalobacter  formigenes  Monitor")  to detect the
presence of O. formigenes in easily-collectable  stool samples. O. formigenes is
a gram negative  anaerobe present in humans and other animals.  The role of this
species in  intestinal  management  of oxalate is supported by findings  showing
significantly  decreased  intestinal  colonization  in  patient  populations  at
increased  risk of kidney  stones,  especially  patients with  recurrent  kidney
stones.  Research in this area has been inhibited by the difficulty of culturing
and detecting the anaerobe.

         The  Ixion  Oxalobacter  formigenes  Monitor  developed  by  Ixion is a
significant improvement over current tests for O. formigenes and is an important
potential addition to routine diagnostic testing for several reasons.

         Ixion's  Oxalobacter  formigenes Monitor is much easier to perform and
         provides accurate results in a fraction of the time required to culture
         and test for O. formigenes using existing methods.

         Ixion's DNA method  relies upon standard DNA  techniques  and does not
         require  anaerobic  cultures of the organisms  since it provides direct
         detection  of DNA  extracted  from fecal  samples and  amplified  using
         polymerase-based amplification ("PCR").

         Because  it  is  based  upon  PCR  and  subsequent   hybridization  to
         species-specific  sequences,  the Ixion Oxalobacter  formigenes Monitor
         provides the required level of sensitivity,  accuracy, selectivity, and
         throughput necessary for a commercial diagnostic test.

         The test has a high  degree of  specificity  and will not cross  react
         with common anaerobic or enteric bacteria,
         including  Bacteroides  ovatus,  Clostridium  perfringens,  Clostridium
         sordellii,  Veilonella parvula,  Enterobacter  aerogenes,  Enterobacter
         cloacae, Escherichia coli, Proteus vulgaris, and normal colonic flora.

         The Ixion Oxalobacter  formigenes Monitor is sensitive to the level of
         1,000 to 10,000 colony forming  units/gram of fecal  material.  This is
         approximately 100-fold lower than the number of colony forming units to
         be expected in normal, healthy adults.

     Ongoing development of the Ixion Oxalobacter  formigenes Monitor is focused
on the following  areas:  Extended  evaluation  and  enhancement  of performance
specificity with respect to other intestinal  organisms to assure the absence of
cross reactivity and misdiagnosis.  Organisms  currently being evaluated include
the following:  Alcaligenes spp, morella  thermoactica,  Yersinia spp., Shigella
spp., Salmonella spp., Vibrio colera,  Helicobacter pylori, Klebsiella,  Giardia
lamblia, and Campylobacter spp.

     Development of analytically  sensitivity and  reproducibility  standards to
support the 510(k) submission. .

     Development  of  a  quantitative   capability  for  the  Ixion  Oxalobacter
formigenes Monitor.

         The Company expects to file a 510(k) submission for clearance to market
the Ixion Oxalobacter formigenes Monitor during 1998. There is no assurance that
the Ixion Oxalobacter  formigenes Monitor will qualify for 510(k) procedure,  in
which case the Company will have to file an application  for premarket  approval
("PMA")  with the FDA. If the Company must follow the PMA  approval  route,  the
approval process may be lengthy.

         The Company  intends to develop its DNA probe  technology  into similar
molecular  diagnostic assays against clinically  important  intestinal organisms
such as those listed above. These, coupled with the Ixion Oxalobacter formigenes
Monitor, will provide for a panel of clinically important diagnostic tests

         IxC1-62/47  Enzyme  Therapy  for  Oxalate-Related   Disease.  Ixion  is
developing IxC1-62/47,  an orally administered therapeutic product consisting of
the recombinant form of two enzymes normally found in O. formigenes:  oxalyl-CoA
decarboxylase ("oxc") and formyl-CoA  transferase ("frc"). The enzymatic therapy
is  based  upon  the   re-establishment  or  enhancement  of  oxalate  degrading
mechanisms in the body.  IxC1-62/47 will be targeted initially at disease states
that are directly  related to  malfunctions  in handling  dietary  oxalate,  but
indications  will be broadened  ultimately to cover all  disorders  where excess
oxalate is a factor, including diseases or complications in which the absence of
O.  formigenes  is  not  the  cause  of the  patient's  hyperoxaluria  Very  few
satisfactory treatments currently exist for these disorders.

         Both the oxc and frc genes have been  successfully  cloned into E. coli
and  expressed in active form as verified  using  activity  assays  developed by
Ixion's  scientists.   Physicochemical  analyses  such  as  SDS-PAGE,  IEF,  and
N-terminal   sequence  analysis  have  been  completed.   Ixion  has  grown  the
recombinant  E. coli to 80 liter scale and has  purified the oxc and frc enzymes
for  use  in  a  variety  of  preclinical   studies   including  (1)  additional
physicochemical  characterization,  (2) formulation  and drug delivery,  and (3)
animal studies. The Company is also purifying the native form of the oxc and frc
enzymes  from O.  formigenes,  to provide  comparative  data to the  recombinant
versions.  The Company has not  determined  whether  the  recombinant  or native
enzymes will be used  therapeutically.  The current  intention is to file an IND
for the IxC1-62/47 enzymatic therapy for oxalate-related disorders in 1998.

         In initial animal  studies,  IxC1-62/47  successfully  lowered  urinary
oxalate  levels in rats.  In those  studies,  oral doses of the enzymes  from O.
formigenes  resulted in marked  differences in urinary oxalate levels of animals
that  received the enzymes  versus  those that did not. The animal  studies also
established  that IxC1-62/47  could replace the enzymes  normally  provided by a
colony of O. formigenes,  thus lowering  urinary  oxalate,  and that the enzymes
could be delivered in pill form

         The research version of the Ixion  Oxalobacter  formigenes  Monitor has
been performed in  preclinical  studies by Ixion lab personnel on over 300 human
samples from varied populations in the Ukraine,  Germany, the United States, and
India. The results of those studies include the following:

         Cystic  Fibrosis.  Oxalate  kidney stones are a known  complication  of
         cystic fibrosis.  The incidence in cystic fibrosis  populations over 12
         years  old   approaches  3%  to  4%  as  compared  to  0.2%  in  normal
         populations. Renal autopsies show greater than 90% nephrocalcinosis. In
         an Ixion  sponsored  clinical  study  conducted with  collaborators  at
         Northwestern University, the University Children's' Hospital,  Cologne,
         Germany, and University Children's Hospital,  Halle, Germany, 43 cystic
         fibrosis patients were examined for colonization with O. formigenes. 36
         of  the  43  patients  were  non-colonized,   and  of  these,  19  were
         hyperoxaluric  and eight had urinary oxalate levels in the upper normal
         range.  The seven patients who were  colonized  with O.  formigenes all
         showed normal levels of urinary oxalate.

         Recurrent Stone Formers. In another study on O. formigenes colonization
         in adult calcium oxalate stone formers,  preliminary data have revealed
         that the  majority  of  recurrent  stone  formers  (five or more  stone
         episodes)  are  non-colonized  with  this  bacteria.   Studies  in  the
         literature  suggesting  a decrease  in the colony  forming  units of O.
         formigenes  in patients  with  oxalate  calculi,  rather than  complete
         non-colonization, has led to the development by Ixion of a Quantitative
         Oxalobacter formigenes Monitor. The Quantitative Oxalobacter formigenes
         Monitor is now being used in additional  research in collaboration with
         researchers  at Wake Forest  Medical School to detect and quantitate O.
         formigenes in  hyperoxaluric  oxalate stone formers to determine if the
         number of colony forming units is a relevant risk factor.

         Vulvodynia.  A new  preclinical  study  is  scheduled  in  cooperation
         with the Diagnostic  Reference  Laboratory  at the Shands  Hospital at
         the  University of Florida  to  examine  25 to 40  vulvodynia  patients
         for  colonization  with O.formigenes.

         Over 65 percent of kidney stones are calcium-oxalate stones, and excess
oxalate is implicated in other  diseases as set forth above.  Oxalate is present
in many common foods,  including tea,  broccoli,  and spinach.  O. formigenes is
involved in  degradation  of dietary  oxalate and its secretion from plasma into
the gut. The Company  believes  that a robust colony of O.  formigenes  prevents
recurrent  calcium-oxalate  kidney  stone  formation  and may  ameliorate  other
disease states.  Management  believes that Ixion is the only company  world-wide
which is examining the role of O. formigenes in human and animal disease states.

         Blood Oxalate  Assay.  The  combination  of the oxc and frc enzymes and
cofactors  also  serve as the basis  for a  planned  blood  oxalate  assay.  The
recurrence  rate of calcium  oxalate kidney stone  formation is very high,  with
hyperoxaluria  as the major  predisposing  factor to stone  formation.  Accurate
measurements of blood oxalate  levels,  together with the presence or absence of
O.   formigenes,   are  important   requirements  for  predicting  the  risk  of
calculogenesis in an individual and stratifying urological patients for clinical
intervention. Development is planned in 1998 on an additional oxalate product: a
blood oxalate assay,  to be designed for clinical use by hospitals,  independent
labs, and doctors.

         The  following  table  summarizes  the current  status of the Company's
oxalate product research and development program.

                     Product Development-Oxalate Technology


Product                 Planned Research Products                   Status (1)
                            Indications
Ixion Oxalobacter
formigenes Monitor       Detection of O. formigenes in stool        Preclinical
                           Stone research

Blood Oxalate      Measurement of oxalate levels in blood           Concept
Assay              for research in kidney stone, hyperoxaluria,
                   cystic fibrosis, Crohn's disease, vulvodynia,

                   Planned Clinical Products

Oxalobacter
formigenes Monitor Detection of O. formigenes in stool for          Preclinical
                   oxalate-related and other oxalate-related
                   diseases disorders

IxC1-62/47         Treatment of oxalate-related disorders:          Preclinical
Enzyme             Kidney Stones
Therapy            Crohn's Disease
                   Cystic Fibrosis
                   Hyperoxaluria
                   Vulvodynia
                   Other oxalate-related diseases

Blood Oxalate      Diagnostic oxalate detection kit for blood       Concept
Assay

Dialysis           Rapid removal of excess oxalate in blood         Concept
Cartridge

Oxalate-Resistant  Catheter coated to                               Concept
Catheter           avoid oxalate encrustation
                   as a method to reduce
                   the incidence of infection

(1)  "Concept"  includes  feasibility,  theoretical  market,  and product design
     studies based on laboratory or other data.  "Research"  includes  discovery
     research,  development of the product's  physical form and  specifications,
     and its initial production.  "Preclinical" denotes efficacy,  pharmacology,
     safety, or toxicology studies in animal models.  "Clinical" denotes testing
     for safety and efficacy.

                               Licensed Technology

         The  Company  has been  licensed,  on an  exclusive  world-wide  basis,
commercial  rights  under  one  issued  U.S.  patent,  relating  to its  oxalate
technology,  issued  February  1997 and expiring in 2014,  and one U.S.  patent,
relating to its IPSC  technology  allowed June 1997, as well as several  pending
patent    applications,    divisional    applications,     continuations,    and
continuations-in-part,  held by the University of Florida  Research  Foundation,
Inc.  ("UFRFI"),  the  technology  transfer  organization  of the  University of
Florida.  The  licensed  technology  relates to two areas:  in vitro grown Islet
Progenitor/Stem  Cells ("IPSCs") for curing diabetes,  and materials and methods
for detection of oxalate and Oxalobacter formigenes.

         The license agreements  pursuant to which the Company has the rights to
these  patent  applications  require  UFRFI to file and  prosecute  the  patents
relating  to the  technology  licensed  to the  Company,  the costs of which are
required to be reimbursed  by the Company,  and to take all steps to defend such
patent rights. If UFRFI fails to take any such action, the Company has the right
to defend such rights at its own expense.

         The Company and UFRFI entered into a Patent License Agreement  relating
to  materials  and methods for  detection  of oxalate on January 11,  1996,  and
another  Patent  License  Agreement  relating to in vitro grown IPSCs for curing
diabetes on February 17, 1995 (the  "University  Patent  Licenses").  Except for
royalty  rates and  certain  other  immaterial  differences,  the terms of these
licenses  are  substantially  identical.   Pursuant  to  the  University  Patent
Licenses,  UFRFI licensed its rights under patent  applications on an exclusive,
worldwide basis to the Company for the life of the patents  granted  thereunder.
The Company has rights under the University Patent 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.  In order to maintain its license,  the Company is required to use
its best efforts to bring one or more  licensed  products or processes to market
through a thorough,  vigorous,  and  diligent  program for  exploitation  of the
patent  rights.  In  addition,  it must  provide  annual  business  plans to the
University   showing   the   plan  for   product   development   regarding   the
commercialization of licensed products.

         Under the University Patent Licenses,  the Company paid a license issue
fee, is obligated to pay royalties on net sales by Ixion or its  sublicensees of
licensed  products or licensed  processes,  and must reimburse  UFRFI for patent
costs  incurred in  prosecuting  the patent  applications.  There are no minimum
annual  royalties.  The  Company  is also  obliged to obtain  product  liability
insurance prior to the sale for commercial purposes of licensed products.  There
is no  assurance  that the  Company  will be able to obtain  such  insurance  on
reasonable terms.

         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 the
technologies  licensed by the  Company.  The Company is aware of certain  patent
applications previously filed by and patents already issued to others that could
conflict with patents or patent applications licensed to the Company,  either by
claiming the same methods or compounds or by claiming  methods or compounds that
could  dominate  those  licensed to the Company.  In  addition,  there can be no
assurance that the Company is aware of all patents or patent  applications  that
may materially  affect the Company's ability to make, use, or sell any products.
United States patent  applications are confidential  while pending in the United
States Patent and Trademark  Office ("PTO"),  and patent  applications  filed in
foreign countries are often first published six months or more 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 the Company and limit the ability of the Company to obtain  meaningful patent
protection. If patents are issued to other companies that contain competitive or
conflicting  claims,  the Company  may be  required to obtain  licenses to these
patents  or to  develop  or  obtain  alternative  technology.  There  can  be no
assurance that the Company will be able to obtain any such license on acceptable
terms or at all. If such licenses are not obtained, the Company could be delayed
in or  prevented  from  the  development  or  commercialization  of its  product
candidates, which would 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,  particularly bacterial oxalyl-CoA decarboxylase,
an enzyme used in the Company's proposed  oxalate-related products including the
Ixion  Oxalobacter  formigenes  Monitor and the IxC1-62/47  enzyme therapy.  The
Company may not be able to commercialize its proposed diabetic products based on
its  method  of  proliferating  IPSCs in vitro or its  proposed  oxalate-related
disease  management  products,  both due to patent  rights held by third parties
other than the Company's  licensors.  As a result,  the positions of the Company
and its  licensors  with  respect  to the use of  IPSCs or  products  containing
oxalyl-CoA  decarboxylase  are uncertain and involve legal and factual questions
that are unknown or  unresolved.  Although  management  believes its patents and
patent applications provide a competitive  advantage in its efforts to discover,
develop,  and  commercialize  useful  products,  if any of  these  questions  is
resolved in a manner that is not  favorable  to the  Company's  licensors or the
Company,  the Company may not have the right to commercialize  products relating
to  certain  aspects  of  IPSC  technology  or  products  containing  oxalyl-CoA
decarboxylase in the absence of a license from one or more third parties,  which
may not be available on acceptable  terms or at all. The Company's  inability to
commercialize  any of these products would have a material adverse effect on the
Company.

         As mentioned  above,  the Company  obtained its rights to IPSCs under a
license from the University of Florida Research  Foundation,  Inc.  ("UFRFI") in
February 1995. In 1994 and 1995, UFRFI filed in the United States and thereafter
in numerous foreign countries patent applications covering IPSCs.

         In 1981, the Ontario Cancer Institute filed a patent application in the
United  States and was issued a patent in 1984  covering a method for  producing
pancreatic   islet-like   structures  having  histology  and   insulin-producing
properties  corresponding  to those of fetal  pancreatic  islets and islets from
adult animals maintained in culture, based on discoveries by Michael Archer (the
"Archer  Patent").  The patented  method is similar,  but not identical,  to the
Company's IPSC technology.  The Archer Patent was licensed to  CytoTherapeutics,
Inc. in 1991.  CytoTherapeutics  may have filed patent  applications  in foreign
countries  based  upon  the  Archer  Patent  and  may  have  additional   patent
applications on the same general subject matter pending in the United States.

         The  Company  is also aware that in 1993,  Human Cell  Cultures,  Inc.,
filed a first U.S. patent  application which was rapidly abandoned in favor of a
second U.S.  continuation-in-part  application, and that these U.S. applications
together  were the basis of an  international  application  which claimed a cell
culturing  method  and medium to form  pancreatic  "pseudotissues"  composed  of
"pseudoislets"  to treat blood sugar disorders in mammals,  based on discoveries
by Hayden Coon and others (the "Coon Patent Application"). Subsequently, on June
7, 1995, Human Cell Cultures filed in the U.S. a continuation of its second (now
abandoned) U.S. application,  and in July 1997 was issued a United States patent
(the "Coon  Patent")  claiming a somewhat  narrower  scope of subject matter and
methods  as were  claimed  in the  Coon  Patent  Application.  The  Coon  Patent
Application  and the Coon Patent claim a method which is also  similar,  but not
identical,  to the Company's IPSC  technology.  At the date of this report,  the
Company is not aware of any U.S. or foreign  patents which have issued  relating
to the Coon Patent Application other than the Coon Patent. However, such patents
may have been  issued  and there may have been  additional  patent  applications
filed in the United  States or  foreign  countries  based  upon the Coon  Patent
Application.

         In the United States,  one must be the first to invent a subject matter
in order to be entitled to patent protection on that invention.  With respect to
patent  applications  filed prior to January 1, 1996,  United  States patent law
provides that if a party invented a technology  outside the United States,  then
for purposes of determining  the first to invent the  technology,  that party is
deemed to have invented the  technology on the earlier of the date it introduced
the invention in the United States or the date it filed its patent  application.
In  foreign  countries,  the  first  party  to file a patent  application  on an
invention,  not the first to invent the  subject  matter,  is entitled to patent
protection  on that  invention,  assuming  that the  invention  meets  the other
requirements for patentability. There can be no assurance that the owners of the
Archer  Patent  nor the  owners  of the Coon  Patent  Application  will not make
challenges to any UFRFI  patents or patent  applications  relating to IPSCs,  or
that  UFRFI will  succeed  in  defending  any such  challenges.  There can be no
assurance  that the sale of IPSC  products by the  Company  would not be held to
infringe  United  States and foreign  patent  rights of the owners of the Archer
Patent, the Coon Patent, or the Coon Patent  Application.  Under the patent laws
of most  countries,  a product  can be found to  infringe a third  party  patent
either if the third  party  patent  expressly  covers  the  product or method of
treatment  using the product,  or in certain  circumstances,  if the third party
patent,  while not  expressly  covering  the product or method,  covers  subject
matter that is substantially  equivalent in nature to the product or method.  If
it is  determined  that  products  derived from the  Company's  IPSC  technology
infringe  the Archer  Patent or the Coon Patent,  or infringe a patent,  if any,
issued pursuant to the Coon Patent  Application,  the Company would not have the
right to make,  use, or sell its IPSC  products in one or more  countries in the
absence of a license from the owners of such patents.  There can be no assurance
that the Company could obtain a license from such owners on acceptable  terms or
at all.

         As  mentioned  above,  the Company  obtained  its rights to its oxalate
technology  under a license from UFRFI in January 1995. In 1995,  UFRFI filed in
the  United  States  and  thereafter  in  numerous   foreign   countries  patent
applications  covering its oxalate  technology with claims which cover the Ixion
Oxalobacter  formigenes Monitor and its IxC1-62/47  therapy for  oxalate-related
disorders,  both  of  which  involve  the  use of an  enzyme  called  oxalyl-CoA
decarboxylase derived from the anaerobic bacteria, Oxalobacter formigenes.

         In June, 1995, Human Genome Sciences,  Inc., filed a patent application
in the United States, and thereafter in foreign countries, relating to a claimed
human oxalyl-CoA  decarboxylase and the DNA(RNA)  encoding such polypeptide,  as
well as a procedure for producing such polypeptide and for producing an antibody
relating to such  polypeptide for use in the treatment of calcium oxalate kidney
stones  and  hyperoxaluria.  A U.S.  Patent was issued on June 3, 1997 (the "HGS
Patent").  The HGS Patent  purports to relate to a human  version of  oxalyl-CoA
decarboxylase  which is stated  to be 50% to 60%  homologous  to the  oxalyl-CoA
decarboxylase from the anaerobic bacteria, Oxalobacter formigenes. If the use of
the Company's bacterial oxalyl-CoA decarboxylase is found to infringe the patent
owned by Human  Genome  Sciences,  then the Company  would not have the right to
sell such products in one or more countries  without a license from Human Genome
Sciences.  There can be no assurance  that the Company would be able to obtain a
license from Human Genome Sciences on acceptable terms or at all.

         Litigation,  which could result in substantial cost to the Company, may
also be  necessary  to enforce any patents to which the Company has rights or to
determine the scope,  validity, and enforceability of other parties' proprietary
rights, which may affect the Company's product candidates and technology. United
States  patents carry a presumption of validity and generally can be invalidated
only through clear and  convincing  evidence.  The Company's  licensors may also
have to participate in interference proceedings declared by the PTO to determine
the  priority of an  invention,  which could result in  substantial  cost to the
Company.  There can be no assurance that the Company's 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
the Company  from UFRFI,  UFRFI is  primarily  responsible  for any  litigation,
interference,  opposition,  or other  action  pertaining  to  patents  or patent
applications related to the licensed technology,  and the Company is required to
reimburse it for the costs it incurs in interference or opposition. As a result,
the Company  generally  does not have the ability to institute or determine  the
conduct of any such patent  proceedings unless UFRFI does not elect to institute
or elects to abandon such proceedings.  In cases where UFRFI elects to institute
and prosecute patent proceedings, the Company's rights will be dependent in part
upon the manner in which UFRFI conducts the proceedings.  UFRFI could, in any of
these  proceedings  that it  elects  to  initiate  and  maintain,  elect  not to
vigorously  pursue or defend or to settle such proceedings on terms that are not
favorable  to the  Company.  An  adverse  outcome in any  patent  litigation  or
interference  proceeding could subject the Company to significant liabilities to
third parties,  require  disputed  rights to be licensed from third parties,  or
require the Company to cease  using such  technology,  any of which could have a
material adverse effect on the Company.

         No assurance can be given that any existing patent application,  or any
future  patent  application  will issue or that any  patents,  if  issued,  will
provide the Company with adequate patent  protection with respect to the covered
products, their uses, technology,  or processes. In addition, under its licenses
with UFRFI, the Company is required to meet specified diligence  requirements to
retain its license of these patents.  No assurance can be given that the Company
will satisfy any of these requirements.

         In  January  1997,  Ixion  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 specie 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,  the
Company  paid a license  issue fee of 1,000  shares of its  Common  Stock and is
obligated to pay royalties of 2% on net sales of the licensed  products by Ixion
or its  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 which expires in 2009.

         Because the inventions  covered by the University  Patent  Licenses and
the  Fischer/Jensen  license were inventions made with federal assistance (which
is typical of university-based discoveries),  they are subject to certain rights
of the federal  government  under 35 USC Title 18,  "Patent Rights in Inventions
Made with Federal  Assistance."  These rights (the "Government  Rights") include
"march in"  rights  under  which the  government  has the right to  require  the
Company to grant an exclusive  license  under any of such  inventions to a third
party if the government  determines  that (i) adequate steps have not been taken
to commercialize  such inventions,  (ii) such action is necessary to meet public
health or safety  needs,  or (iii) such action is necessary to meet  requirement
for  public use under  federal  regulations.  The  Government  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 its 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, as an 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 Government  Rights  described  above, and to Ixion's
rights under the consulting agreement it has with him).

         It  is  the  Company's  policy  to  require  its  directors,   material
investors,  employees,   consultants,   outside  scientific  collaborators,  and
sponsored researchers,  and other advisors to execute confidentiality agreements
upon   investment  or  upon  the   commencement   of  employment  or  consulting
relationships  with the Company.  These agreements provide that all confidential
information  developed or made known to the individual  during the course of his
or her  relationship  with  the  Company  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 the Company shall be assigned to
Ixion as the exclusive  property of Ixion (subject,  in the case of Dr. Peck, to
the prior  rights of the  University  of  Florida).  There can be no  assurance,
however,  that these agreements will provide  meaningful  protection or adequate
remedies for the Company's trade secrets or other proprietary information in the
event of an unauthorized disclosure or will be effective to assign inventions.

         Certain  of the  Company's  research  has been  funded in part by Small
Business Innovation Research grants ("SBIRs") and may be funded in the future by
such grants and by Small Business Technology Transfer Research grants ("STTRs").
In  connection  with  any  such  funding,  the  U.S.  Government  will  have the
"Government Rights" described above.

         In order to produce or use the Ixion Oxalobacter  formigenes Monitor in
its  current  formulation  or to  produce  the Blood  Oxalate  Assay  (and other
immunodiagnostic  products)  in  commercial  quantities  for  resale,  it may be
necessary to license  certain  rights from Roche  Molecular  Systems,  Inc., the
holder  of  patents  on a  nucleic  acid  amplification  process  known  as  the
polymerase chain reaction  ("PCR")  process.  If Ixion finds it necessary to use
PCR to produce  commercial  products,  it will  enter  into such a license  with
Roche, which makes non-exclusive licenses generally available.  The Company does
not  anticipate  that the terms of such license  will have a materially  adverse
effect on the Company.

Competition

         The  biotechnology and  pharmaceutical  industries are characterized by
rapidly evolving technology and intense competition.  The Company's  competitors
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  those  of the  Company.  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.

         The  Company's  products  under  development  are expected to address a
broad range of markets. The Company's  competition will be determined in part by
the potential  indications  for which the  Company's  products are developed and
ultimately  approved by  regulatory  authorities.  See  "Business  -  Government
Regulation." 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 its 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. The Company's  competitive position will also depend on its
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.  The Company
expects its products, if approved for sale, to compete primarily on the basis of
product efficacy, safety, patient convenience,  reliability, value, and scope of
patent rights.

Government Regulation

         In  the  United  States,  the  Food  and  Drug  Administration  ("FDA")
regulates distribution,  manufacture,  labeling, and promotion of drugs, 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.

         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, and there is no guarantee that the
FDA will ever authorize marketing of the product.

         Drugs and Biologics.  Some of the Company's planned  products,  such as
the diabetes treatment products,  will be regulated as drugs and biologics.  The
Food, Drug, and Cosmetic Act ("FDCA") and the Public Health Service Act ("PHSA")
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:  (1) preclinical  laboratory and animal testing,
(2)  submission to the FDA of an  Investigational  New Drug ("IND")  application
which must be effective prior to the initiation of human clinical  studies,  (3)
adequate and  well-controlled  clinical trials to establish  safety and efficacy
for its  intended  use,  (4)  submission  to the FDA of an New Drug  Application
("NDA") or Biologics License  Application,  ("BLA"), and (5) review and approval
of the NDA or BLA 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 IND. If a company is not notified by the FDA
within  30  days of  submission  of the  IND,  Phase I  clinical  trials  may be
initiated.  Clinical trials are typically  conducted in three sequential phases,
although the phases may overlap.  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.  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.  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 the 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 an application  for an NDA (in
the case of a drug) or BLA (in the case of a biologic).  Additional information,
including  additional animal studies or clinical trials, may be requested during
the FDA review  period 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,  an NDA or PLA may place substantial  restrictions on how
the product is  marketed.  After FDA  approval of the NDA or BLA for the initial
indications,  further  clinical trials may be necessary to gain approval for the
labeling of the product for additional indications.

         Medical Devices.  Many of the Company's  planned products (e.g., the in
vitro diagnostic  products such as the Ixion  Oxalobacter  formigenes  Monitor),
will be regulated as medical  devices.  Pursuant to the FDCA,  the FDA regulates
the clinical  testing,  manufacture,  labeling,  distribution,  and promotion of
medical devices.  The FDCA further provides that, 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 GMPs), 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 PMA 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
such  approval or clearance.  Some  products may qualify for  clearance  under a
Section  510(k)  ("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  ("PMA")  application  before  marketing  can
begin. PMA applications must demonstrate,  among other matters, that the medical
device  is  safe  and  effective.  A PMA  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
PMA  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.
There can be no assurances that the FDA will authorize  marketing of the product
under a 510(k)  or a PMA,  or that it will do so in a timely  manner.  After FDA
approval of the initial indication,  further clinical trials may be necessary to
gain approval of the product for additional indications.

         Clinical   investigations   of  most   devices   are   subject  to  the
investigational device exemption ("IDE") requirements, which usually involve FDA
review of the investigation before it may begin. Clinical investigations of many
in vitro  diagnostic  ("IVDs")  tests  are  exempt  from  the IDE  requirements,
provided the testing meets certain exemption criteria,  including labeling as an
Investigational Use Only ("IUO") product.  In addition,  IVDs may be distributed
for  research  use only  ("RUO"),  provided  they are  intended  for  laboratory
research  and  labeled  for  research  use.  Pursuant  to  current  FDA  policy,
manufacturers  of IVDs for IUO or RUO are  encouraged  by the FDA to establish a
certification program under which these IVDs 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 IUO
or RUO product will be  restricted  in use and will,  among other  things,  meet
institutional review board and informed consent requirements.

         Once granted,  a 510(k) clearance or PMA approval may place substantial
restrictions  on how a device is marketed.  Even where a device is exempted from
510(k) clearance or PMA approval, FDA may impose restrictions on marketing.  For
example,  FDA has exempted many analyte  specific  reagents not sold as finished
test kits from  obtaining  510(k)  clearance or PMA  approval.  These  reagents,
however,  may be marketed  only to  clinical  laboratories  certified  under the
Clinical  Laboratoies  Improvements  ACT  ("CLIA")  to  conduct  tests  of  high
complexity and are subject to a number of labeling requirements.

         The Company's  Products.  The Ixion Oxalobacter  formigenes Monitor and
Blood Oxalate Assays will be distributed initially for research use and will not
require  FDA  review  prior to  distribution  for those  uses.  To market  these
products for diagnostic use, the Company intends to request  authorization under
the 510(k) procedure for the Ixion  Oxalobacter  formigenes  Monitor and perhaps
the Blood  Oxalate  Assay.  PMAs may,  however,  be  required  for each of these
products.  The Company believes that its diabetes  treatment products and enzyme
therapy for treatment of oxalate-related disorders will require either an NDA or
a BLA before they may be  commercially  distributed.  There can be no  assurance
that the FDA will accept the  Company's  views on the  regulatory  status of its
products, or that the FDA will authorize marketing or clinical  investigation of
any product,  or that it will do so in a timely  manner.  Additional  studies or
other  information may be requested  during the FDA review period that may delay
marketing  authorization.  The law or government  regulations may change in ways
that could prevent or delay marketing  authorization for the Company's products.
Delays in  receipt  of,  failure  to  receive,  or loss of  previously  received
approvals  could  have a  material  adverse  effect on the  Company's  business,
financial condition, and results of operations.

         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.  The  Company  intends  to  rely on its
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 the Company to enter into supply contracts
with the government, and criminal prosecution.

         Non-U.S.  Marketing.  For  marketing  outside  the United  States,  the
Company  is  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.  The Company  intends to rely on its  strategic
partners both in the United States and abroad for assistance with these matters.

     Florida  Conflicts  of  Interest.  Because Dr. Peck,  the  Company's  Chief
Scientist,  and Dr. Schuster and Dr. Khan,  members of the Company's  Scientific
Advisory Board, are employees of the Florida State University System,  they, and
consequently the Company,  are subject to Florida statutes relating to conflicts
of  interest.  In  order  for  Ixion to  conduct  business  with the  University
(including  licensing  University  technology or entering  into  CRADAs),  it is
necessary to obtain and maintain an exemption for Dr. Peck from the  application
of the Florida  conflict  of  interest  statutes,  and to obtain  approvals  for
outside activities for Dr. Schuster and Dr. Khan.

         Exemptions for Dr. Peck are issued  pursuant to a monitoring plan which
requires the Company,  among other things,  to promptly  disclose every material
transaction  between the Company 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.  Exemptions
must be  renewed  annually  at the  beginning  of each  academic  year  (or upon
material  alterations in the terms of the relations  between the Company and Dr.
Peck).  The approval of the request for renewal for the academic year ended June
30, 1997 was received on September  29,  1997.  The request to renew Dr.  Peck's
exemption  for the current  academic year ended June 30, 1998 has been filed and
is pending.  The approval process can take six or more months. While the Company
has no reason  to  believe  that Dr.  Peck's  request  for  renewal  will not be
approved,  there is no  assurance  that the  exemption  will be renewed,  or, if
renewed, that it will be renewed on reasonable terms.

Manufacturing and Marketing

         The Company has 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  intends  to seek  distribution  arrangements  for its  products  in other
countries  outside  of  the  United  States.   While  using  third  parties  for
distribution or marketing permits the Company to avoid the costs of establishing
a distribution  or marketing  network in a particular  area,  this strategy also
makes the Company  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.

         Target Markets.  Management  believes there will be substantial  demand
for the Ixion  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. The target
markets for a new blood oxalate assay include approximately 5,000 hospital labs,
the  several  major   independent   labs,  and  the  same  specialized   kidney,
nephrogenic, and urologic reference labs as for the Ixion Oxalobacter formigenes
Monitor.

         For the use of the  Ixion  Oxalobacter  formigenes  Monitor,  the blood
oxalate  assay,  and its  IxC1-62/47  enzyme therapy in the management of kidney
stones, the Company plans to target the country's  approximately 7,300 in-office
urologists.  For  the  use of  the  Ixion  Oxalobacter  formigenes  Monitor  and
IxC1-62/47  enzyme  therapy for managing  kidney  stone risk in cystic  fibrosis
patients,  the Company plans to target the cystic fibrosis  treatment centers in
the United States.  For the use of the Ixion Oxalobacter  formigenes Monitor and
IxC1-62/47  enzyme  therapy in the diagnosis and  treatment of  vulvodynia,  the
Company  intends  to  approach  the  market  through  the  35,000  gynecologists
practicing in the United States.

         Marketing Strategy.  The strategy for marketing  IPSC-related  products
will  depend  on  collaborations  with  third  parties  with  greater  marketing
resources than the Company.

         The marketing  strategy for the Ixion  Oxalobacter  formigenes  Monitor
depends upon educating  urologists and nephrologists of the clinical  usefulness
of the diagnostic test. Over 65% of all kidney stones are composed predominantly
of calcium  oxalate.  Oxalate  plays a crucial  role in the  formation  of renal
stones  and in this  respect  hyperoxaluria  constitutes  a special  problem  in
management of kidney stones.  The Ixion 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  Ixion
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.  Ixion  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,  the Company
intends to invest in both physician education programs,  and, assuming funds are
available,  consumer  awareness  campaigns.  The Company 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,  the Company proposes
to inform  urologists  about the  Company's  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 the Company's  vulvodynia  products and the cystic  fibrosis  market for the
management of kidney stone risk.

         In  each  case,   the  Company   intends  to  participate  in  urology,
nephrology, gynecology, and other industry trade meetings and to exploit on-line
medical  databases and its own web site.  Finally,  as stated above, the Company
intends to use third-party sales forces to amplify its efforts.  See "Business -
Business Strategy."

Employees.

     The  Company  has five full time  employees  and nine part time  employees,
including  Dr. Peck,  who is an exclusive  consultant,  Mr. Peck,  President and
Chief Financial Officer, Mr. Tedesco, Vice President - Operations and Regulatory
Affairs,  and  Ms.  Ramsey,  Controller.  The  Company  is  not  subject  to any
collective  bargaining  agreements and believes that its  relationship  with its
employees is good.

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Statements herein regarding the dates on which the Company  anticipates
commencing  clinical trials or filing of an  Investigational  New Drug Exemption
Application  ("IND") or application  under Section 510(k) of the Food, Drug, and
Cosmetic Act with respect to its product candidates,  constitute forward-looking
statements  under the federal  securities  laws.  Such statements are subject to
certain  risks and  uncertainties  that could  cause the  actual  timing of such
clinical  trials or filings to differ  materially  from  those  projected.  With
respect  to  such  dates,  the  Company's   management  team  has  made  certain
assumptions regarding,  among other things, the successful and timely completion
of  preclinical  tests,  the  approval  of INDs for each of the  Company's  drug
candidates  by the FDA,  the  availability  of  Section  510(k)  for its  device
candidates,  the  availability  of adequate  clinical  supplies,  the absence of
delays in patient  enrollment,  and the  availability  of the capital  resources
necessary to complete the preclinical tests and conduct the clinical trials. The
Company's  ability to commence  clinical  trials or file an IND or 510(k) on the
dates  anticipated  is subject to certain risks  including  the risks  discussed
elsewhere in this report..  Undue reliance  should not be placed on the dates on
which the Company  anticipates  filing an IND or 510(k) or  commencing  clinical
trials  with  respect  to any  of  its  product  candidates.  Statements  herein
regarding  the  Company's   research  and  development   plans  also  constitute
forward-looking  statements under the federal  securities laws.  Actual research
and  development  activities  may  vary  significantly  from the  current  plans
depending on numerous factors  including changes in the costs of such activities
from current  estimates,  the results of the  programs,  the results of clinical
studies referred to above, the timing of regulatory  submissions,  technological
advances,   determinations  as  to  commercial  potential,  and  the  status  of
competitive products.

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

Item 2.  Description of Property.

         As an affiliate of the University of Florida's  Biotechnology  Program,
the Company has leased  approximately  1,900 square feet of equipped  laboratory
space and approximately  500 square feet of  administrative  office space in the
business  incubator at Progress Park (the  University  of Florida  biotechnology
industrial park), called the Biotechnology Development Institute. As a resident,
the Company shares (at no additional cost) specialized facilities such as animal
rooms, small-scale fermentation capabilities,  and glass washing and autoclaving
facilities.  Further,  the Company uses (again at no additional  cost) expensive
and specialized  equipment  located in the centralized  instrument lab. Finally,
the Company has  available  the services of the  University  Biotechnology  Core
Laboratories   including  the  Recombinant  Protein  Expression  Core,  the  DNA
Synthesis  Core, the Flow Cytometry  Core, the Protein  Chemistry  Core, and the
Electron Microscopy Core.

         The Company has  developed a small scale  facility in its BDI lab suite
to produce preclinical quantities of the Ixion Oxalobacter formigenes Monitor as
well as IxC1-62/47.  Commercial scale production,  if any, will be subcontracted
to third party contract  manufacturers.  See "Business - Business Strategy." The
facilities  license  agreement for the Company's  laboratory and  administrative
offices  at the BDI  expires  July 31,  1998 at  which  time  the  Company  will
relocate.  Annual  payments  (including  utilities) are  approximately  $43,200,
$14,000  of which is  deferred  under the  agreement  with the  University.  See
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations - Liquidity and Capital Resources

         Comparable  rental  facilities  are available  near it's the Companny's
present location at the BDI at rents which are not materially more than the rent
at the BDI. As an incubator graduate,  the Company would continue to have access
to the Biotechnology  Program's specialized  facilities,  centralized equipment,
and core  laboratories.  Relocation  will not  materially  affect the  Company's
research and development operations.

         Contract  Suppliers  and  Manufacturers.  It is the  Company's  present
intention  to enter into  agreements  with  contract  testing and  manufacturing
entities to test and manufacture  commercial quantities of the Company's planned
products  in order to avoid the  expenditure  of  significant  funds to hire and
train  personnel  and comply with the  extensive  regulations,  including  "good
manufacturing practice" ("GMP") requirements applicable to such a facility.


Item 3.  Legal Proceedings.

         The Company is not a party to any legal proceedings and is not aware of
any  threatened  litigation  or  regulatory  action  that  could have a material
adverse effect on the Company's  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.

         The Company has registered 400,000 newly-issued Units of its securities
for  direct  sale on Form  SB-2 at a price of $10.00  per Unit for an  aggregate
offering price of  $4,000,000.  Each Unit consists of one share of common stock,
$0.01 par value, and .25 Charitable Benefit Warrant.  There is no minimum number
of Units to be sold in the Offering,  and all funds received will go immediately
to  the  Company.  The  registration  statement,   Commission  Registration  No.
333-334765,   was  declared  effective  on  December  10,  1997.  Post-Effective
Amendment No. 1 was declared  effective on March 19, 1998.  The offering has not
terminated and is not scheduled to terminate  until the earliest of: the sale of
all Units, December 10, 1998 (unless extended), or the date on which the Company
decides to close the  offering.  The  securities  are being sold directly by the
Company (except when sales are to Florida residents, in which case sales must be
made  through  Unified  Management  Corporation,   a  Florida-registered  broker
dealer).

         As of March 27, 1998, a total of 18,050 Units at an aggregate  price of
$180,500  have been sold, of  which 1,000  Units for an aggregate of $10,000 was
sold  through  December  31, 1997.  From the  effective  date of the offering to
December  31, 1997,  no expenses  were paid to or incurred by  underwriters,  no
commissions or discounts have been paid to  underwriters  and there have been no
finders'  fees.  Other  offering  related  expenses  through  December 31, 1997,
amounted  to  $78,974,  all of which were  deferred  and will be offset  against
future proceeds. No payments were made to directors,  officers, general partners
of the Company,  or to their associates  through December 31, 1997 in connection
with the offering.

         Because  the total  proceeds  received  through  December  31, 1997 was
$10,000 and the offering  expenses were in excess of that amount,  there were no
net  offering  proceeds  as of  December  31,  1997.  The use of  proceeds to be
received  from the offering is not expected to vary  materially  from the use of
proceeds described in the prospectus dated March 19, 1998.

         There is no public trading market for the Company's securities.

         Set forth below is  information  as to securities  sold by Ixion within
the past three years which 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  such issued and outstanding  restricted  securities of the Company
have  been  properly  legended  and  the  Company  has  issued  "stop  transfer"
instructions  to its  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  Securities  Act  or  have  been
transferred   pursuant  to  an  appropriate   exemption  from  the  registration
provisions of the Securities Act.

         Restricted  shares of Common  Stock have been  issued to Members of the
Board of Directors,  Members of the Scientific Advisory Board, and key employees
under the Company's Board Retainer Plan as follows:

         On May 31, 1995, 10,000 shares of Common Stock (5,000 shares to each of
         two  directors)  for  services as  directors  valued at an aggregate of
         $7,500 or $.75 per share.

         On June 10, 1996,  34,000  shares of Common Stock (5,000 shares to each
         of two directors, 5,000 shares to each of two members of the Scientific
         Advisory  Board,  for services as directors or scientific  advisors and
         14,000  shares of Common  Stock to its Vice  President  - Research  and
         Development as a hiring bonus for services to be rendered) valued at an
         aggregate of $92,000 (a portion of which is unearned  compensation)  or
         $3.00 per share.

         On September  15, 1996,  10,000 shares of Common Stock (5,000 shares to
         each of two members of the Scientific  Advisory  Board) for services as
         scientific  advisors valued at $100,000 (a portion of which is unearned
         compensation) or $10.00 per share.

         On October 10,  1996,  5,000  shares of Common Stock to a member of the
         Scientific  Advisory Board for services as a scientific  advisor valued
         at $50,000 (a portion of which is unearned  compensation) or $10.00 per
         share.

         On February  11,  1997,  10,000  shares to its  Director  of  Research,
         Oxalate Division,  as a hiring bonus for services to be rendered valued
         at $100,000 (a portion of which is unearned compensation) or $10.00 per
         share.

         On June 27, 1997, 7,000 shares of Common Stock (1,000 shares to each of
         two  directors,  and  1,000  shares  to  each of  five  members  of the
         Scientific  Advisory  Board,  for services as  directors or  scientific
         advisors)   valued  at  $70,000   (a  portion  of  which  is   unearned
         compensation) or $10.00 per share.

         On July 1, 1997,  3,000 shares to its  Associate  Director of Research,
         Diabetes  Division,  as a hiring  bonus for  services to be rendered (a
         portion of which is unearned  compensation) valued at $30,000 or $10.00
         per share.

The Company 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.

         From March 20, 1995 to May 31,  1995,  the Company sold an aggregate of
500,000 shares of Common Stock to 26 accredited investors and three unaccredited
investors for an aggregate of $375,000 or $.75 per share. The Company 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 in reliance upon the exemption provided by Rule 504 of
Regulation D of the Act as a sale of securities  which,  together with all sales
within 12 months, aggregated less than $1,000,000.

         On September  21,  1995,  the Company sold 3,000 shares of Common Stock
(together with 2,000  warrants to purchase  Common Stock at an exercise price of
$2.00 per share  expiring in 2000) to an accredited  investor for $5,000 in cash
and a note due April 1997 for $6,000 or a price of $3.00 per share and $1.00 per
warrant.  The  Company  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.

         Warrants have been issued to an institution 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 as follows:

         On November 11, 1995,  the Company  issued  warrants to purchase  7,608
         shares of Common Stock at an exercise price of $2.00 per share expiring
         in 2000, valued at $1.00 per warrant.

         In August, October, and November,  1996, the Company issued warrants to
         purchase an  aggregate  of 8,022  shares of Common Stock at an exercise
         price of $2.00 per share expiring in 2000, valued at $1.35 per warrant.

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

         On June 30, 1996, two directors and senior officers of the Company, who
may be deemed promoters, converted an aggregate of $16,158 of cash loans made to
the Company under the terms of a subordinated  convertible note agreement into a
total of 21,544  shares  of  Common  Stock,  at a price of $.75 per  share.  The
Company 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.

         In October and  November,  1996,  the Company  issued an  aggregate  of
$787,270  of  Convertible  Unsecured  Notes  due 2001 to 35  accredited  and one
unaccredited investors.  The Notes are convertible at any time prior to maturity
into a maximum of 323,557  shares of Common Stock at conversion  prices  ranging
from $4.20 to $2.10.  The conversion  prices are based on the length of time the
investor  holds the Notes  prior to  conversion.  The  Company  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 in reliance upon the exemption provided by Rule 505 of
Regulation D of the Act as a sale of securities  which,  together with all sales
within 12 months, aggregated less than $5,000,000 and were made to fewer than 35
investors.

         On February 11, 1997,  the Company  issued 1,000 shares of Common Stock
to two  inventors  in exchange  for an  exclusive  license of a patent  entitled
"Method  for the  Selective  Control of Weeds,  Pests and  Microbes,"  valued at
$10,000 or $10.00 per share.  The Company  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.

         Warrants have been issued to Brandywine Consultants,  Inc., pursuant to
the Consulting Agreement between the Company and Brandywine  Consultants,  Inc.,
dated December 12, 1996, for certain milestones as follows:

         On June 23,  1997,  3,000  warrants at an  exercise  price of $5.00 per
         share of Common Stock, expiring June 2002.

         On October 24, 1997,  3,000  warrants at an exercise price of $5.00 per
         share of Common Stock, expiring October 2002.

The Company 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.

         As of March 11,  1998,  there were  approximately  75  shareholders  of
record of the Company's common stock.

         The Company has never declared or paid any cash dividends on its Common
Stock and does not intend to pay any cash  dividends on its 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.  The Company's 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

         The Company is a development stage,  biotechnology company. The Company
is  considered  to  be  in  the   development   stage  because  it  is  devoting
substantially  all of its efforts to  establishing  its business and its planned
principal operations have not commenced.

         Since its inception in March of 1993,  the Company's  efforts have been
principally devoted to research and development, securing patent protection, and
raising  capital.  The Company has not received  any  revenues  from the sale of
products.  The Company expects its initial product, a molecular diagnostic test,
the Ixion  Oxalobacter  formigenes  Monitor,  will generate revenue during 1998;
however  it  does  not  expect  any  of  its  other  product  candidates  to  be
commercially  available  for at least the next  several  years.  From  inception
through  December  31,  1997,  the Company has  sustained  cumulative  losses of
$1,979,359.  These losses have resulted primarily from expenditures  incurred in
connection with general and administrative activities, research and development,
patent preparation and prosecution, and interest.

         The  Company  expects to  continue to incur  substantial  research  and
development  costs in the future resulting from ongoing research and development
programs,  manufacturing  of products for use in clinical trials and preclinical
and clinical  testing of the Company's  products.  The Company also expects that
general  and  administrative  costs,  including  patent  and  regulatory  costs,
necessary to support clinical trials,  research and development,  manufacturing,
and the  creation of a marketing  and sales  organization,  if  warranted,  will
increase in the future.  Accordingly,  the Company  expects to incur  increasing
operating losses for the foreseeable future.  There can be no assurance that the
Company will ever achieve profitable operations.

         The  Company  has  only a  limited  operating  history  upon  which  an
evaluation of the Company and its prospects  can be based.  The risks,  expenses
and difficulties  encountered by companies at an early stage of development must
be considered when evaluating the Company's  prospects.  To address these risks,
the Company must, among other things, successfully develop and commercialize its
product  candidates,   secure  all  necessary  proprietary  rights,  respond  to
competitive developments, and continue to attract, retain and motivate qualified
persons.  There can be no  assurance  that the  Company  will be  successful  in
addressing these risks.

         The operating  expenses of the Company will depend on several  factors,
including  the  level  of  research  and  development  expenses.   Research  and
development  expenses  will depend on the progress and results of the  Company's
product development efforts, which the Company cannot predict. Management may in
some cases 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,  the  Company  believes  that  period-to-period
comparisons  in the  future  are not  necessarily  meaningful  and should not be
relied upon as an indication of future performance.  Due to all of the foregoing
factors,  it is possible that the Company's  operating results will be below the
expectations  of market  analysts,  if any, and  investors.  In such event,  the
prevailing  market price, if any, of the Common Stock would likely be materially
adversely affected.


<PAGE>


Results of Operations

Years Ended December 31, 1996 and 1997

          The Company's revenues under the GI research agreement  decreased 2.3%
from $139,079 in 1996 to $135,922 in 1997. In both years these  revenues  relate
entirely to recognition and receipt of income from a research support  agreement
with Genetics  Institute,  Inc. Revenues under the Genetics Institute  agreement
ceased at the end of the agreement in 1997. Income from the Company's SBIR grant
increased  from  $20,000 in 1996 to  $71,650  for 1997.  That  grant  expired on
September 30, 1997 and no further revenues are expected under it.

         Interest  income  increased 31% from $7,760 in 1996 to $10,147 in 1997.
This  increase  was  attributable  to the  proceeds  from the sale of  Unsecured
Convertible  Notes in the last quarter of 1996, which were invested for only one
quarter in 1996 compared to the full year in 1997.  Interest  income relating to
the proceeds of the Unsecured  Convertible  Notes will decline in 1998, but will
be replaced,  in part,  with income from the  investment  of the proceeds of the
Company's public offering of Units in 1998.

         Operating,  general and  administrative  expenses  increased 21.7% from
$276,642 in 1996 to $336,572 in 1997. These increased expenses reflect increased
personnel,  increased  patent  amortization  expenses,  amortization  of certain
capitalized  costs  incurred  in  connection  with  the  offering  of  Unsecured
Convertible  Notes in the  fourth  quarter of 1996,  offset to some  degree by a
decline  in legal  expenses  in 1997  compared  to 1996.  Both the  amortization
expenses   commenced   during  1997.   The  Company   expects  its  general  and
administrative  expense  to  increase  during  1998 as a result of the hiring of
additional personnel,  increased amortization of capitalized patent costs as new
patents are issued, and continued  amortization of capitalized private placement
expenses.

          Research   and   development   expenditures   consist   primarily   of
payroll-related  expenses  of research  and  development  personnel,  laboratory
supplies,   animal  supplies,   laboratory  rent,   depreciation  on  laboratory
equipment, development activities, payments for sponsored research, and payments
to scientific  and regulatory  consultants.  Research and  development  expenses
increased 41.5% from $392,010 in 1996 to $554,751 in 1997, primarily as a result
of  additional  research  and  development  personnel,  and  increased  research
activities.  The Company anticipates that its research and development  expenses
will  continue  to  increase  during the next 12 months as the  Company  expands
research and development  programs and preclinical and clinical  testing for its
product candidates and technologies under development.

          Interest  expense  increased 99.5% from $56,192 in 1996 to $112,083 in
1997 due primarily to cash interest on the Company's 10% Notes, the amortization
of debt discount (initially $285,835)  attributable to the beneficial conversion
feature of the  Company's  Variable  Notes,  both issued in the last  quarter of
1996, and the  compounding of interest on deferred fees and salaries,  including
deferred interest, payable to related parties. Interest expense will continue to
increase  during 1998,  primarily as a result of the  continued  compounding  of
interest on deferred fees and salaries accounts.

Years Ended December 31, 1995 and 1996

         The Company  recognized  contract research and development  revenues of
$159,079 for the first time in the year ended  December  31, 1996.  This revenue
consisted  of a  portion  of the  $200,000  payment  under  a  research  support
agreement  between the Company  and  Genetics  Institute,  Inc.  (received  upon
execution  of the  agreement),  which the Company  recognized,  ratably over the
12-month  life of the  research  project,  ending June 30, 1997.  Revenues  also
included  funds  received  under a grant from the National  Institutes of Health
under the Small Business  Innovation  Research ("SBIR") Program.  Prior to this,
the Company's only revenues had been from interest income and nominal consulting
fees for services rendered by Ixion personnel to the  Biotechnology  Development
Institute.  Revenues under the Genetics Institute Agreement ceased in June 1997.
Payments of up to $71,650 under the SBIR  continued in 1997,  but  terminated in
September 1997.

         Interest  income  increased  53% from $5,060 in 1995 to $7,760 in 1996,
primarily  as a  result  of the  investment  of the  proceeds  of the  Company's
offering  of 10% Notes and  Variable  Notes in the last  quarter of 1996.  Other
income  increased  43% from $3,062 in 1995 to $4,366 in 1996 due primarily to an
increase in  consulting  fees for  services  rendered by Ixion  personnel to the
Biotechnology Development Institute.

         Operating,  general  and  administrative  expenses  increased  20% from
$230,423  in 1995  to  $276,642  in  1996,  primarily  due to  additions  to the
Company's personnel.

         Research and development  expenses increased 199% from $130,984 in 1995
to $392,010 in 1996.  This increase was primarily  attributable  to increases in
research  personnel and the scale of research  operations  during the year.  The
Company recorded non-cash compensation expense in the amount of $139,295 in 1996
related to the issuance of compensatory options and restricted stock.

         Interest  expense  increased  169% from  $20,927  in 1995 to $56,192 in
1996,  due  primarily  to  additions to deferred  fees and  salaries,  including
deferred interest payable to related parties,  arising from the deferral of fees
and salaries in 1993,  1994, 1995, and 1996 by Company officers and consultants,
and the compounding of deferred interest in those accounts, to the cash interest
on the Company's 10% Notes,  and the  amortization  of debt discount  (initially
$285,835)  attributable  to the beneficial  conversion  feature of the Company's
Variable Notes, both issued in the last quarter of 1996.

Liquidity and Capital Resources

         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,  $0.01 par  value,  and .25  Charitable
Benefit Warrants.  Each whole Charitable  Benefit Warrant entitles the holder to
purchase one share of Common Stock at a price of $20.00 per share.  The Offering
is being made in nine  states,  primarily  over the  Internet,  directly  by the
Company,  except in Florida where sales must be made through a broker.  There is
no minimum  number of Units to be sold in the Offering,  and all funds  received
will go  immediately  to the Company.  The offering will be terminated  upon the
earliest of: the sale of all Units, December 10, 1998 (unless extended),  or the
date on which the Company  decides to close the  offering.  At March 27, 1998, a
total of 18,050 Units ($180,500) had been sold pursuant to the offering.

         During 1997, the Company's development activities were funded primarily
by a private placement  transaction in which it sold Unsecured Convertible Notes
for an aggregate gross consideration of $787,270. In addition,  the Chairman and
Chief  Executive  Officer and the  President of the Company have entered into an
agreements to extend the Company up to $150,000 and up to $25,000, respectively,
in the form of  bridge  loans.  Interest  on the loans is at 8% but can be reset
annually,  at the  election  of either  party,  to the  prime  rate in effect on
January 1 of any given  year,  plus 3%.  Under  these  agreements,  the  Company
borrowed a total of $75,000,  which was still  outstanding  at December 31, 1997
The Company expects to borrow and repay under these facilities from time to time
to meet working  capital  needs.  The Company  does not have any bank  financing
arrangements.   The  Company's  long-term  indebtedness  consists  primarily  of
deferred fees and salaries payable to related individuals and a chattel mortgage
agreement.

         At  December  31,  1997,  the  Company  had  $44,443  in cash  and cash
equivalents.

         On January 1, 1996, the Company purchased laboratory equipment pursuant
to a chattel  mortgage  agreement in the amount of $32,309.  The agreement calls
for monthly payments of $897,  commencing  August 1, 1996. At December 31, 1997,
$17,052 in principal remains outstanding under this agreement.  The Company made
capital  expenditures of $5,800 for the year ended December 31, 1997,  primarily
for acquisitions of additional laboratory and office equipment.

         For the period March 25, 1993 (date of inception)  through December 31,
1997, the Company made payments of  approximately  $210,000  associated with the
prosecution of various patent  applications.  As further research  continues and
the  Company  acquires   additional  patent  rights,   management   expects  the
patent-related payments to increase.

         In connection with the GI sponsored research agreement described above,
certain  patent-related  expenses were paid by the Company and reimbursed by GI.
The Company is  contractually  obligated to repay these  reimbursed  expenses in
installments  over a 36 month period upon a determination  by GI not to exercise
an option contained in the sponsored research  agreement.  Reimbursement has not
commenced,  and the Company has accrued $42,317 as a long term liability pending
final action under the agreement.

         Through  December  31,  1997,  the  Company  had paid  offering-related
expenses of $78,974  which will be applied  against  the  proceeds of the public
offering.

         The Company has incurred  negative cash flows from operations since its
inception,  and has  expended  and  expects to continue to expend in the future,
substantial funds to complete its planned product development efforts,  commence
clinical  trials,  and diversify its  technology.  The Company's  future capital
requirements  and the  adequacy  of  available  funds  will  depend on  numerous
factors,  including the successful  commercialization  of the Ixion  Oxalobacter
formigenes Monitor and IxC1-62/47,  progress in its product development efforts,
the magnitude and scope of such efforts,  progress with preclinical  studies and
clinical trials, the cost of contract manufacturing and research  organizations,
cost of filing,  prosecuting,  defending and  enforcing  patent claims and other
intellectual property rights,  competing  technological and market developments,
and the development of strategic  alliances for the development and marketing of
its products. The Company requires the proceeds of the public offering commenced
in December 1997 to meet its planned operating requirements through December 31,
1998. In the event the Company's plans change or its assumptions change or prove
to be inaccurate  or the proceeds of the Offering  prove to be  insufficient  to
fund operations (due to unanticipated expenses,  delays, problems or otherwise),
the Company could be required to seek additional financing sooner than currently
anticipated.  In  addition,  the Company  will be required to obtain  additional
funds in any event through equity or debt  financing,  strategic  alliances with
corporate  partners and others,  or through  other sources in order to bring its
products through regulatory approval to commercialization.  The terms and prices
of any equity or debt financings may be significantly  more favorable than those
of the  Units  sold in the  offering.  The  Company  does not have any  material
committed  sources of additional  financing,  and there can be no assurance that
additional funding,  if necessary,  will be available on acceptable terms, if at
all. If adequate funds are not available,  the Company may be required to delay,
scale-back,  or eliminate certain aspects of its operations or attempt to obtain
funds  through  arrangements  with  collaborative  partners  or others  that may
require the Company to relinquish rights to certain of its technologies, product
candidates, products, or potential markets. If adequate funds are not available,
the Company's business,  financial condition,  and results of operations will be
materially and adversely affected.

         Until required for  operations,  the Company's  policy is to invest its
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.

Product Research and Development Plan

         The Company's plan of operation for 1998 consists primarily of research
and development and related activities including:

     C   further  development of the Company's  IPSC research  programs aimed at
         proprietary  populations of functioning islets for transplantation into
         diabetic patients;

     C   continuing  the funding of the ongoing  discovery  program in which the
         Company  intends to identify  and  characterize  novel  growth  factors
         associated with the IPSCs, to discover factors  important in islet cell
         differentiation  and  possible  regulation  of diabetes and to identify
         stem cell  markers to which the  Company  hopes to  produce  antibodies
         useful in stem cell isolation;

     C   further  preclinical  development  of a  quantitative  version  of  the
         Company's  molecular  diagnostic,   the  Ixion  Oxalobacter  formigenes
         Monitor,

     C   further  development  of  IxC1-62/47,  including  formulation,  product
         characterization,  method development,  testing (including toxicology),
         cell  line   characterization,   process   development,   clinical  lot
         manufacturing,  stability,  research protocols, and preclinical studies
         for the Company's  proposed  products,  primarily  its  oxalate-related
         products;

     C   continuing the prosecution and filing of patent applications; and

          hiring additional employees.

         The actual  research  and  development  and related  activities  of the
Company may vary significantly from current plans depending on numerous factors,
including  changes in the costs of such activities from current  estimates,  the
results of the  Company's  research  and  development  programs,  the results of
clinical studies, the timing of regulatory submissions,  technological advances,
determinations  as  to  commercial  potential  and  the  status  of  competitive
products.  The focus and  direction  of the  Company's  operations  will also be
dependent  upon the  establishment  of  collaborative  arrangements  with  other
companies, and other factors.

         There  can  be  no   assurance   that  the  Company  will  be  able  to
commercialize its technologies, or that profitability will ever be achieved. The
Company  expects that its operating  results will fluctuate  significantly  from
quarter to quarter in the future and will depend on a number of factors, many of
which are outside the Company's control.

Year 2000 Issues
         The Company has reviewed the potential  effect of Year 2000  compliance
issues on the Company and has  determined  that those issues are not material to
the Company's business, operations, or financial condition.

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.

Item 13.  Exhibits and Reports on Form 8-K.

         Exhibits marked by asterisk(s)  have not been included with this Annual
Report on Form 10-KSB,  but instead have been incorporated by reference to other
documents filed by the Company with the Commission.

   Exhibit   Description
   Number
    *3.1     Certificate of Incorporation of Registrant
    *3.2     Certificate of Amendment to Certificate of Incorporation of
                Registrant
    *3.3     Certificate of Amendment to Certificate of Incorporation of
                Registrant
    *3.4     Bylaws of Registrant, as amended and restated
   **4.3     Charitable Benefit Warrant Agreement
    *4.4     Warrant Agreement with Jeffrey W. Seel, dated November 7, 1995
    *4.5     Warrant Agreement with the University of Florida Research
                Foundation, Inc., dated November 7, 1995
    *4.6     Warrant Agreement with the University of Florida Research
                Foundation, Inc., dated August 1, 1996
    *4.7     Warrant Agreement with the University of Florida Research
                Foundation, Inc., dated October 1, 1996
    *4.8     Warrant Agreement with the University of Florida Research
                Foundation, Inc., dated November 7, 1996
   **4.9     Warrant Agreement with Brandywine Consultants, Inc., dated June 23,
                1997
   **4.10    Warrant Agreement with Brandywine Consultants, Inc., dated October
                24, 1997
   *10.1     Chattel Mortgage Agreement with Carl Therapeutic, Inc., dated as of
                January 1, 1996
   *10.2     Consulting Agreement with Brandywine Consultants, Inc., dated
                December 12, 1996
   *10.3     Consulting Agreement with Ammon B. Peck, dated February 21, 1997
   *10.4     Consulting Agreement with David C. Peck, dated July 1, 1996
   *10.5     Convertible Promissory Note with Weaver H. Gaines, dated March 31,
                1993
   *10.6     Convertible Promissory Note with David C. Peck, dated October 15,
                1993
   *10.7     Demand Promissory Note, Bridge Loan with Weaver H. Gaines, dated
                April 15, 1996
   *10.8     Demand Promissory Note, Bridge Loan with David C. Peck, dated
                April 15, 1996
   *10.9     Deferred Compensation Plan Agreement with Weaver H. Gaines, dated
                January 1, 1994
   *10.10    Deferred Compensation Plan Agreement with Ammon B. Peck, dated
                June 1, 1994
   *10.11    Deferred Compensation Plan Agreement with David C. Peck, dated
                April 1, 1994
   *10.12    Agreement to Purchase Shares, dated as of October 10, 1994
   *10.13    Note Purchase Agreement, dated as of September 13, 1996
   *10.14    Incubator License Agreement with the University of Florida Research
                Foundation, Inc., dated June 26, 1995
   *10.15    Amendment No. 1, dated July 31, 1996 to Incubator License Agreement
                with the University of Florida Research Foundation, Inc.
   *10.16    Amendment No. 2, dated October 1, 1996 to Incubator License
                Agreement with the University of Florida Research Foundation,
                Inc.
   *10.17    Amendment No. 3, dated November 7, 1996 to Incubator License
                Agreement with the University of Florida Research Foundation,
                Inc.
   *10.18    Amendment No. 4, dated January 21, 1997 to Incubator License
                Agreement with the University of Florida Research Foundation,
                Inc.
   *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
****10.20    Patent License Agreement with Research Component with the
                University of Florida Research Foundation, Inc. relating to
                Oxalobacter formigenes, dated January 11, 1995 (1)
****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
****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 (1)
****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 (1)
****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 (1)
****10.25    Patent License Agreement with Milton J. Allison, dated June 23,
                1997. (1)
****10.26    Sponsored Research Agreement with Genetics Institute, Inc., dated
                June 5, 1996 (1)
   *10.27    Employment Agreement with Weaver H. Gaines, dated August 31, 1994
   *10.28    Employment Agreement with David C. Peck, dated August 31, 1994
   *10.29    1994 Stock Option Plan, as amended
  **10.30    1994 Board Retainer Plan, as amended
   *10.31    Consulting Agreement with Ammon Peck, dated October 6, 1994
   *10.32    Amendment No. 5 to Incubator License Agreement

    11.1     Statement regarding computation of earnings per share (included as
                Note 1 in financial statements)

    27       Financial Data Schedule


         (1)  Confidential  information has been omitted from these document and
filed  separately  with the  Commission  pursuant to a request for  Confidential
Treatment. * Incorporated by reference to Form SB-2, File No. 333-334765,  dated
August 29, 1997.**  Incorporated  by reference to Amendment 1 to Form SB-2, File
No.  333-334765,  dated  November 7, 1997.  ***  Incorporated  by  reference  to
Amendment 2 to Form SB-2,  File No.  333-334765,  dated  December 2, 1997.  ****
Incorporated  by  reference to  Amendment 3 to Form SB-2,  File No.  333-334765,
dated December 9, 1997.Item 13(b) Reports on Form 8-K.

         No reports on Form 8-K were filed during the quarter ended December 31,
1997.


<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 30, 1998.


SIGNATURE                                               TITLE


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


/S/ David C. Peck                         President, Chief Financial Officer and
David C. Peck                                           Director


/S/ Kimberly A. Ramsey                                 Controller
Kimberly A. Ramsey


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


/S/ Vincent P. Mihalik                                  Director
Vincent P. Mihalik
<PAGE>
                            Ixion Biotechnology, Inc.
                          (A Development Stage Company)



                              FINANCIAL STATEMENTS



                   Years Ended December 31, 1997 and 1996 and
                for the Period March 25, 1993 (Date of Inception)
                            through December 31, 1997






                                      F-1
<PAGE>


                            Ixion Biotechnology, Inc.

                                    Contents






                                                            Page

Report of Independent Accountants                           F-3

Financial Statements:

     Balance Sheet                                          F-4

     Statements of Operations                               F-5

     Statements of Capital Deficiency                       F-6

     Statements of Cash Flows                               F-7

Notes to Financial Statements                               F-9






                                    F-2
<PAGE>


Report of Independent Accountants



The Board of Directors
Ixion Biotechnology, Inc.



We have audited the balance sheet of Ixion  Biotechnology,  Inc. (A  Development
Stage  Company)  as  of  December  31,  1997,  and  the  related  statements  of
operations,  capital  deficiency and cash flows for the years ended December 31,
1997 and 1996 and for the  period  March 25,  1993 (date of  inception)  through
December 31, 1997.  These  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Ixion  Biotechnology,  Inc. at
December 31, 1997,  and the results of its operations and its cash flows for the
years ended  December  31, 1997 and 1996 and for the period March 25, 1993 (date
of inception)  through  December 31, 1997 in conformity with generally  accepted
accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements,  the Company requires additional financing to continue its
development stage activities which raises substantial doubt about its ability to
continue as a going concern.  Management's  plans in regard to these matters are
also  described  in  Note  1.  The  financial  statements  do  not  include  any
adjustments that might result from the outcome of this uncertainty.




   /S/


Orlando, Florida
February 26, 1998, except as to
     Note 12 for which the date
     is March 27, 1998


                                            F-3
<PAGE>


Ixion Biotechnology, Inc.
(A Development Stage Company)

Balance Sheet

December 31, 1997


                                     Assets

Current Assets:
     Cash and cash equivalents .........................        $         44,443
     Accounts receivable ...............................                   1,770
     Prepaid expenses ..................................                   1,402
     Other current assets ..............................                     500
                  Total current assets .................                  48,115

Property and Equipment, net ............................                  35,695

Patents and Patents Pending, net .......................                 216,504

Deferred Offering Costs ................................                  78,974

Other ..................................................                   8,121

                                                                $        387,409

                       Liabilities and Capital Deficiency

Current Liabilities:
     Accounts payable .....................................    $         64,422
     Current portion of notes payable .....................              85,570
     Accrued expenses .....................................              46,445
                  Total current liabilities ...............             196,437

Long-Term Liabilities:
     Notes payable ........................................             584,142
     Liability under research agreement ...................              42,317
     Deferred rent ........................................               6,486
     Deferred fees and salaries, including accrued
       interest, payable to related part ..................             476,416
                  Total long-term liabilities .............           1,109,361
                  Total liabilities .......................           1,305,798

Commitments (Note 11)

Capital Deficiency:
     Common stock, $.01 par value; authorized
        4,000,000, issued and
        outstanding 2,465,544 shares ......................              24,655
     Additional paid-in capital ...........................           1,239,003
     Deficit accumulated during the development stage .....          (1,979,359)
     Less unearned compensation ...........................            (202,688)
                  Total capital deficiency ................            (918,389)

Total Liabilities and Capital Deficiency ..................     $       387,409


See accompanying notes to financial statements.



                                            F-4
<PAGE>


Ixion Biotechnology, Inc.
(A Development Stage Company)

Statements of Operations


<TABLE>
<CAPTION>

                                                                                       For the Period
                                                                                           March 25,
                                                                                          1993 (Date
                                                                                         of Inception)
                                                             Year Ended                     through
                                                             December 31,                December 31,
                                                      1997              1996               1995
<S>                                          <C>                 <C>             <C>

Revenues:
     Income under research agreement .....   $       135,922     $     139,079   $        275,001
     Income from SBIR grant ..............            71,650            20,000             91,650
     Interest income .....................            10,147             7,760             22,967
     Other income ........................             3,733             4,366             14,548
                 Total revenues ..........           221,452           171,205            404,166

Expenses:
     Operating, general and administrative           336,572           276,642          1,098,110
     Research and development ............           554,751           392,010          1,086,131
     Interest ............................           112,083            56,192            199,284
                 Total expenses ..........         1,003,406           724,844          2,383,525

Net Loss .................................   $      (781,954)    $    (553,639)   $    (1,979,359)


Net Loss per Share (Basic) ...............   $        -0.32      $      -0.23

Weighted Average Common Shares ...........         2,458,440         2,407,224

</TABLE>

See accompanying notes to financial statements.

                                            F-5
<PAGE>


Ixion Biotechnology, Inc.
(A Development Stage Company)

Statements of Capital Deficiency

For the Period March 25, 1993 (Date of Inception) through December 31, 1997


<TABLE>
<CAPTION>

                                                                           Deficit
                                                                         Accumulated
                                                             Additional  During the               Unearned
                                          Common Stock        Paid-In    Development    Note      Compen-
                                        Shares    Amount     Capital       Stage     Receivable   sation      Total
<S>                                  <C>        <C>       <C>          <C>            <C>         <C>         <C>
   Initial sale of common stock, ....  100,000  $ 1,000   $    --      $     --       $    --     $    --     $     1,000
        $.01 per share
   Sale of common stock, $.01 per ...   50,000      500        --            --            --          --             500
        share
   Net loss for the period March 25,
        1993 (date
      of inception) through December      --        --         --         (54,268)         --          --         (54,268)
           31, 1993

Balance, December 31, 1993 ..........  150,000    1,500        --         (54,268)         --          --         (52,768)

   Conversion of subordinated notes
        payable,
      $0.02 per share ...............  900,000    9,000        9,000         --            --          --          18,000
   Issuance of stock under Board
        Retainer
      Plan, $0.02 per share .........    5,000       50           50         --            --          --             100
   Sale of stock, $0.02 per share ...    5,000       50           50         --            --          --             100
   Issuance of stock in exchange for
        certain
      intellectual property, $0.02 ..  650,000    6,500        6,500         --            --          --          13,000
           per share
   Conversion of deferred consulting
        fees,
      $0.10 per share ...............   10,000      100          900         --            --          --           1,000
   Sale of stock, $0.10 per share ...  140,000    1,400       12,600         --            --          --          14,000
   Net loss .........................    --         --           --      (215,286)         --          --        (215,286)

Balance, December 31, 1994 ..........1,860,000   18,600       29,100     (269,554)         --          --        (221,854)

   Sale of stock, $0.75 per share ...  500,000    5,000      370,000         --            --          --         375,000
   Issuance of stock under Board
        Retainer
      Plan, $0.75 per share .........   10,000      100        7,400         --            --          --          7,500
   Issuance of 9,608 common stock ...     --        --         9,608         --            --          --          9,608
        warrants
   Sale of stock, $3.00 per share ...    3,000       30        8,970         --            --          --          9,000
   Note received from shareholder
        for common
      stock and warrants ............     --        --           --          --        (6,000)         --         (6,000)
   Net loss .........................    --         --           --      (374,212)         --          --       (374,212)

Balance, December 31, 1995 ..........2,373,000   23,730      425,078     (643,766)     (6,000)         --       (200,958)

   Issuance of stock under Board
        Retainer
      Plan, $3.00 per share .........   20,000      200        59,800        --            --       (26,166)      33,834
   Issuance of stock, $3.00 per share   14,000      140        41,860        --            --       (36,540)       5,460
   Issuance of stock under Board
        Retainer
      Plan, $10.00 per share ........   15,000      150       149,850        --            --       (50,000)     100,000
   Issuance of 8,022 common stock ...    --         --         10,857        --            --          --         10,857
        warrants
   Conversion of subordinated notes
        payable to
      related parties, $0.75 per ....   21,544      215        15,943        --            --          --         16,158
           share
   Issuance of variable notes with
        beneficial
      conversion feature ............    --         --        285,835        --            --          --        285,835
   Net loss .........................    --         --           --      (553,639)         --          --       (553,639)

Balance, December 31, 1996 ..........2,443,544   24,435       989,223  (1,197,405)     (6,000)     (112,706)    (302,453)

   Issuance of stock, $10.00 per ....   14,000      140       139,860        --            --      (111,382)      28,618
        share
   Issuance of stock under Board
        Retainer
      Plan, $10.00 per share ........    7,000       70        69,930        --            --       (43,000)      27,000
   Payment received from shareholder
        for note
      received for common stock and .    --         --           --          --         6,000          --          6,000
           warrants
   Amortization  of unearned
        compensation
      over service period ...........    --         --           --          --            --        64,400       64,400
   Stock warrants issued for services    --         --         30,000        --            --          --         30,000
   Sale of stock, $10.00 per share ..    1,000       10         9,990        --            --          --         10,000
   Net loss .........................    --         --           --      (781,954)         --          --       (781,954)

Balance, December 31, 1997 ..........   24,655  $24,655   $ 1,239,003  $1,979,359     $    --     $(202,688)  $ (918,389)

</TABLE>

See accompanying notes to financial statements.

                                            F-6
<PAGE>


Ixion Biotechnology, Inc.
(A Development Stage Company)

Statements of Cash Flows


<TABLE>
<CAPTION>

                                                                                                    For the Period
                                                                                                       March 25,
                                                                                                      1993 (Date
                                                                                                     of Inception)
                                                                              Year Ended               through
                                                                              December 31,           December 31,
                                                                           1997          1996           1997
<S>                                                                   <C>            <C>           <C>

Cash Flows from Operating Activities:
     Net loss                                                         $ (781,954)    $ (553,639)   $(1,979,359)
     Adjustments to reconcile net loss to net cash used in
        operating activities:
           Depreciation                                                   11,471          8,546         24,400
           Amortization                                                    3,019            738          3,844
           Stock warrants issued under license agreement                      -          10,857         20,465
           Amortization of debt discount                                  57,168         19,056         76,224
           Stock warrants/options issued for consulting services          30,000             -          30,000
           Stock compensation                                            110,018        139,295        256,813
           Decrease (increase) in employee advance                            -             900             -
           Decrease (increase) in prepaid expenses and
              other current assets                                         6,376          7,932         (1,727)
           Decrease (increase) in accounts receivable                      6,389         (8,159)        (1,770)
           Increase (decrease) in deferred revenue                      (100,000)       100,000             -
           Increase in liability under research agreement                 42,317             -          42,317
           Increase in accounts payable and
              accrued expenses                                            28,881         24,869         95,193
           Increase in deferred fees and salaries                         91,378         83,256        449,864
           Increase in deferred rent                                       6,486             -           6,486
           Increase in interest payable                                       -           2,325         33,198
                 Net cash used in operating activities                  (488,451)      (164,024)      (944,052)

Cash Flows from Investing Activities:
     Purchase of property and equipment                                   (5,757)       (13,993)       (31,897)
     Organization costs                                                       -              -            (436)
     Payments for patents and patents pending                            (90,289)       (67,053)      (209,770)
                 Net cash used in investing activities                   (96,046)       (81,046)      (242,103)

Cash Flows from Financing Activities:
     Proceeds from issuance of subordinated notes
        payable to related parties                                        75,000             -         105,307
     Proceeds from issuance of convertible notes payable                      -         787,270        787,270
     Proceeds from sale of common stock                                   10,000             -         416,700
     Proceeds from collection of note receivable                           6,000             -           6,000
     Payment of loan costs                                                    -         (11,080)       (11,080)
     Payment of deferred offering costs                                  (62,629)            -         (62,629)
     Principal reductions in note payable                                (10,970)            -         (10,970)
                 Net cash provided by financing activities                17,401        776,190      1,230,598

Net Increase in Cash and Cash Equivalents                               (567,096)       531,120         44,443

Cash and Cash Equivalents at Beginning of Period                         611,539         80,419             -

Cash and Cash Equivalents at End of Period                            $   44,443    $   611,539    $    44,443

</TABLE>

See accompanying notes to financial statements.

                                            F-7
<PAGE>


Ixion Biotechnology, Inc.
(A Development Stage Company)

Statements of Cash Flows - Continued


<TABLE>
<CAPTION>

                                                                                                        For the Period
                                                                                                           March 25,
                                                                                                          1993 (Date
                                                                                                         of Inception)
                                                                              Year Ended                   through
                                                                              December 31,               December 31,
                                                                         1997             1996              1997

Supplemental Disclosure of Cash Flow Information:
<S>                                                                   <C>             <C>              <C>

     Cash paid during the year for:
        Interest                                                      $    21,887     $     5,761      $    28,156


Supplemental Disclosure of Noncash Investing and
     Financing Activities:

        Common stock issued for subordinated notes
           payable                                                    $       -       $    16,158      $    34,158

        Common stock, stock warrants and stock options
           issued for services or technology                          $    30,000     $    10,857      $    49,457

        Common stock issued for note receivable                       $       -       $        -       $    (6,000)

        Common stock issued for purchase of patent                    $    10,000     $        -       $    10,000

        Equipment purchased under an installment
           note arrangement                                           $       -       $    28,022      $    28,022

        Common stock issued under Board Retainer Plans                $    70,000     $   210,000      $   287,500

        Other common stock issued as compensation                     $   130,000     $    42,000      $   172,000

        Deferred offering costs included in
           accounts payable                                           $    16,345     $        -       $    16,345

</TABLE>

See accompanying notes to financial statements.



                                            F-8
<PAGE>


Ixion Biotechnology, Inc.
(A Development Stage Company)

Notes to Financial Statements

YearsEnded  December  31,  1997 and 1996 and the Period  March 25, 1993 (Date of
     Inception) through December 31, 1997



       1.Significant Accounting Policies:

       Organization - Ixion  Biotechnology,  Inc., a Delaware  corporation  (the
       "Company"),  was  incorporated  on  March  25,  1993  and has been in the
       development  stage  since its  formation.  The  Company is in business to
       develop pharmaceutical products and medical devices to detect,  diagnose,
       treat or prevent diabetes and oxalate-induced  diseases.  The Company has
       not generated  significant revenues to date and has experienced operating
       losses  since its  inception.  The  Company  expects to incur  additional
       operating  losses for the next several  years as the Company  expands its
       research and development  and regulatory  activities and prepares for the
       manufacturing and marketing of its products.

       Basis of Presentation - The Company is in the development  stage since it
       is devoting substantially all of its efforts to establishing its business
       and its  planned  principal  operations  have not  commenced.  Successful
       completion of the Company's  development  program,  and its transition to
       profitable operations, is dependent upon obtaining approval to market its
       products  from  the  United  States  Food  and  Drug  Administration  and
       achieving revenues from the commercial development of its products.

       The Company's  financial  statements for the year ended December 31, 1997
       have been  prepared on a going  concern  basis,  which  contemplates  the
       realization of assets and the settlement of liabilities  and  commitments
       in the normal  course of  business.  The  Company  incurred a net loss of
       $781,954  for the year ended  December  31, 1997 and, as of December  31,
       1997, had a total capital deficiency of $1,979,359.

       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.  The  Company  requires  the  proceeds of the public
       offering to meet its planned operating  requirements through December 31,
       1998.  The Company had  received  proceeds of $10,000 as of December  31,
       1997. If the proceeds from the offering  prove to be  insufficient,  then
       the Company would be required to obtain  additional  funds through equity
       or debt  financing,  strategic  alliances  with  corporate  partners,  or
       through other sources.

       There  can be no  assurance  that  the  Company  will  be  successful  in
       obtaining  the  required  financing.  Under  current  circumstances,  the
       Company's  ability to continue as a going concern  depends upon obtaining
       additional financing.

       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.


                                            F-9
<PAGE>


Ixion Biotechnology, Inc.
(A Development Stage Company)

Notes to Financial Statements - Continued

YearsEnded  December  31,  1997 and 1996 and the Period  March 25, 1993 (Date of
     Inception) through December 31, 1997



Significant Accounting Policies - Continued:

       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.
       Valuation  allowances are  established  when necessary to reduce deferred
       tax assets to the amount  expected to 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 (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, 1997, the Company
       has received final approvals on one patent and purchased  another 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  current  operating
       results,  trend and  prospects  as well as the  effects of  obsolescence,
       demand, competition and other economic factors.

       Research and Development - Research and development  costs are charged to
       expense as incurred.

       Other Assets - Other  assets  consists of  organizational  costs and loan
       costs associated with convertible  notes.  The  organizational  costs are
       being amortized on a straight-line  basis over five years. Loan costs are
       being amortized over the term of the notes payable.

       Deferred  Offering Costs - Fees, costs and expenses related to the public
       offering have been  capitalized.  These costs will be offset  against the
       proceeds from the offering or expensed should the offering be abandoned.


                                            F-10
<PAGE>


       1.Significant Accounting Policies - Continued:

       Deferred  Rent - Deferred  rent  represents a portion of the rent payable
       under the Company's 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.

       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
       common  equivalent  shares from stock options,  warrants and  convertible
       notes payable in the computation is 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.



       2.Property and Equipment:

Property and equipment consists of the following as of December 31, 1997:

Computers and equipment ..............................           $       57,084
Computer software ....................................                      515
Library ..............................................                    1,104
                                                                         58,703
Less accumulated depreciation ........................                  (23,008)

                                                                 $       35,695



                                            F-11
<PAGE>


       3.Notes Payable:

       On March 15,  1996,  the  Company  entered  into a written  agreement  to
       purchase  certain  laboratory  equipment  for a sales  price of  $32,309,
       payable in 36 monthly installments of $897, including interest, beginning
       August 1, 1996.  As of December  31, 1997,  $17,052 in principal  remains
       outstanding under this agreement.

       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 commencing
       on November 30, 1996.  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  effective
       interest  method over the term of the  Variable  Notes and to the date of
       the deepest discount. As of December 31, 1997, there were $215,600 of 10%
       Notes and $571,670 of the Variable  Notes  outstanding  ($362,059  net of
       unamortized debt discount of $209,611 at December 31, 1997.
       Accrued  interest on the 10% Notes  totalled  $1,796 as of  December  31,
       1997.

       In December,  1997, the Company  entered into  short-term loan agreements
       with  officers of the Company  for a total of $75,000.  The loans  accrue
       interest at 8% and are due on demand (Note 8).

       Future principal  maturities of notes payable for each of the five years
       subsequent to December 31,  1997 are as follows:



          Year Ending
              1998                                       $  85,570
              1999                                           6,482
              2000                                            --
              2001                                         787,270

                   Total                                 $ 879,322



                                            F-12
<PAGE>


       4.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, 1997:



Deferred compensation ................................          $       188,000
Net operating loss carryforward ......................                  598,000

Deferred tax asset ...................................                  786,000
Valuation allowance ..................................                 (786,000)

Net deferred tax asset ...............................          $           --


       Any tax benefits  for the years ended  December 31, 1997 and 1996 and the
       period  March 25,  1993 (date of  inception)  through  December  31, 1997
       computed based on statutory federal and state rates are completely offset
       by valuation allowances established since realization of the deferred tax
       benefits are not considered more likely than not.



       5.Common Stock Warrants:

       During  1996,  the Company  issued  warrants to purchase  8,022 shares of
       common stock to the University of Florida Research Foundation  ("UFRFI").
       The  warrants  were  issued as part of a  license  agreement  with  UFRFI
       whereby  Ixion is  authorized  to occupy space at a UFRFI  facility.  The
       agreement  calls for the Company to pay $18 per square foot  annually for
       the space that the Company currently occupies,  payable at $11 per square
       foot in cash and $7 per square  foot  through  issuance  of common  stock
       warrants.

       The 8,022 warrants issued in connection with the UFRFI license  agreement
       in 1996 are accounted for under the  provisions of Statement of Financial
       Accounting   Standards   Board  No.  123,   Accounting  for  Stock  Based
       Compensation.   This  standard  requires  equity  instruments  issued  in
       exchange for goods or services to be  accounted  for at the fair value of
       goods or services  received or equity  investments  issued,  whichever is
       more  measurable.  In connection  with the issuance of the 1996 warrants,
       the Company  received cash license  payment  reductions  of $10,857,  the
       value assigned to the warrants,  or $1.35 per warrant,  which was charged
       to rent (prepaid or expense).


                                            F-13
<PAGE>


       5.Common Stock Warrants - Continued:

       During  1997,  the Company  issued  warrants to purchase  6,000 shares of
       common stock to a consulting firm as part of a consulting agreement (Note
       8). The warrants are accounted  for under the  provisions of Statement of
       Financial  Accounting  Standards  No.  123,  Accounting  for Stock  Based
       Compensation,  as noted above.  The value assigned was $5.00 per warrant,
       based on the difference  between the exercise price of $5.00 and a $10.00
       market  value at date of  grant,  for a total of  $30,000  to  consulting
       expense.   The  value   assigned   approximates   that   derived  from  a
       Black-Scholes  valuation model assuming an average discount rate of 5.5%,
       a volatility factor of 30% and an expected term of one year.

       Common stock warrants outstanding at December 31, 1997 are as follows:



               Number        Exercise Price          Expiration Date

               17,630          $   2.00              August 31, 2000
                6,000          $   5.00       February, 2002 - October, 2002




       6.Stock Option Plan:

       In August,  1994,  the Board of  Directors  adopted the 1994 Stock Option
       Plan,  under  which  250,000  shares of common  stock were  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 vest at the rate of 20% per year and
       are exercisable  generally within ten years after date of grant. Activity
       under the Company's stock option plan is set forth below:


                                                                     Exercise
                                       Shares .............           Price

Outstanding at January 1, 1994 ......    --                             --
   Granted ..........................  2,000                         $   0.02
   Exercised ........................    --                             --
Outstanding at December 31, 1994 ....  2,000                         $   0.02
   Granted ..........................  3,500                         $   0.75
   Exercised ........................    --                             --
Outstanding at December 31, 1995 ....  5,500                      $0.02 - $ 0.75
   Granted .......................... 13,000                         $   3.00
   Exercised ........................    --                             --
Outstanding at December 31, 1996 .... 18,500                      $0.02 - $ 3.00
   Granted .......................... 25,400                      $6.00 - $10.00
   Exercised ........................                                   --
Outstanding at December 31, 1997 .... 43,900

                                            F-14
<PAGE>


       6.Stock Option Plan - Continued:

       The status of options outstanding at December 31, 1997 is as follows:

<TABLE>
<CAPTION>

                                                          Weighted                  Weighted
                 Exercise                                  Average                  Average                Number
                  Price              Shares            Remaining Life            Exercise Price         Exercisable
<S>               <C>                <C>               <C>                        <C>                   <C>

                  $  .02              2,000              6.5  years                 $  .02                   1,333
                  $  .075             3,500              7.5  years                 $  .075                  1,808
                  $ 3.00             13,000              8.5  years                 $ 3.00                   3,900
                  $ 6.00              3,000              9.33 years                 $ 6.00                      -
                  $ 7.50              2,000              9.4  years                 $ 7.50                      -
                  $10.00             20,400              9.5  years                 $10.00                   6,250

                                     43,900                                                                 13,291
</TABLE>


       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 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.

       Given the limited time period that the Company's  stock has been publicly
       traded,  as well as the lack of history to estimate  patterns of exercise
       and option term, fair value disclosures required under FASB Statement 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:



                                                1997                  1996
                                           Low       High       Low        High

Discount Rate .......................      6.09%     6.38%      6.74%      7.04%

Volatility ..........................       30%       60%        30%        60%

Option Life (Years) .................       5          9          5          9



                                            F-15
<PAGE>


       6.Stock Option Plan - Continued:

       The  weighted  average  fair  value of  options  granted  to  other  than
       non-employee  consultants  during  fiscal  year  1997 and 1996 was in the
       range of $3.82 to $7.31 and $1.17 to $2.21 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 FASB  Statement  No.  123,  the  Company's
       reported  net loss and loss per share for fiscal year 1997 and 1996 would
       have been as follows:



                                                   Low                High

     1997 Net Loss ...................        $  792,985        $    802,995
     1997 Loss Per Share .............            -0.32               -0.33

     1996 Net Loss ...................           555,414             556,991
     1996 Loss Per Share .............            -0.23               -0.23


       The Company applies Statement of Financial  Accounting  Standards No. 123
       for  stock  options  issued to  non-employee  consultants.  In 1997,  the
       Company  granted  5,000  options at exercise  prices of $6.00 - $7.50 per
       share and will  record  consulting  expense as the  options  vest for the
       difference between the exercise price and the market values at grant date
       of $10.00.



       7.Board Retainer 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,  in August, 1994, the Board of Directors adopted the
       1994 Board Retainer Plan,  under which 75,000 shares of common stock were
       reserved  for  non-employee  directors  and  members  of  the  Scientific
       Advisory Board.

       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 Board Retainer  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 credited to 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, 1997, a
       total of 57,000  shares had been  granted  under this Plan.  Compensation
       expense  recognized in  connection  with such awards for the years ending
       December  31,  1997 and  1996 was  $83,000  and  $133,834,  respectively.
       Unearned  compensation  of $202,688  remains to be  recognized as expense
       over future periods of service.


                                            F-16
<PAGE>


       8.Related-Party Transactions:

       Commencing  with  the  founding  of  the  Company,  two  executives,  the
       Chairman/Chief  Executive  Officer and the  President,  made loans to the
       Company  pursuant  to the  terms of a  convertible  promissory  note (the
       "Subordinated  Note  Agreement").  Under  the  terms of the  Subordinated
       Notes,  principal  amounts were  convertible into common stock at a price
       per share not greater than the lowest price per share (adjusted for stock
       splits,  stock  dividends,  or other  dilution)  at which  shares  of the
       Company's  common  stock  have been  issued  during the  12-month  period
       immediately prior to the notice of election to convert.

       On  September  30,  1994,   these  officers  each  converted   $9,000  of
       Subordinated  Notes into an aggregate of 900,000  shares of the Company's
       common  stock,  at a price of $0.02  per  share.  On June 30,  1996,  the
       remaining  obligation on these notes was converted by the officers into a
       total of 21,544 shares of the Company's common stock, at a price of $0.75
       per share.

       In  addition,  the  Company  has agreed to defer the payment of the 1993,
       1994 and part of the 1995,  1996 and 1997 salaries of the  Chairman/Chief
       Executive  Officer and the President  pursuant to agreements  between the
       Company and such  executives.  Similar  agreements are in effect with the
       Company's Senior Vice President and Chief  Scientist.  Payments are to be
       made  only  upon  termination  of  employment  (which  may  be by  death,
       disability,  retirement,  or otherwise) and may be in a lump sum or as an
       annuity.   Amounts  bear  interest,   compounded  annually,   at  a  rate
       established by the Board of Directors,  currently 8.0%. These obligations
       are unfunded recorded liabilities of the Company.

       On October 10,  1994,  Dr. A.B.  Peck,  who is an  executive  officer and
       consultant,  assigned to the Company all his interest in certain  oxalate
       technology  (subject to prior  rights of the  University  of Florida) and
       agreed to an exclusive  consulting agreement with the Company in exchange
       for an  aggregate  of 650,000  shares of common stock at a price of $0.02
       per share.  The Company has a consulting  agreement  with Dr. Peck for 48
       days of service per year for  $50,000 per year which  expires on December
       31, 1999.

       On November 10, 1994,  members of the immediate  families of the founders
       of the  Company,  including  a  partnership  in which the  Chairman/Chief
       Executive  Officer has an undivided 25% interest,  purchased an aggregate
       of 140,000 shares of the Company's  common stock pursuant to an Agreement
       to Purchase Shares dated as of such date, for a price of $0.10 per share,
       or $14,000 in the aggregate.


                                            F-17
<PAGE>


       8.Related-Party Transactions - Continued:

       On April 16, 1996, the Chairman/Chief Executive Officer and the President
       of the Company each entered into an agreement to extend the Company up to
       $25,000 in the form of a bridge loan. Interest on the notes is at 8%, but
       can be reset annually,  at the election of either party, to prime rate in
       effect on January 1 of any given year, plus 3%. In addition,  on June 21,
       1996, the  Chairman/Chief  Executive  Officer agreed to increase his loan
       commitment  to an amount up to  $150,000,  if  necessary,  to enable  the
       Company to continue  operations.  At December 31,  1997,  there are total
       loans of $75,000 outstanding to these officers of the Company (Note 3).

       In December,  1996,  the Company  entered  into a  consulting  agreement,
       terminable  upon 90 days  notice by either  party,  with a company  whose
       president is an officer of the Company.  The company is to be paid $5,000
       monthly  and could  receive  warrants  for up to 20,000  shares of Common
       Stock upon the achievement of certain  milestones.  Through  December 31,
       1997, the  consultants had been paid $60,000 and were issued warrants for
       6,000 shares of Common Stock (Note 5).

       In 1997, the Company engaged the services of a printer in connection with
       the  offering.  The printer is  partially  owned by the  Company's  Chief
       Executive  Officer.  Through  December  31,  1997,  the  printer  has not
       rendered any services, and accordingly, has not been paid.



       9.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, 1997, GI has not exercised
       their right for an exclusive  license to this  technology  and such costs
       are recorded as a liability.


                                            F-18
<PAGE>


       10.        Risks and Uncertainties:

       Approximately 61% of 1997 revenues and 80% of 1996 revenues  consisted of
       revenues related to a single sponsored  research  agreement which expired
       in 1997.

       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.  No revenues have 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.



       11.        Commitments:

       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.



       12.        Subsequent Events:

       Through March 27, 1998, the Company has received  proceeds of $180,500 by
       selling 18,050 units of Common Stock and Charitable  Benefit  Warrants in
       an initial public offering at $10.00 per unit.









                                            F-19