Draft of 3/25/00
=======================================================================
                     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

                   For the fiscal year ended December 31, 1999

                                       or

       [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934 )

                        For the transition period from to




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



                    DELAWARE                           59-3174033

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

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

                                  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, 1999, was $102,636.00.

         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 23, 2000, was approximately $3,949,880 based on the most recent sales
of newly-issued common equity.  There is no public market for the issuer's
common stock.

         The number of shares of the issuers common stock, par value $.01 per
share, outstanding as of March 23, 2000, was 3,051,164

                      DOCUMENTS INCORPORATED BY REFERENCE:

                  DOCUMENT                         PART INTO WHICH INCORPORATED
                  --------                       -------------------------------
The Proxy Statement to be used in connection with           Part III
the annual meeting of stockholders to be held
June 9, 2000 (the "Proxy Statement"),
to be filed with the Commission prior to April
30, 2000, pursuant to Rule 14a-101, Schedule 14A
of the  Exchange Act.

<PAGE>




                                     PART I

Item 1.  Description of Business.

         Ixion is a development stage, discovery research biotechnology company,
with several product candidates in development. We are the holder of world-wide
exclusive licenses to patents and pending patents in two key areas: diabetes and
oxalate-related disorders.

         We are developing diabetes products based on our islet producing stem
cell technology, including a proprietary line of in vitro (in test tube) islet
stem cells for use in islet replacement therapy. This development program is
aimed at optimizing the growth of functioning islets or islet progenitors in
vitro from islet producing stem cells which Ixion has established in cell
cultures. Islet replacement therapy is the only known potential cure for type 1
diabetes. We believe that islet replacement therapy, if it can be developed
successfully, will provide better management of diabetes than conventional
treatment with insulin and other metabolic regulators. Conventional treatment
results in hyper- and hypo-glycemic excursions 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 our islet transplantation therapy, we have an
ongoing discovery program to identify and characterize islet stem cells as well
as novel growth factors associated with them. The goal of this program is to
discover factors important in islet stem cell differentiation and to identify
stem cell markers to which we hope to produce antibodies useful in stem cell
isolation and research. All of our potential diabetes products are in the
discovery research stage.

         Diabetes is a chronic, complex metabolic disease. Type 1 diabetes
(often referred to as insulin dependent diabetes or juvenile diabetes) is
characterized by an inability to produce insulin due to the destruction of the
insulin-producing cells of the pancreatic islets of Langerhans. Type 1 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 1 diabetes, the most severe form of the disease, and must take
insulin. An additional one and one-half million type 2 patients in the United
States also take insulin. Annual expenditures on all forms of diabetes are
nearly $100 billion.

     We are also developing both Ox-Control(TM) - a nutritional supplement - and
IxC1-62/47  - a  prescription  drug  product - based on our oxalate  technology.
Ox-Control(TM)  will  promote  healthy  levels  of  oxalate  in  the  body.  The
prescription  drug and  molecular  diagnostic  device  products  will be for the
diagnosis and treatment of oxalate-related  diseases.  Our oxalate technology is
based  on  genes  from  the  non-pathogenic   anaerobic   intestinal   bacteria,
Oxalobacter formigenes.  O. formigenes produces enzymes which degrade oxalate in
healthy people.  Inadequate  colonies of O. formigenes result in reduced ability
to  degrade  oxalate.  Excess  oxalate  plays a role in a variety  of  disorders
including

      o        kidney stones,
      o        hyperoxaluria,
      o        cardiomyopathy,
      o        cardiac conductance disorders,
      o        cystic fibrosis,
      o        Crohn's disease,
      o        renal failure and toxic death, and
      o        vulvodynia.

         There are approximately one million kidney stone incidents annually in
the United States. Annual expenditures on kidney stone incidents 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

                                       3
<PAGE>

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.


     Ixion is in the  development  stage. We have earned only limited  revenues,
the majority of which have been research and  development  payments,  and we
have an accumulated deficit of $4,019,388 from our inception through December
31, 1999.

Industry Description and Outlook

         In 1999, the U.S. biotechnology industry was composed of approximately
1,300 companies, public and private. The public market for biotechnology
financing for small companies was very poor during 1998 and much of 1999, but
recovered to some degree in the latter half of 1999. The biotechnology industry
is part of the broader health care industry in the United States, which accounts
for approximately 14% of the country's gross domestic product, or approximately
$1 trillion.

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

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

         Current therapies, including insulin shots or oral hypoglycemic
medication modulate blood glucose, but cannot consistently maintain the
blood glucose near 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. We believe 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
help control the complications of the disease. While islet transplantation is
the only known potential cure for type 1 diabetes, transplant therapy is an
early stage procedure and results for the adult islet transplants performed to
date have been disappointing, as is common for early stage procedures. Although
there can be no assurance, we believe that the success rate of transplant
therapy will improve over time.

         Kidney stones. Kidney stones are a major health care problem in the
United States, and a worse one in other parts of the world. Nearly one in every
1,000 residents in the United States has been hospitalized for stones, and
autopsies have revealed that one in every 100 persons have observable stone
formation in their kidneys. Between seven and ten of every 1,000 hospital
admissions in the United States are for kidney stones; 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.

                                       4
<PAGE>

         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 homeostasis, both by
regulating intestinal absorption of dietary oxalate and also its secretion into
intestinal lumen from the blood. We believe that it may be clinically important
to screen and treat patients with oxalate-associated diseases for the presence
or absence of the bacterium. Indeed, recent research indicates an increased risk
of kidney stones in patient populations with significantly decreased intestinal
colonization by O. formigenes. This appears to be particularly true of patients
with cystic fibrosis, who are at materially increased risk of kidney stones as a
result of excess oxalate.

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

         Vulvodynia. Vulvar vestibulitis syndrome ("vulvodynia") is a complex,
multifactorial disorder with painful and debilitating symptoms 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 few years ago. There are no population studies of the
incidence or prevalence of vulvodynia although the condition may affect from
150,000 to 200,000 American women. Because the cause is often unknown,
treatments have been aimed at symptoms and include xylocaine, acupuncture,
hypnotherapy, interferon injections, and, as a last resort in chronic cases,
surgery. Recent research suggests that vulvodynia is associated with oxalate,
with some investigators reporting significant improvement following control of
dietary oxalate.

         Pet Food Market. There are approximately 60 million cats and 53 million
dogs in the U.S. In Europe, dogs out number cats. Companion animal health care
products totals approximately $2 billion globally, of which
biotechnology-derived products, including the feed supplement segment, accounted
for $680 million in sales.

         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

         We expect to develop products for both the less heavily-regulated
nutritional supplement market and the heavily-regulated drug, device, and
biologic markets. Our strategy is to accelerate the development of our
nutritional supplement, Ox-Control,(TM) to generate near-term revenue. At the
same time, we intend to continue development of our prescription drug, device,
and biologic products where the product development cycle is much

                                       5
<PAGE>


longer and more expensive. We will continue to seek strategic partners to
participate in the development of both types of products. Other elements of our
strategy include the following:

         Basic Research. Ixion has used and intends to continue to use
cooperative research and development agreements with the University of Florida
and other research institutions 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. It typically ranks in the top 10 in the
United States in gross royalties received from patent licenses, and the top 20
in the United States in the number of U.S. patents obtained.

         Technology Evaluation and Development. We use our affiliation with the
University of Florida Biotechnology Program and the members of our Scientific
Advisory Board to seek out cutting-edge university based biotechnology. Our
scientific and business team will review early stage academic inventions,
identify discoveries which are commercially promising, obtain licenses from the
universities, and develop the discoveries to add value.

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

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

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

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

         Contract Clinical Trial and Manufacturing Services. Initially, we have
elected to retain contract vendors to support clinical studies and product
development. Moreover, we will not initially construct our own manufacturing
facilities. By contracting with a qualified manufacturing company, Ixion will be
able to obtain immediate access to the necessary regulatory skill base at low
entry costs. We thus expect to minimize the time to market, maintain control
over development candidates, and reduce our financial risk when product risk is
the greatest.

Product Development

         Our first target product for diabetes will be cell lines of cultured
islet or stem cells for use in islet replacement therapy for diabetes. Our first
target products to promote healthy levels of oxalate will be Ox-Control,(TM) our
nutritional supplement product, and our pet food supplement product, followed by
the XEntrIX TM Oxalobacter formigenes Monitor and the IxC1-62/47 prescription
treatment for oxalate-related conditions. We also plan other products that will
detect and measure the presence of oxalate in urine or blood. Certain of these
products may also be suitable for use in research applications and, subject to
certain limitations, would not require FDA approval prior to use in that
context.

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<PAGE>

         Descriptions of Planned Diabetes Products. Ixion intends to develop
products to enhance research into the disease of diabetes, as well as
therapeutic approaches where our 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.
About 3,000 patients die each year while waiting for a pancreas graft.
Xenotransplants using porcine islets face additional difficulties, such as the
possibility of cross-species viral infection. To date, efforts to propagate
commercial quantities of human islets in vitro (in the test tube) from either
fetal or adult tissue has had minimal success. We believe that a source of
reproducible islet cells would significantly improve the speed and results of
research into transplanted islets for diabetes.

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

        Our initial planned islet replacement therapy products, both of which
are in the research stage, include

       o an autologous cultured islet or stem cell service for transplantation;
         and
       o an implantation device consisting of both generic cultured islets and
         an encapsulation material.

     Autologous Cultured Islet. A Trained surgeon will supply Ixion with a
biopsy of pancreatic tissue taken from the diabetic patient. Using our
proprietary methods, we will grow new insulin producing islets for that
individual patient. The replacement islets will then be delivered to the surgeon
for implantation to reduce the patient's requirement for daily insulin
injections. This service avoids the insulin producing problems of immune
rejection because it uses the patient's own cells, hence no immune privileged
encapsulation will be required.

         Generic Cultured Islets in an immuno-privileged capsule. Using our
proprietary methods, we will grow generic cell lines of insulin producing
islets. These islets will then be encapsulated in an immune-privileged material
to protect the islet from attack by a patient's immune system. The encapsulated
islets will be sold to surgeons for implantation to reduce a diabetic patient's
requirements for daily insulin injections.

         The following table summarizes the current status of our islet research
and development program for diabetes products.

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<PAGE>

                  Product Development-Diabetes Islet Technology

 -------------------------- -------------------------------------  ------------
                                                                      Status (1)

 Product Type                Planned Uses


--------------------------- -------------------------------------  -------------
Autologous Cultured Islets                                             Research
      Service              Transplant of a person's own cells to
                                reduce insulin dependency
--------------------------- -------------------------------------  ------------
Generic Cultured Islets                                                Research
Immno-privileged           Implantation device consisting of
 Capsule                       islets and an encapsulation
                             material for transplantation to
                                reduce insulin dependency
-------------------------- -------------------------------------- --------------
Islet Growth Factors                                                    Research
                                Correct disease deficiencies
                            Promote greater efficiency in culturing
                                 cells for transplantation
                             Elucidation of diabetes disease process
                                   Monitor disease stages
------------------------ ----------------------------------------- -------------
Surface Antibodies                                                      Research
                         Analysis of health or disease of biopsy
                          specimens Identification of cells
                              Enrichment of specific cell types
                            Isolation and identification of cells
                            by stage of differentiation
-------------------------  ---------------------------------------- ------------

        (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 essential
characteristics, and its initial production. "Preclinical" denotes efficacy,
pharmacology, safety, or toxicology studies in animal models.

Descriptions of Planned Oxalate Products. We have four distinct products in
development based on our oxalate technology.

       o Ox-Control(TM)- a nutritional supplement made from O. formigenes,
         designed to promote healthy levels of oxalate.  This product will
         be sold directly to consumers.
       o A pet food supplement or additive to control oxalate in companion
         animals.
       o The XEntrIx(TM) Oxalobacter Formigenes Monitor - a molecular diagnostic
         test for the rapid and sensitive detection of human O. formigenes.
       o IxC1-62/47 - an oral dosage form consisting of recombinant(genetically
         engineered) oxalate-degrading enzymes normally found in O. formigenes.
         This will be a prescription product.

         A  nutritional  supplement  is one of a broad group of  products
including vitamins,  minerals,  and  some  enzymes.  They  may or may not be
used  under a doctor's  supervision,  but they are  purchased  directly by the
consumer  from retail  outlets  or by mail  order.  A  probiotic  would  deliver
whole live O. formigenes to the colon where they would break down oxalate.

         Our oxalate technology is based on cloned, sequenced, and expressed
genes encoding the oxalate degrading enzymes from the intestine dwelling
bacteria, Oxalobacter formigenes as well as the enzymes themselves. O.
formigenes is a gram negative anaerobe present in humans and other animals. In
the GI tract of a healthy human or mammal, O. formigenes breaks down oxalate
that is in food, thus preventing its absorption into the blood stream.

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<PAGE>

     Ox-Control,(TM) an  Oxalate-Reducing  Nutritional  Supplement.  Our initial
product is Ox-Control,(TM) an oral formulation of whole cells or enzymes derived
from O. formigenes, in an enteric coating for use in promoting healthy levels of
oxalate in the body.  This product has been  formulated to be taken in pill form
with meals to assist in the  breakdown of dietary  oxalate.  Development  is now
concentrated on optimization and scale-up of the manufacturing process to reduce
the cost of  production.  We expect this  product  will not require FDA approval
prior to marketing.

         Companion Animal Food Supplement. An additional oxalate-based product
is an animal food formulated to maintain healthy levels of oxalate in companion
animals, particularly dogs and cats.

         The XEntrIX TM Oxalobacter formigenes Monitor.  We have used the O.
formigenes genes to construct a DNA-based diagnostic test (the XEntrIX TM
Oxalobacter formigenes Monitor) for the rapid sensitive detection of O.
formigenes in easily-collectable stool samples.  Except for our XEntrIX TM
Oxalobacter formigenes Monitor, there is no method of rapidly and easily
detecting the presence or absence of O. formigenes in the body.  The current
tests for O. formigenes are laborious, time consuming, and unreliable.

   The XEntrIX TM Oxalobacter formigenes Monitor has been used in 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 >90% nephrocalcinosis. In an Ixion sponsored
         clinical study conducted in collaboration with collaborators at
         Northwestern University, the University Children's' Hospital, Cologne,
         Germany, and University Children's Hospital, Halle, Germany, 40 (18
         male and 22 female) cystic fibrosis patients (aged three to 35 years)
         were examined for colonization with Oxalobacter formigenes. 33 of the
         40 patients were non-colonized, and of these, 18 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 ongoing 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-PCR Oxalobacter formigenes Monitor. The Quantitative-PCR
          Oxalobacter formigenes Monitor is now being used in additional
          preclinical work to detect and quantitate O. formigenes in oxalate
          stone formers to identify if the number of colony forming units as a
          potential relevant risk factor.


     In June of 1998,  we  agreed  with the  University  of  Florida  Diagnostic
Referral  Laboratories  for them to offer a  service  to  physicians  using  the
reagents of our XEntrIX TM Oxalobacter  formigenes  Monitor under the provisions
of the FDA's  analyte  specific  reagent  regulation.  The  Diagnostic  Referral
Laboratories are responsible for marketing the new service, which costs $295 per
sample.  No  reimbursement  is yet available for patients  requesting this test.
Sales to date have been  immaterial,  in part  because of the lack of  available
products for  addressing  the condition  once it is  diagnosed.  We are focusing
ongoing  development  of  the  XEntrIX  TM  Oxalobacter  formigenes  Monitor  on
development of a kit version suitable for automation.

         We intend to file an application under Section 510(k) of the FDA Act
for clearance to market the XEntrIX TM Oxalobacter formigenes Monitor. There is
no assurance that the XEntrIX TM Oxalobacter formigenes Monitor will qualify for
the 510(k) procedure, in which case we will have to file an application for
premarket approval with the FDA. In either case, the approval process may be
lengthy, but is likely to be longer if a premarket approval application is
required.

         IxC1-62/47 Enzyme Therapy for Oxalate-Related Disease. In addition to
the XEntrIX TM Oxalobacter formigenes Monitor, 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")

                                       9
<PAGE>

and formerly-CoA transferase ("FRC"). The enzymatic therapy is based upon the
re-establishment or enhancement of oxalate degrading mechanisms in the body.
IxC1-62/47 is targeted at oxalate-related disorders including kidney stones,
enteric hyperoxaluria, oxalosis, cardiomyopathy, cardio conductance disorders,
cystic fibrosis, Crohn's disease, and possibly vulvodynia. Very few satisfactory
treatments currently exist for these disorders.

         Both the OXC- and FRC-producing 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 developed the process of
purifyingthe OXC and FRC enzymes for use in a variety of preclinical studies
including(1) additional physicochemical characterization, (2) formulation and
drug delivery, and (3) further animal studies. We are also purifying the native
form of the OXC and FRC enzymes from O. formigenes, to provide comparative data
to the recombinant versions. We have not determined whether the recombinant or
native enzymes will be used therapeutically. The current intention is to file an
investigative new drug application for the IxC1-62/47 enzymatic therapy for
oxalate-related disorders when resources permit.


     Over 65% 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. We
believe that a robust colony of O. formigenes prevents recurrent calcium-oxalate
kidney stone formation in persons susceptible to excess oxalate absorption and
may ameliorate other disease states. We believe that we are the only company
world-wide which is examining the role of O. formigenes in human and animal
disease states.

     Oxalate-Degrading Catheter: Ixion is developing a urinary catheter designed
to prevent oxalate crystal deposition while the cather is in use. Oxalate
crystals can be deposited on a catheter as a result of oxalate in the urine. The
deposited oxalate crystals provide an environment for bacterial growth, leading
to a urinary tract infection.


         The following table summarizes the current status of our oxalate
product research and development program.

                                       10
<PAGE>

           Product Development-Oxalate Technology
------------------------- ----------------------------------------  ------------
Product Type                         Planned Uses                    Status (1)
------------------------- ----------------------------------------  ------------
Ox-Control(TM Nutritional                                            Development
Supplement                  Promotion of healthy levels of oxalate
                                   in the body
------------------------- -----------------------------------------  -----------
Companion Animal Food                                                Development
Supplement                   Promotion of healthy levels of oxalate
                                    in companion animals
------------------------- ----------------------------------------  ------------
XEntrIX TM Oxalobacter                                               Preclinical
formigenes Monitor           Detection of O. formigenes in stool
                                 for oxalate-related and
                               other oxalate-related disorders
------------------------- ---------------------------------------   ------------
 IxC1-62/4 Enzyme                                                    Preclinical
 Therapy                    Treatment of oxalate-related
                                     disorders:
                                   Kidney Stones
                                   Crohn's Disease
                                   Cystic Fibrosis
                                   Hyperoxaluria
                                   Vulvodynia
                            Other oxalate-related diseases
------------------------- ------------------------------------------  ----------
Oxalate Degrading                                                       Research
Catheter                    Prevention of urinary tract infection
------------------------- ------------------------------------------  ----------
Dialysis Cartridge                                                       Concept
                           Rapid removal of excess oxalate in blood
------------------------- ------------------------------------------  ----------

         (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. "Development"
         indicates product development of products not requiring regulatory
         approval.

Licensed Technology

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

         Under the UF Research Foundation licenses, we have been issued three US
oxalate patents and two US islet patents. We have received notice of allowance
of claims in one US oxalate patent. Still pending under these licenses are three
US oxalate patent applications and one US islet patent application. We have also
filed internationally on each of these patent families. One oxalate patent and
one islet patent has been issued in Australia; other countries are pending.

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

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

                                       11
<PAGE>

processes to market through a thorough, vigorous, and diligent program for
exploitation of the patent rights. In addition, we must provide annual business
plans showing our plan for product development.

         Under the UF Research Foundation licenses, we paid a license issue fee,
are obligated to pay royalties on our net sales or net sales of our
sublicensees, and must reimburse the UF Research Foundation for patent costs.
There are no minimum annual royalties. We are also obliged to obtain product
liability insurance prior to the sale for commercial purposes of licensed
products. There is no assurance that we 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 our
licensed technologies. We are aware of patent applications previously filed by
and patents already issued to others that could conflict with our patents or
patent applications, either by claiming the same methods or compounds or by
claiming methods or compounds that could dominate those licensed to us. In
addition, we can not assure you that we are aware of all patents or patent
applications that may materially affect our ability to make, use, or sell any
products. United States patent applications are confidential while pending in
the United States Patent and Trademark Office, and patent applications filed in
foreign countries are often first published months after filing. Any conflicts
resulting from third party patent applications and patents could significantly
reduce the coverage of the patents or patent applications licensed to us and
limit our ability to obtain meaningful patent protection. If patents are issued
to other companies that contain competitive or conflicting claims, we may be
required to obtain licenses to these patents or to develop or obtain alternative
technology. We can not assure you that we will be able to obtain any such
license on acceptable terms or at all. If such licenses are not obtained, we
could be delayed in or prevented from the development or commercialization of
our product candidates, which would have a material adverse effect on us.

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

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

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

                                       12
<PAGE>


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

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

Patents and Trade Secrets

         Dr. Peck, 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 by him in the area in which he is employed belongs to
the University (subject to the rights of the federal government described above,
and to Ixion's rights under the consulting agreement it has with him).

         It is our policy to require our 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 us. These agreements provide that all confidential information developed or
made known to the individual during the course of his or her relationship with
us is to be kept confidential and not disclosed to third parties. Ixion also
requires signed confidentiality or material transfer agreements from any company
that is to receive confidential data or proprietary compounds. In the case of
employees and consultants, the confidentiality agreements also generally provide
that all inventions conceived by the individual while rendering services to us
shall be assigned to us as our exclusive property (subject, in the case of Dr.
Peck, 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 our trade secrets or other proprietary information in the
event of an unauthorized disclosure or will be effective to assign inventions.

         Certain of our research has been funded in part by research grants from
the NIH and other government agencies. In connection with any such funding, the
U.S. Government will have the rights described above.

     In order to produce or use the XEntrIX TM Oxalobacter formigenes Monitor in
its current formulation, it will be necessary to license certain rights from
Roche Diagnostics, Inc., the holder of patents on the 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.
Ixion does not anticipate that the terms of such license will have a materially
adverse effect on us.

Competition

         The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. Our 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 ours. Academic

                                       13
<PAGE>


institutions, governmental agencies, and other public and private research
organizations are also conducting research activities and seeking patent
protection and may commercialize products on their own or through joint
ventures.

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

Government Regulation

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

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

     Because O. formigenes enzymes, and O. formigenes itself, have not
previously  been used in food,  we expect to file a safety  notice with the FDA.
Any FDA concerns  about safety could slow or preclude the  commercial  launch of
the product.  Also,  because the dietary  supplement  law is relatively  new and
numerous questions about its requirements remain, we cannot be sure that the FDA
will not object to marketing the nutritional  product as a dietary supplement or
to the claims made for it.

         In addition to FDA regulation, our competitors, the Federal Trade
Commission, or other governmental and private agencies may challenge our product
or product claims, or the adequacy of the data that we use to substantiate our
claims. Failure to adequately defend or modify a challenged claim could result
in a court's or agency's issuing an order requiring us to stop making the claim.

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 our planned products, such as islet
replacement therapy for diabetes, will be regulated as drugs and biologics. The
Food, Drug, and Cosmetic Act and the Public Health Service Act provide that

                                       14
<PAGE>

drugs and biologics may not be commercially distributed within the United States
unless they have been approved by the FDA. The process required by the FDA
before drugs and biologics may be marketed in the United States generally
involves five steps:

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

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

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

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

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

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

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

                                       15
<PAGE>

         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) procedure, in which the manufacturer provides a premarket
notification that it intends to begin marketing the product, and shows that the
product is substantially equivalent to another legally marketed product (i.e.,
that it has the same intended use and is as safe and effective as a legally
marketed device and does not raise different questions of safety and
effectiveness than does a legally marketed device). In some cases, the
submission must include data from human clinical studies. Marketing may commence
when the FDA issues a clearance letter finding such substantial equivalence.

         If the medical device does not qualify for the 510(k) procedure (either
because it is not substantially equivalent to a legally marketed device or
because it is a Class III device required by the statute and implementing
regulations to have an approved application for premarket approval), the FDA
must approve a premarket approval application before marketing can begin.
Premarket approval applications must demonstrate, among other matters, that the
medical device is safe and effective. A premarket approval application is
typically a complex submission, usually including the results of preclinical and
clinical studies, and preparing an application is a detailed and time-consuming
process. Once a premarket approval application has been submitted, the FDA's
review may be lengthy and may include requests for additional data. The
manufacturer must also pass a premarket inspection of its compliance with the
quality systems regulations. There can be no assurances that the FDA will
authorize marketing of the product under a 510(k) or a premarket approval, 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 requirements, which usually involve FDA review
of the investigation before it may begin. Clinical investigations of many in
vitro diagnostic tests are exempt from the investigational device exemption
requirements, provided the testing meets certain exemption criteria, including
labeling as an "investigational use only" product. In addition, in vitro devices
may be distributed for "research use only," provided they are intended for
laboratory research and labeled for research use. The FDA's current policy is to
encourage manufacturers of in vitro devices for "investigational use only" or
"research use only" to establish a certification program under which these in
vitro devices are distributed to or utilized only by individuals, laboratories,
or health care facilities that have provided the manufacturer with a written
certification of compliance indicating that the "investigational use only" or
"research use only" product will be restricted in use and will, among other
things, meet institutional review board and informed consent requirements.

     Once granted, a 510(k) clearance or premarket application approval may
place substantial restrictions on how a device is marketed. Even where a device
is exempted from 510(k) clearance or premarket application approval, the 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 premarket application approval. These reagents, however, may be marketed only
to clinical laboratories certified under the Clinical Laboratories Improvements
Act to conduct tests of high complexity and are subject to a number of labeling
requirements.

     Ixion's Products. We have agreed, as discussed above, with the University
of Florida Diagnostic Referral Laboratories for them to offer a service to
urologists and other physicians based on the reagents of our XEntrIX TM
Oxalobacter formigenes Monitor. We believe this agreement is permitted under the
provisions of the FDA's analyte specific reagent regulation; however, we can not
assure you that our reliance on that regulation will be accepted by the FDA.

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

         We believe that our islet products and IxC1-62/47, the enzyme therapy
for treatment of oxalate-related disorders, will require either a new drug
application or a biologic license application before they may be commercially
distributed. There can be no assurance that the FDA will accept our views on the
regulatory status of our 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

                                       16
<PAGE>

delay marketing authorization. The law or government regulations
may change in ways that could prevent or delay marketing authorization for our
products. Delays in receipt of, failure to receive, or loss of previously
received approvals could have a material adverse effect on our 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. We intend to rely on our strategic partners
for assistance with these matters.

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

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

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

         Exemptions for Dr. Peck are issued pursuant to a monitoring plan which
requires us, among other things, to promptly disclose every material transaction
between us and any employee of the University. Dr. Peck obtained his initial
exemption from the Florida conflict of interest statutes on January 5, 1995,
relating to the academic year ended June 30, 1995. Exemptions must be renewed
annually by Dr. Peck at the beginning of each academic year (or upon material
alterations in the terms of the relations between us and him). The approval
process can take 12 or more months. While we have no reason to believe that Dr.
Peck's requests for renewal will not be approved, there is no assurance that the
exemptions will be renewed, or, if renewed, that it will be renewed on
reasonable terms. Furthermore, it is not clear what the effect of a non-renewal
will be should the University decline to renew the exemptions on a timely basis
or at all.

Manufacturing and Marketing

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

         Target Markets.  The markets for our various product candidates are
 quite distinct.

                                       17
<PAGE>

         o The Ox-Control (TM) nutritional supplement will be sold
           directly to end users through dispensing physicians,
           vitamin and health food stores, and by mail order or
           internet direct retail sales.

        o Food formulations for companion animals may be sold as
          premium pet foods by veterinarians or specialty pet food
          shops, or in grocery stores or other mass market outlets.

        o Prescription drug and device products will be targeted toward
          prescribing physicians.

         We believe there will be demand for the XEntrIX TM Oxalobacter
formigenes Monitor in the research market and, upon acceptance by urologists and
nephrologists as a clinically useful test, by certain specialized kidney,
nephrogenic, and urologic reference labs.

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

         Marketing Strategy. The strategy for marketing our islet replacement
therapy will depend on collaborations with third parties with greater marketing
resources than we.

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

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

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

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

         Contract Suppliers and Manufacturers. It is our present intention to
enter into agreements with contract testing and manufacturing entities to test
and manufacture commercial quantities of our 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" requirements
applicable to such a facility.

                                       18
<PAGE>

Scientific Advisory Board

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

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

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

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

         Marguerite Hatch, Ph.D. Dr. Hatch is a Professor in the College of
Medicine, Nephrology Division, and Director of the Kidney Stone Center at the
University of California, Irvine College of Medicine since 1990.Previously she
was Director of the New York Kidney Stone Center, SUNY Health Science Center.
She earned her B.Sc. with Honors from the University College, Dublin, Ireland
and her Ph.D. in 1978 from Trinity College, Dublin, Ireland.

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

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

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

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

                                       19
<PAGE>

Special Note Regarding Forward-Looking Statements

     This annual report on Form 10-KSB of Ixion Biotechnology, Inc. for the year
ended December 31, 1999 contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 194, as amended, which are intended to be
covered by the safe harbors created thereby. To the extent that such statements
are not recitations of historical fact, such statements constitute
forward-looking statements which, by definition, involve risks and
uncertainties. In particular, statements under Item 1, Industry Description and
Outlook, Business Strategy, Product Development, Manufacturing and Marketing;
Item 2, Description of Property, Item 5, Market for Common Equity and Related
Stockholder Matters, and Item 6, Management's Discussion and Analysis or Plan of
operations, contain forward-looking statements. Where, in any forward-looking
statement, Ixion expresses an expectation or belief as to future results or
events, such expectation or belief is expressed in good faith and believed to
have reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished.

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

       * the successful and timely completion of preclinical tests,
       * the approval of investigational new drug applications for each of our
         drug candidates by the FDA,
       * the availability of a simplified application way to seek market
         clearance from the FDA for our molecular diagnostic test,
       * 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.

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

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

        *  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 our
management team, which may change in the future due to a large number of
potential events, including unanticipated future developments.

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

                                       20
<PAGE>


Item 2.  Description of Property.

         In October 1998, we leased approximately 3,600 rentable square feet of
equipped laboratory space and approximately 1,413 rentable square feet of office
space at 13709 Progress Blvd., Alachua, Florida. Our lease has a three-year
term, expiring in September 2001, with two one-year renewal options. We are
developing a small scale facility in our lab suite to produce preclinical
quantities of our XEntrIX TM Oxalobacter formigenes Monitor as well as
IxC1-62/47. Commercial scale production will be subcontracted to contract
manufacturers. Annual expenses for 1999, including repayment of funds provided
by the lessor for tenant improvements and an emergency generator, were
approximately $104,000. We expect that annual lease expenses will continue to be
approximately the same for 2000.

         For a fee of $1,000 for 2000, we have a graduate membership agreement
with the Biotechnology Development Institute under which we have access to
specialized facilities such as animal rooms, small-scale fermentation
capabilities, and glass washing and autoclaving facilities. As a graduate
member, we may also use the specialized equipment located in the centralized
instrument lab in the Biotechnology Development Institute at no extra cost, and
we may use the services of the University's Core Laboratories including the
Recombinant Protein Expression Core, the Flow Cytometry Core, the Protein
Chemistry Core, and the Electron Microscopy Core at a special graduate
membership rate.

Item 3.  Legal Proceedings.

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

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

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

                                     Part II

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

     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 our issued and outstanding restricted securities have been properly
legended and we have issued "stop transfer" instructions to our transfer agent
with respect to such securities, which legends and stop transfer instructions
are presently in effect unless such securities have been registered under the
Act or have been transferred pursuant to an appropriate exemption from the
registration provisions of the Act.

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

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

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

                                       21
<PAGE>

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

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

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

          On January 10, 2000 and again on March 3, 2000, an aggregate of
          670 shares to our Associate Director of Research, Diabetes Division,
          for services, in the aggregate, valued at $2,680 (a portion of which
          is unearned compensation) or $4.00 per share.

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

         On February 11, 1997, we 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 us 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.

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

         On April 16, 1999, we entered into an agreement in principle with
Q-Med, AB, a biotechnology company with headquarters and operations in Uppsala,
Sweden. This agreement was amended on September 9, 1999. Pursuant to the
agreement in principle as amended, we issued a promissory note in the amount of
$300,000, convertible into shares of common stock at a price of $2.00 per share.
The promissory note was converted into 150,000 shares of restricted common stock
on July 7, 1999. Also, pursuant to the agreement in principle as amended, we
have issued additional shares of restricted common stock as follows:

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

                                       22
<PAGE>

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

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

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

     The offering is not scheduled to terminate until the earliest of: the sale
of all shares, March 31, 2000. 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 23, 2000, we had sold a total of 118,400 shares and 21, 513
charitable benefits warrants at an aggregate price of $473,600, of which shares
and warrants for an aggregate of $344,200 were sold through December 31, 1999.
From the effective date of the offering to December 31, 1999, we have paid $200
in expenses and $1,854 in commissions to Unified Management Company as broker,
and there have been no finders' fees. Other offering related expenses through
December 31, 1999, amounted to $124,680 all of which have been offset against
proceeds. No payments were made to our directors or officers, or to their
associates in connection with the offering.

         Net offering proceeds as of December 31, 1999 amounted to $219,250. The
net proceeds were used entirely to fund our operations during 1998 and 1999 as
reflected in the financial statements included elsewhere in this report. The use
of proceeds still to be received from the offering is not expected to vary
materially from the use of proceeds described in the amended registration
statement.

         There is no public trading market for our securities.

         As of March 23, 2000, there were approximately 130 shareholders of
record of our common stock.

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

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

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

Overview

         Ixion is a development stage, biotechnology company. We are in the
development stage because we are devoting substantially all of our efforts to
establishing our business, and our planned principal operations have not
commenced.

                                       23
<PAGE>

         Since we were founded in March of 1993, we have principally been doing
research and development, securing patent protection, and raising capital. We
have not received any revenues from the sale of products. In June 1998, we
reached an agreement with the University of Florida Diagnostic Referral
Laboratories for them to provide a service to physicians using our molecular
diagnostic test, the XEntrIx TM Oxalobacter formigenes Monitor. We have received
no revenue to date under this agreement. We do not expect any of our drug or
device product candidates (which require regulatory approval) to be commercially
available for at least several years, but our nutritional supplement product is
scheduled for 2000. From inception through December 31, 1999, we incurred
cumulative losses of $4,019,388. These losses were due primarily to expenditures
on general and administrative activities, research and development, patent
preparation and prosecution, and interest charges.

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

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

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

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

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

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

Results of Operations

Years Ended December 31, 1999 and 1998

         Total revenues increased by 2,657% from $3,722 for the year ended
December 31 1998 to $102,636 for the year ended December 31, 1999 mainly as a
result of the following:

       o  Two new NIH research contracts; one awarded under the Small
          Business Technology Transfer Research (STTR) Program, and
          a second, awarded under the Request for Assistance (RFA)
          program.
       o  Two research support agreements, with corporate collaborators.
       o  An increase in interest income generated from the investment of
          increased cash flows.

       We expect revenue to continue to increase in 2000 because of

       o Two NIH grants awarded in 1999 which will provide approximately $85,000
         of income in 2000,
       o The extension of another NIH grant for an additional $100,000
         beginning on September 1, 2000,
       o Another NIH grant awarded on March 30, 2000 for $100,000
       o Further activity under the research support agreements


                                       24
<PAGE>

       o Increased interest income from investments of excess cash generated
         from increased cash flows.

         Operating, general, and administrative expenses increased 21% from
$370,397 for the year ended December 31, 1998 to $447,400 for the year ended
December 31, 1999. These increased expenses reflect:

       o increased personnel and related payroll taxes
       o increased supplies and computer-related expenses
       o increased utilities usage
       o increase in travel related to capital raising
       o support of related research
       o 1998 bonus declared in 1999.

         We expect our operating, general and administrative expenses to
  continue to increase in 2000 as a result of increased research activities
  resulting in a need for increased administrative and marketing personnel.

        Research and development expenditures consist primarily of:

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

           Research and development expenses increased 47% from $424,606 for the
year ended December 31, 1998 to $625,329 for the year ended December 31, 1999.
These increased expenses reflect

         o increased laboratory personnel
         o increased laboratory rent and associated utilities
         o R&D-related travel expenses
         o interest charges on the purchase of lab equipment and on deferred
           fees and salaries
         o increased consultant's fees
         o 1998 bonus declared in 1999
         o increased laboratory-related supplies and expenses

offset somewhat by a reduction in scientific advisor's fees, regulatory and
preclinical expenses. Our research and development expenses will continue to
increase in 2000 due to an increase in the scale of operations as a result of
the receipt of the research grants referred to above.

      Interest expense is comprised only of non-R&D-related interest.R&D-related
interest is accounted for as an expense under research and development. Interest
expense increased 27% from $122,958 for the year ended for the year ended
December 31, 1998 to $155,697 for the year ended December 31, 1999 due primarily
to interest on bridge loans from officers, and the compounding of interest on
deferred administrative fees and salaries, including deferred interest, payable
to related parties.

Liquidity and Capital Resources

         In December, 1997, we commenced the public offering of 400,000 units of
newly issued securities, for an aggregate of $4,000,000. Each unit consisted of
one share of common stock, $0.01 par value, and 0.25 of charitable

                                       25
<PAGE>

benefit warrants. Each whole charitable benefit warrant entitled the holder to
purchase one share of common stock at a price of $20.00 per share. Ixion is
directly making the offering (except in Florida where sales must be made through
a broker) in selected states, primarily over the Internet. There is no minimum
number of shares to be sold in the offering, and all funds received have gone
and will go immediately to us. On December 10, 1998, we extended the offering
through December 10, 1999 and thereafter through March 31, 2000.

         In early 1999, the offering was temporarily suspended, and the board of
directors approved changes in the offering including a withdrawal from
registration of all unsold charitable benefit warrants, a reduction in the
number of shares offered from 400,000 to 150,000, a retroactive reduction in the
offering price to $4.00 per share of common stock, a concomitant adjustment in
the exercise price for outstanding charitable benefit warrants (from $20/share
to $8/share) and an increase in the number of shares purchasable upon exercise
of those warrants from 8,605 shares to 21,513 shares. This action by the board
resulted in the additional issuance of 51,630 shares to purchasers in the public
offering for no additional consideration, and a reduction in the maximum
potential aggregate offering amount from $4,000,000 to $600,000. As a result, in
September, 1999,a total of 51,630 additional shares were issued to purchasers in
the public offering for no additional consideration and are included in the
shares outstanding on December 31, 1999. Through March 23, 2000 a total of
$473,600 had been raised in the offering for 118,400 shares. The offering will
terminate on March 31, 2000.

     In February, 1999, we received notice that the NIH had awarded us a
$100,000 Phase I grant under the Small Business Technology Transfer Program for
research in our oxalate technology. The effective date of the grant was June 15,
1999. We began drawing on these funds in July. We subcontracted a large portion
of the grant to the University of California, Irvine, but there is $10,000 still
remaining available during the first six months of 2000 to support oxalate
research at Ixion. In September we also received notice of the award of a
$200,000 grant (covering a 23-month period) from the NIH to support our diabetes
research. These funds became available starting September 30, 1999. We have
subcontracted $25,000 under this grant, but have approximately $175,000
available to support diabetes research through August 31, 2001. In February,
2000 we received notice that we had been awarded another $100,000 NIH Phase I
grant under the SBIR program for research in our oxalate technology. We will
subcontract approximately $30,000 to Wake Forest University, but the remaining
$70,000 will be available to support oxalate research at Ixion through February
28, 2001. In March 2000 we received notice of an additional NIH SBIR award for
oxalate research. We will subcontract $45,000 to the University of Florida,
leaving approximately $55,000 to support Ixion oxalate research through
September 2000. We have other grant applications pending.

     During 1998 and the first quarter of 1999, our development activities were
funded primarily by the proceeds from the offering and bridge loans from the
Chairman and Chief Executive Officer and the President. Operations during the
last three quarters of 1999 were funded primarily from $675,000 advanced by
Q-Med in connection with the Q-Med transaction described below. The bridge loans
total $415,000 at December 31, 1999, not including accrued but unpaid interest,
and are due on demand. Interest on the bridge loans from officers is currently
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%. We have no agreement
with the officers to advance further funds, however, the officers have continued
to fund operating requirements voluntarily, in the past, to meet working capital
needs. Although additional bridge loans may be necessary in 2000 because of the
Q-Med transaction, and awarded and pending NIH grants, we can not assure you
that, should such loans be necessary in the future, the officers will continue
to voluntarily fund them. We do not have any bank financing arrangements. Our
long-term indebtedness consists primarily of deferred fees and salaries payable
to related individuals and our unsecured convertible notes, which mature in
2001.

         At December 31, 1999, we had $22,361 in cash and cash equivalents.
Until required for operations, our policy is to invest any excess cash reserves
in bank deposits, money market funds, certificates of deposit, commercial paper,
corporate notes, U.S. government instruments and other investment-grade quality
instruments.

         In connection with a sponsored research agreement with Genetics
Institute, Inc. which was concluded during 1997, some patent-related expenses
were reimbursed by Genetics Institute. We may be contractually obligated to
repay these reimbursed expenses in installments over a 36 month period upon a
notice to or by Genetics Institute to the effect that their option to negotiate
for a license to our technology, contained in the sponsored

                                       26
<PAGE>

research agreement has expired. We have not given nor received such notice, and,
accordingly, reimbursement has not commenced. We have accrued $42,317 as a
long-term liability pending final notice under the agreement.

         Annual expenses during 1999 for our current three-year lease (with two
one-year renewal options), including repayment of funds provided by lessor for
tenant improvements and an emergency generator, were approximately $104,000. We
expect that annual lease expenses will continue to be approximately the same for
2000. We will continue to have a need to purchase additional laboratory
equipment. We estimate that we will need to purchase at least $100,000 of
capital laboratory equipment in the coming year.

     We have incurred negative cash flows from operations since our inception.
We have spent and expect to continue to spend, substantial funds to complete our
planned product development efforts, commence clinical trials, and diversify our
technology. Our future capital requirements and the adequacy of available funds
will depend on numerous factors, including

        * the completion of the Q-Med transaction described below,
        * the successful commercialization of Ox-Control(TM) (our
          nutritional supplement) the XEntrIx (TM) Oxalobacter
          formigenes Monitor (our diagnostic test), and IxC1-62/47
          (our lead therapeutic compound),
        * the successful commercialization of our islet replacement therapy
          products,
        * progress in our product development efforts,
        * the magnitude and scope of development 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 our products

The Q-Med Transaction

         On April 16, 1999, we reached an agreement in principle with Q-Med AB,
a biotechnology company based in Uppsala, Sweden, which was amended on September
7, 1999. Under the amended agreement, we agreed to the following:

          o we issued an option to Q-Med to acquire shares of newly-issued
             common stock under the following terms:
             o exercise is at the sole discretion of Q-Med;
             o the number of shares to be acquired shall be 2,700,000 or
               a number of shares such that, following the exercise of the
               option, Q-Med shall own at least 50% of our outstanding shares
               (on a fully diluted basis);
             o Q-Med must purchase all or none of the remaining option shares;
             o the option expires not later than July 1, 2000;
             o the cash purchase price for the option shares is $2.00/share; and
             o the option price will be paid over a two-year period.
          o Q-Med shall purchase 37,500 shares per month (at the $2.00
            per share price) through the expiration of the option or
            the agreement. Q-Med will retain these shares without
            regard to whether they exercise their option.
          o As additional consideration for the option shares, the
            Company receives a royalty-free license to Q-Med's
            non-animal, stabilized hyaluronic acid technology for use
            as an encapsulation material for our transplantable
            islets; and
          o If the option is exercised, the redemption of up to
            $787,000 of our convertible unsecured notes which note
            holders elect not to convert in August 2001; and
          o The agreement is cancelable by Q-Med on not less than 90 days'
            notice.
         If Q-Med were to exercise its option for all 2,700,000 shares, it would
own over 50% of our company.

                                       27
<PAGE>

         Q-Med, a growing, profitable Swedish company, whose shares are listed
on the Stockholm stock exchange, develops, manufactures, and sells natural,
specialized medical implants. Q-Med AB has no relationship to or affiliation
with Q-Med, Inc., a Delaware corporation whose shares are listed on the Nasdaq
small cap market. All of Q-Med's products are constructed using a
proprietary form of non-animal, stabilized hyaluronic acid. Hyaluronic acid is a
natural polysaccharide, first isolated in 1934. Its main function in the body is
to lubricate moveable parts like joints and muscles and to transport substances
to and within cells. The majority of Q-Med's revenues are accounted for by
Restylane(R) for the filling out of lips, facial wrinkles, and facial folds.

         Through December 31, 1999, we have received $675,000 in investments
from Q-Med, A.B. and issued a total of 337,500 shares of common stock in
accordance with the amended agreement in principle, described above.

Additionally, in 2000 through March 23, we have received an additional $225,000
in investments and issued an additional 112,500 shares to Q-Med.

         We cannot assure you that Q-Med will not terminate the agreement, that
it will exercise its option on or before July 1, 2000, or that it will otherwise
complete the contingent elements of the transaction on satisfactory terms, or at
all. In the event our plans change or our assumptions change or prove to be
inaccurate or we fail to complete the Q-Med transaction, we will require
additional financing. We will be required to obtain additional funds in any
event through equity or debt financing, strategic alliances with corporate
partners and others, mergers or the sale of substantially all our assets, or
through other sources in order to bring our drug and device products through
regulatory approval to commercialization. We do not have any material committed
sources of additional financing. We cannot assure you that additional funding,
consolidation, or alliance, if necessary, will be available on acceptable terms,
if at all. If adequate funds are not available, we may be required to further
delay, scale-back, or eliminate certain aspects of our operations or attempt to
obtain funds through arrangements with collaborative partners or others that may
require us to relinquish rights to certain of our technologies, product
candidates, products, or potential markets. If adequate funds are not available,
our business, financial condition, and results of operations will be materially
and adversely affected.

Item 7.  Financial Statements.

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

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

         None.

                                    Part III

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

Item 10.  Executive Compensation.

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

Item 12.  Certain Relationships and Related Transactions.

     The information required under Part III, Items 9, 10, 11, and 12, has been
omitted from this report since the Company intends to file with the Securities
and Exchange Commission, 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.

                                       28
<PAGE>

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


Exhibit                           Description
Number

1.1      Agreement with Unified Management Corporation, dated March 18, 1998 (5)
3.1      Certificate of Incorporation of Registrant (1)
3.2      Certificate of Amendment to Certificate of Incorporation of Registrant
         (1)
3.3      Certificate of Amendment to Certificate of Incorporation of Registrant
         (1)
3.4      Bylaws of Registrant, as amended and restated (5)
3.5      Certificate of Amendment of Certificate of Incorporation, dated June
         11, 1999 (8)
3.6     Certificate of Incorporation, as amended and restated (8)
4.1     Form of Registrant's Common Stock Certificate (2)
4.2     Form of Registrant's Charitable Benefit Warrant Certificate (5)
4.3     Charitable Benefit Warrant Agreement, dated as of December 10, 1997(5)
4.4     Warrant Agreement with Jeffrey W. Seel, dated November 7, 1995 (1)
4.5     Warrant Agreement with the University of Florida Research Foundation,
        Inc., dated November 7, 1995 (1)
4.6     Warrant Agreement with the University of Florida Research Foundation,
        Inc., dated August 1, 1996 (1)
4.7     Warrant Agreement with the University of Florida Research Foundation,
        Inc., dated October 1, 1996 (1)
4.8     Warrant Agreement with the University of Florida Research Foundation,
        Inc., dated November 7, 1996 (1)
4.9     Warrant Agreement with Brandywine Consultants, Inc., dated June 23,
        1997 (2)
4.10    Warrant Agreement with Brandywine Consultants, Inc., dated October 24,
        1997 (2)
4.11    Amendment to Charitable Benefit Warrant Agreement dated September 30,
        1999 (9)
*4.12   1994 Stock Option Plan, as amended
10.1    Chattel Mortgage Agreement with Carl Therapeutic, Inc., dated as of
        January 1, 1996 (1)
10.2    Consulting Agreement with Brandywine Consultants, Inc., dated December
        12, 1996 (1)
10.3    Consulting Agreement with Ammon B. Peck, dated February 21, 1997 (1)
10.4    Consulting Agreement with David C. Peck, dated July 1, 1996 (1)
10.5    Convertible Promissory Note with Weaver H. Gaines, dated March 31,
        1993 (1)
10.6    Convertible Promissory Note with David C. Peck, dated October 15,
        1993 (1)
10.7    Demand Promissory Note, Bridge Loan with Weaver H. Gaines, dated April
        15, 1996 (1)
10.8    Demand Promissory Note, Bridge Loan with David C. Peck, dated April 15,
        1996 (1)
10.9    Deferred Compensation Plan Agreement with Weaver H. Gaines, dated
        January 1, 1994 (1)
10.10   Deferred Compensation Plan Agreement with Ammon B. Peck, dated June 1,
        1994 (1)
10.11   Deferred Compensation Plan Agreement with David C. Peck, dated  April
        1, 1994(1)
10.12   Agreement to Purchase Shares, dated as of October 10, 1994 (1)
10.13   Note Purchase Agreement, dated as of September 13, 1996 (1)
10.14   Incubator License Agreement with the University of Florida Research
        Foundation, Inc., dated June 26, 1995 (1)
10.15   Amendment No. 1, dated July 31, 1996 to Incubator License Agreement
        with the University of Florida Research Foundation, Inc. (1)
10.16   Amendment No. 2, dated October 1, 1996 to Incubator License Agreement
        with the University of Florida Research Foundation, Inc. (1)
10.17   Amendment No. 3, dated November 7, 1996 to Incubator License Agreement
        with the University of Florida Research Foundation, Inc. (1)
10.18   Amendment No. 4, dated January 21, 1997 to Incubator License Agreement
        with the University of Florida Research Foundation, Inc. (1)
10.19   Patent License Agreement with Randy S. Fischer and Roy A. Jensen for
        U.S. Patent No. 5,187,071, "Method for the Selective Control of Weeds,
        Pests, and Microbes," dated February 11, 1997 (1)
10.20   Patent License Agreement with Research Component with the University of
        Florida Research Foundation, Inc. relating to Oxalobacter formigenes,
        dated January 11, 1995 (4) (a)

                                       29
<PAGE>

10.21   Amendment No. 1 to Patent License Agreement with Research Component with
        the University of Florida Research Foundation, Inc. relating to
        Oxalobacter formigenes, dated December 20, 1995 (4)
10.22   Amendment No. 2 to Patent License Agreement with Research Component
        with the University of Florida Research Foundation, Inc. relating to
        Oxalobacter formigenes, dated October 9, 1996 (4) (a)
10.23   Patent License Agreement with Research Component with the University
        of Florida Research Foundation, Inc. relating to Pancreatic Stem Cells,
        dated February 17, 1995 (4) (a)
10.24   Amendment No. 1 to Patent License Agreement with Research Component
        with the University of Florida Research Foundation, Inc. relating to
        Pancreatic Stem Cells, dated October 9, 1996 (4)(a)
10.25   Patent License Agreement with Milton J. Allison, dated June 23, 1997.
        (4) (a)
10.26   Sponsored Research Agreement with Genetics Institute, Inc., dated
        June 5, 1996 (4) (a)
10.27   Employment Agreement with Weaver H. Gaines, dated August 31, 1994 (1)
10.28   Employment Agreement with David C. Peck, dated August 31, 1994 (1)
10.29   1994 Stock Option Plan, as amended (1)
10.30   1994 Board Retainer Plan, as amended (7)
10.31   Consulting Agreement with Ammon Peck, dated October 6, 1994 (1)
10.32   Amendment No. 5 to Incubator License Agreement, dated July 19, 1997 (1)
10.33   Office Lease agreement with Echelon International Corporation dated as
        of September 18, 1998 (6)
10.34   Amendment No. 3 to Patent License Agreement with Research Component
        with the University of Florida Research Foundation, Inc. relating to
        Oxalobacter formigenes, dated December 17, 1998 (6) (a)
10.35   BDI Graduate Membership Agreement with the Biotechnology Development
        Institute dated November 5, 1998. (6)
10.36   Consulting Agreement with Amersham Pharmacia Biotech, Inc., dated
        January 3, 1999 (6)
10.37   Interinstitutional Agreement with The University of Florida Research
        Foundation, dated February 4, 1999 (7) (a)
10.38   Finders' Agreement with East Coast Angels, LLC, dated March 15,
        1999. (7)
10.39   Agreement in Principle dated April 16, 1999, with Q-Med AB (8)
10.40   1994 Board Retainer Plan, as amended. (8)
10.41   Consulting Agreement with Thomas P. Stagnaro, dated September 21, 1998
        (9)
10.42   Amended and Restated Agreement in Principle dated September 7, 1999
        with Q-Med, AB (9)
*10.43  Service Contract and Confidentiality Agreement with BioQuest
        Corporation, dated November 30, 1999.
*11.1   Statement regarding computation of earnings per share (included as
        Note 1 in financial statements)
23.1    Consent of Independent Accountants
24      Power of Attorney (included with the signature page to the registration
         statement (6)
*27     Financial Data Schedule

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

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

                                       30
<PAGE>

(9)     Incorporated by reference to Form 10-QSB for the quarter ended September
        30, 1999, dated November 15, 1999.


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

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

                                       31
<PAGE>

                                   Signatures

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

                                       Ixion Biotechnology, Inc.


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

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

SIGNATURE                                            TITLE

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


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

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


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


/S/ Vincent P. Mihalik                     Director
----------------------
Vincent P. Mihalik


/S/ Karl E. Arfors                         Director
----------------------
Karl-E. Arfors


/S/ Bengt Agerup                           Director
----------------------
Bengt Agerup



/S/ Thomas P. Stagnaro                     Director
-----------------------
Thomas P. Stagnaro



<PAGE>

Ixion Biotechnology, Inc.
Contents
-------------------------------------------------------------------------------














                                                                        Page

Report of Independent Certified Public Accountants                        F-1

Financial Statements:


    Balance Sheet                                                         F-2

    Statements of Operations                                              F-3

    Statements of Capital Deficiency                                      F-4

    Statements of Cash Flows                                              F-6

    Notes to Financial Statements                                         F-8






<PAGE>

Report of Independent Certified Public Accountants

The Board of Directors
Ixion Biotechnology, Inc.

In our opinion, the accompanying balance sheet and the related statements of
operations, of capital deficiency and of cash flows present fairly, in all
material respects, the financial position of Ixion Biotechnology, Inc. (A
Development Stage Company) at December 31, 1999 and the results of its
operations and its cash flows for the years ended December 31, 1999 and 1998 and
for the period March 25, 1993 (date of inception) through December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

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.



March 6, 2000
/s/ Price Waterhouse Coopers
Price Waterhouse Coopers
Orlando, Florida
                                      F-1
<PAGE>

Ixion Biotechnology, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 1999
---------------------------------------------------------------------------


                                     Assets

Current Assets:
        Cash and cash equivalents                                $     22,361
        Accounts receivable                                            28,920
        Prepaid expenses                                                3,435
        Other current assets                                              500
                                                                  -----------
          Total current assets                                         55,216
                                                                  -----------
Property and Equipment, net                                           111,952
                                                                  -----------
Other Assets:
       Patents and patents pending less accumulated
        amortization of $5,385                                        376,970
       Other, less accumulated amortization of $7,835                   8,681
                                                                  -----------
         Total other assets                                           385,651
                                                                  -----------
         Total assets                                             $   552,819
                                                                  ===========
                       Liabilities and Capital Deficiency

Current Liabilities:
        Accounts payable                                          $   43,214
        Bridge loans payable to officers                             415,000
        Current portion of                                             8,817
        Accrued expenses                                             150,049
        Deferred rent - current                                        1,612
        Interest payable                                              39,443
                                                                    --------
          Total current liabilities                                  658,135
                                                                    --------

Long-Term Liabilities:
        Notes payable                                                698,607
        Liability under research agreement                            42,317
        Deferred rent, including accrued interest                     22,131
        Deferred fees and salaries, including accrued interest       944,041
                                                                   ---------
         Total long-term liabilities                               1,707,096
                                                                   ---------
         Total liabilities                                         2,365,231
                                                                   ---------

Commitments (Notes 1 and 11)

Capital Deficiency:
        Common stock, $.01 par value; authorized 4,000,000,
         issued and outstanding 2,926,044 shares                      29,260
        Additional paid-in capital                                 2,419,818
        Deficit accumulated during the development stage          (4,019,388)
        Less unearned compensation                                  (242,102)
                                                                  -----------
          Total capital deficiency                                 1,812,412)
                                                                  -----------
          Total liabilities and capital deficiency                $  552,819
                                                                  ===========

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


                                      F-2
<PAGE>

Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Operations


                                                                  For the Period
                                                                     March 25,
                                                                    1993 (Date
                                                                  of Inception)
                                       Year Ended                    through
                                      December 31,                 December 31,
                                    1999          1998                1999

Revenues:
   Income under research       $   27,833      $   -               $   302,834
   agreementIncome from            71,653          -                   163,303
   SBIR grant
Interest income                      2,121           465                25,553
   Other income                      1,029         3,257                18,834
                               -----------       -------             ---------
     Total revenues                102,636         3,722               510,524
                               -----------       --------            ---------
Expenses:
   Operating, general and
    administrative                 447,400       370,397             1,915,907
   Research and development        625,329       424,606             2,136,066
   Interest                        155,697       122,958               477,939
                                -----------     --------             ---------
     Total expenses              1,228,426       917,961             4,529,912
                                -----------      -------             ---------
Net Loss                       $(1,125,790)    $(914,239)          $(4,019,388)
                                ============   ==========           ===========

Net Loss per Share (Basic)     $     (0.42)    $   (0.37)
                                ============   ==========
Weighted Average Common Shares   2,657,439     2,489,677
                                ============   ==========



 The accompanying notes are an integral part of these financial statements.
                                      F-3
<PAGE>

Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Capital Deficiency
For the Period March 25, 1993 (Date of Inception) through December 31, 1999
<TABLE>

<CAPTION>
                                                                         Deficit
                                                                       Accumulated
                                                        Additional     During the                       Unearned
                                       Common Stock       Paid-In      Development         Notes         Compen-
                                     Shares     Amount    Capital         Stage           Receivable      sation          Total

<S>                              <C>         <C>        <C>              <C>             <C>              <C>           <C>
Initial sale of common stock,
  $.01 per share                   100,000    $1,000     $  -            $  -              $ -             $  -           $  1,000
Sale of common stock,
  $.01 per share                    50,000       500        -               -                -                -                500
Net loss for the period
  March 25, 1993 (date
  of inception) through December
  31, 1993                             -          -         -              (54,268)          -                -            (54,268)
                                   ------     -------    -------           --------         -------          -----         ---------
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         650,000     6,500      6,500              -               -                -             13,000
  property, $0.02 per share
Conversion of deferred consulting   10,000       100        900              -               -                -              1,000
  fees,$0.10 per share
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    34,000       340    101,660              -               -             (62,706)         39,294
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          21,544       215    15,943               -               -                 -            16,158
  parties, $0.75 per 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 in exchange
  for certain intellectual
  property, $10.00 per share         1,000        10     9,990               -               -                 -             10,000
Issuance of stock under
  Board Retainer Plan, $10.00
  per share                         20,000       200   199,800               -               -             (154,382)         45,618
Payment received from
  shareholder for note received
  for common stock and warrants        -          -        -                 -             6,000              -               6,000
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       2,465,544    24,655  1,239,003         (1,979,359)          -              (202,688)      (918,389)

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

<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Statements of Capital Deficiency - Continued
For the Period March 25, 1993 (Date of Inception) through December 31, 1999

<TABLE>
<CAPTION>                                                               Deficit
                                                                        Accumulated
                                                        Additional      During the                       Unearned
                                   Common Stock         Paid-In         Development      Notes           Compen-
                                 Shares      Amount     Capital          Stage           Receivable      sation            Total

<S>                             <C>         <C>        <C>              <C>              <C>               <C>            <C>
Balance, December 31, 1997       2,465,544   24,655    1,239,003         (1,979,359)       -                (202,688)     (918,389)

Issuance of stock under
  Board Retainer Plan,
  $10.00 per share                  23,450      235      234,265               -           -                (171,050)       63,450
Forfeiture of issued
  stock under Board Retainer
  Plan, $3.00 per share             (8,400)     (84)     (25,116)              -           -                  25,200         -
Amortization of unearned
  compensation over service period     -         -          -                  -           -                  63,940        63,940
Sale of stock, $10.00 per share     33,320      333      332,867               -           -                    -          333,200
Offering costs                         -         -      (116,561)              -           -                    -         (116,561)
Net loss                               -         -          -              (914,239)       -                    -         (914,239)
                                ----------    ------   ----------        -----------      ------             ---------   -----------
Balance, December 31, 1998       2,513,914    25,139   1,664,458         (2,893,598)       -                (284,598)   (1,488,599)

Issuance of stock, $10.00 per          100         1         999               -           -                   -             1,000
  share
Issuance of stock under
  Board Retainer Plan, $4.00        22,400       224      89,376               -           -                 (72,067)       17,533
  per share
Conversion of notes payable,
  $2.00 per share                  150,000     1,500     298,500               -           -                 -             300,000
Sale of stock, $2.00 per share     187,500     1,875     373,125               -           -                 -             375,000
Offering costs                         -         -        (8,119)              -           -                 -             (8,119)
Additional shares issued to IPO
  investors for no additional
  consideration                     51,630       516        (516)              -           -                  -               -
Amortization of unearned
  compensation over service period     -         -           -                 -           -                 114,563       114,563
Stock issued for services              500         5       1,995               -           -                  -              2,000
Net loss                               -         -           -           (1,125,790)       -                  -         (1,125,790)
                                 ----------   ------- ----------        -----------      ------            ----------- ------------
Balance, December 31, 1999       2,926,044    $29,260 $2,419,818        $(4,019,388)     $ -               $(242,102)  $(1,812,412)
                                 =========    ======= ==========        ============     ======            ===========  ===========
</TABLE>



 The accompanying notes are an integral part of these financial statements.
                                      F-5


<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,
                                                           1999            1998                     1999
<S>                                                      <C>             <C>                   <C>
Cash Flows from Operating Activities:
 Net loss                                                 $(1,125,790)     $(914,239)            $(4,019,388)
 Adjustments to reconcile net loss to net cash used in
  operating activities:
   Depreciation                                               30,311         13,455                  68,166
   Amortization                                                5,870          3,156                  12,870
   Write-off of abandoned patents                             13,045           -                     13,045
   Stock warrants issued under license agreement                 -             -                     20,465
   Amortization of debt discount                              57,168         57,168                 190,560
   Stock and equity instruments issued for
     consulting services                                       2,000           -                     32,000
   Stock compensation                                        132,098        127,390                 516,301
   Decrease (increase) in prepaid expenses and
     other current assets                                     (3,268)           326                 (4,669)
   Decrease (increase) in accounts receivable                (26,095)          (146)               (28,011)
   Increase in liability under research agreement                -             -                     42,317
   Increase (decrease) in accounts payable and
     accrued expenses                                        111,387            172                206,752
   Increase in deferred fees and salaries                    224,764        242,862                917,490
   Increase in deferred rent                                   1,647         15,609                 23,742
   Increase in interest payable                               26,622           -                    59,820
                                                          -----------      ---------             -----------
     Net cash used in operating activities                  (550,241)      (454,247)            (1,948,540)
                                                          ------------     ----------            -----------
Cash Flows from Investing Activities:
   Purchase of property and equipment                        (81,177)       (12,397)              (125,471)
   Organization costs                                            -             -                      (436)
   Payments for patents and patents pending                 (103,751)       (74,345)              (387,866)
                                                         ------------     ----------             ----------
     Net cash used in investing activities                  (184,928)       (86,742)              (513,773)
                                                         ------------     ----------             ----------
Cash Flows from Financing Activities:
   Loans from officers                                        90,000        250,000                445,307
   Proceeds from issuance of convertible notes payable       300,000           -                 1,087,270
   Proceeds from sale of common stock                        376,000        333,200              1,131,900
   Payment of loan costs and other assets                      1,114         (1,114)               (11,080)
   Payment of offering costs                                 (13,119)        53,932)              (129,680)
   Principal reductions in note payable                      (15,098)       (12,975)               (39,043)
                                                         ------------     ----------            ------------
     Net cash provided by financing activities               738,897        515,179              2,484,674
                                                         -----------      ---------             ------------
Net Increase (Decrease) in Cash and Cash Equivalents           3,728        (25,810)                22,361

Cash and Cash Equivalents at Beginning of Period              18,633         44,443                   -
                                                         -----------      ---------             -----------
Cash and Cash Equivalents at End of Period               $    22,361      $  18,633             $   22,361
                                                         ===========      =========             ===========
</TABLE>

 The accompanying notes are an integral part of these financial statements.
                                      F-6


<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,
                                                     1999            1998                   1999

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

   Cash paid during the year for:
     Interest                                     $   55,656      $   27,590             $  111,402
                                                    =========     ==========             ==========

Supplemental Disclosure of Noncash Investing
   and Financing Activities:

     Common stock issued for subordinated
       notes payable                              $    -          $  -                   $  34,158
                                                   ==========     ==========              ========
Conversion of notes payable in exchange for
150,000 shares of common stock                    $  300,000      $  -                   $ 300,000
                                                   ==========     ==========              ========
     Common stock and equity instruments
       issued for services or technology          $    2,000      $  -                   $  51,457
                                                   =========      ==========             =========
     Common stock issued for note receivable      $   -           $  -                   $  (6,000)
                                                  ==========      ==========             ==========
     Common stock issued for purchase of patent   $   -           $  -                   $  10,000
                                                  ==========      ==========             ==========
     Equipment purchased under an installment
       note arrangement or lease agreement        $  -            $  26,450              $  53,442
                                                  ==========      ==========             ==========
     Common stock issued under Board
       Retainer Plans                             $   89,600      $ 170,000              $ 547,100
                                                  ==========       ========               ========
     Other common stock issued as compensation    $  -            $  65,000              $ 237,000
                                                  =========       =========              =========
     Offering costs included in accounts payable  $  -            $   -                  $  16,345
                                                  =========       =========              =========




</TABLE>
 The accompanying notes are an integral part of these financial statements.
                                      F-7


<PAGE>

Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements



Years Ended December 31, 1999 and 1998 and the Period March 25, 1993
(Date of Inception) through December 31, 1999


1.       Organization and Business:



     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. Obtaining regulatory authorization
     involves, among other things, lengthy and detailed laboratory and clinical
     testing, manufacturing validation, and other complex procedures. The
     approval process is costly, time-consuming, and subject to unexpected
     delays.

     The Company's financial statements for the year ended December 31, 1999
     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
     $1,125,790 for the year ended December 31, 1999, and as of December 31,
     1999, had a total capital deficiency of $4,019,388. The Company had deficit
     cash from operations of $550,241 and $454,247 for 1999 and 1998,
     respectively.






                                      F-8
<PAGE>

Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
Years Ended December 31, 1999 and 1998 and the Period March 25, 1993
(Date of Inception) through December 31, 1999

  1.    Organization and Business - Continued:

     Public Offering

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

     The Company has received proceeds from this offering of $344,200 through
     December 31, 1999. The offering was extended from its original termination
     date and will be continued until all securities have been sold or until
     March 31, 2000. Offering costs of $124,680 have been offset against the
     proceeds of the offering through December 31, 1999.

     If the proceeds from the offering and other sources 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 either completing the Q-Med
     transaction or obtaining additional financing through other sources.




                                      F-9
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
Years Ended December 31, 1999 and 1998 and the Period March 25, 1993
(Date of Inception) through December 31, 1999


  1.    Organization and Business - Continued:

        Q-Med Agreement

        On April 16, 1999, the Company reached an agreement in principle with
        Q-Med, A.B., a biotechnology company based in Uppsala, Sweden, which
        was amended on September 7, 1999. Under the amended agreement, the
        Company agreed to the following:

        *  The Company issued an option to Q-Med to acquire shares of  newly-
           issued  common stock under the following terms:

               * Exercise is at the sole discretion of Q-Med;

               * The number of shares to be  acquired  shall be  2,700,000  or
                 a number of shares such that, following the exercise of the
                 option, Q-Med shall own at least 50% of the Company's
                 outstanding shares (on a fully diluted basis);

               * The option expires not later than July 1, 2000;

               * The cash  purchase  price  for the  option  shares is $2.00 per
                 share; and

               * The option price will be paid over a two-year period.

        *  Q-Med shall  purchase  37,500  shares per month (at the $2.00 per
           share price)  through the  expiration of the option or the
           agreement.  Q-Med will retain these shares  without  regard to
           whether they exercise their  option for any  remaining  shares
           (Q-Med has  purchased a total of 337,500  shares for $675,000
           through December under this agreement);

        *   As  additional  consideration  for the option  shares,  the
            Company  receives a  royalty-free  license to Q-Med's non-animal,
            stabilized hyaluronic acid technology;

        *   If the option is  exercised,  Q-Med  agrees to redeem up to $787,000
            of the  convertible  unsecured  notes which note holders may elect
            not to convert in August 2001;

        *   The agreement is cancelable by Q-Med on not less than 90 days'
            notice.



2.     Significant Accounting Policies:

        Cash and Cash Equivalents

        The Company  considers  all highly  liquid  instruments  with a maturity
        of three months or less at time of purchase to be cash equivalents.




                                      F-10
<PAGE>

Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
Years Ended December 31, 1999 and 1998 and the Period March 25, 1993
(Date of Inception) through December 31, 1999

  2.      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.  A valuation  allowance is provided against the future benefit
          of deferred tax assets if it is determined that it is more likely than
          not that the future tax  benefits  associated  with the  deferred  tax
          asset will not be realized.  Income tax expense is the tax payable for
          the period and the change during the period in deferred tax assets and
          liabilities.

          Property and Equipment

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

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

          Patents and Patents  Pending

          Patents  pending  consist of direct costs incurred in connection  with
          the  applications  for patents.  Amortization  of these costs over the
          estimated  life will  begin  upon  issuance, or they will be  expensed
          immediately  if rejected.  At December 31, 1999,  the Company has been
          issued 5 U.S.  patents 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  trends  and
          prospects as well as the effects of obsolescence,  demand, competition
          and other economic factors.  In 1999,  $13,045 of patent pending costs
          were written off as abandoned.

          Revenue Recognition

          Revenue  from  ongoing   research  and   co-development   payments  is
          recognized  ratably  over the term of the  agreement,  and the Company
          believes such payments will  approximate  the research and development
          expense being incurred associated with the agreement. The Company does
          not have an obligation to refund, nor does there exist the presumption
          of an  obligation  to  refund,  ongoing  research  and  co-development
          payments.  Revenue under cost reimbursement contracts is recognized as
          the related costs are incurred.

          In December 1999, the SEC staff issued a Staff Accounting Bulletin
          ("SAB") No. 101, "Revenue Recognition in Financial Statements" (SAB
          101). Among other things, SAB 101 discusses the SEC staff's view on
          accounting for non-refundable up-front fees received in connection
          with collaboration agreements. SAB 101 is effective for fiscal years
          beginning December 15, 1999. The Company is evaluating SAB 101

                                      F-11
<PAGE>

          and the effect it may have on the financial statements. At this time,
          the Company believes that SAB 101 will not have a material impact on
          it's financial position or results of operations.


         Research and Development

          Research and development costs are charged to expense as incurred.


                                      F-12
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
Years Ended December 31, 1999 and 1998 and the Period March 25, 1993
(Date of Inception) through December 31, 1999


          2. Significant Accounting Policies - Continued:

          Other Assets

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

          Deferred Rent

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

          Stock Based Compensation

          The Company applies APB Opinion No. 25 and related  Interpretations in
          accounting for stock issued to employees under this plan. Compensation
          expense  resulting  from stock  options 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.

          Net Loss Per Share

          Basic net loss per share is computed using the weighted average number
          of common  shares  outstanding  for the  period.  Diluted net loss per
          share  is not  presented,  as the  effects  of  including  potentially
          dilutive  securities in the computation is antidilutive.  Common stock
          equivalent  shares consist of stock options,  warrants and convertible
          notes  payable.  For the year  ended  December  31,  1999,  options to
          purchase  1,559,366  shares of common  stock  (including  estimate of
          shares under Q-Med agreement),  warrants to purchase 23,630 shares of
          common stock,  and notes payable  convertible  into 323,557  shares of
          common stock were excluded from the  calculation of earnings per share
          since their inclusion would be antidilutive.

          Use of Estimates

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


          Reclassification

          Certain items in the 1998 financial  statements have been reclassified
          to conform to 1999 presentation. These reclassifications had no effect
          on partners' capital or net income.




                                      F-13
<PAGE>

Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
Years Ended December 31, 1999 and 1998 and the Period March 25, 1993
(Date of Inception) through December 31, 1999

3.     Property and Equipment:

       Property and equipment consists of the following as of December 31, 1999:

           Computer and lab equipment                           $ 153,356
           Computer software                                          515
           Office furniture and equipment                           1,667
           Library                                                    804
           Leasehold improvements                                  17,802
                                                                 --------
                                                                  174,144
           Less accumulated depreciation                          (62,192)
                                                                  --------
                                                                $ 111,952
                                                                =========

4.    Notes Payable:

     In September 1996, the Company  completed the private placement of $787,270
     in Convertible  Unsecured  Notes due 2001. The private  placement  provided
     investors with the option of either 10%  Convertible  Unsecured Notes ("10%
     Notes") or Variable Conversion Rate Convertible  Unsecured Notes ("Variable
     Notes").  The 10% Notes accrue  interest at the stated rate until maturity,
     or conversion,  and pay interest  quarterly.  The 10% Notes are convertible
     into shares of the Company's  common stock,  at any time prior to maturity,
     at  a  conversion  price  of  $4.20  per  share.  The  Variable  Notes  are
     non-interest  bearing  and are  convertible  into  shares of the  Company's
     common stock, at any time prior to maturity,  at variable conversion prices
     ranging from $4.20 to $2.10.  The variable  conversion  prices are based on
     the  length  of time the  investor  holds the  notes  prior to  conversion,
     declining at the rate of $.10 per quarter  commencing  November,  1996 from
     the  initial  conversion  price of $4.20  which is greater  than the market
     value of the common  stock at the date of  issuance.  The fair value of the
     beneficial  conversion  feature  of  $285,835  at  September  1996 has been
     recorded as debt discount, reducing notes payable and increasing additional
     paid-in   capital.   The  debt  discount  is  being   amortized  using  the
     straight-line  method,  which  approximates the effective  interest method,
     over  the  term  of the  Variable  Notes  and to the  date  of the  deepest
     discount.  As of  December 31,  1999,  there were $215,600 of 10% Notes and
     $571,670 of the Variable  Notes  outstanding  ($476,395 net of  unamortized
     debt discount of $95,275 at December 31, 1999). Accrued interest on the 10%
     Notes totalled $1,796 as of December 31, 1999.

     The Company  entered into  short-term  loan agreements with officers of the
     Company for working capital  purposes.  Amount  outstanding was $415,000 at
     December 31,  1999.  The loans accrue  interest at 8% and are due on demand
     (Note 10).


                                      F-14
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
Years Ended December 31, 1999 and 1998 and the Period March 25, 1993
(Date of Inception) through December 31, 1999

  4.  Notes Payable - Continued:

     In October  1998,  upon the  expiration  of its lease at the  Biotechnology
     Development Institute,  the Company entered into a new lease agreement at a
     new  facility  (see Note 11).  As part of this new  agreement,  the Company
     acquired  $26,450 of  leasehold  improvements  and lab  equipment  from the
     lessor.  Amounts due for these  capital  additions are to be repaid over 36
     months,  the term of the lease, with interest at 10%. The balance due under
     this agreement was $15,429 at December 31, 1999.

     Future  principal  maturities  of notes  payable for each of the five years
     subsequent to December 31, 1999 are as follows:

       Year Ending

          2000                                                $   423,817
          2001                                                    793,882
                                                               ----------
                                                                1,217,699
              Less:  Unamortized debt discount                    (95,275)
                                                               -----------
              Total                                           $ 1,122,424
                                                               ===========


5.   Income Taxes:

     The  components of the Company's net deferred tax asset and the tax effects
     of the primary temporary  differences giving rise to the Company's deferred
     tax asset are as follows as of December 31, 1999:

       Deferred compensation                                  $   372,900
       Net operating loss carryforward                          1,214,800

       Deferred tax asset                                       1,587,700
       valuation allowance                                     (1,587,700)
                                                               -----------
       Net deferred tax asset                                 $     -
                                                               ===========

     Any tax  benefits  for the years ended  December 31,  1999 and 1998 and the
     period  March 25,  1993  (date  of  inception)  through  December 31,  1999
     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.




                                      F-15
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
Years Ended December 31, 1999 and 1998 and the Period March 25, 1993
(Date of Inception) through December 31, 1999

6.     Research and Development:

     During the period ended  December 31,  1999,  the Company  entered into two
     separate  research  agreements  with terms that extend into the  subsequent
     year and include options to extend the research periods, exercisable at the
     sponsor's  discretion.  Revenues  earned in the  current  year under  these
     research agreements were $27,833.



7.   Common Stock Warrants:

     During 1997, the Company issued warrants to purchase 6,000 shares of common
     stock to a consulting firm as part of a consulting agreement.  The warrants
     are accounted for under the provisions of Statement of Financial Accounting
     Standards  No. 123,  Accounting  for Stock  Based  Compensation.  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.

     There were no common stock warrants issued during 1998 and 1999.

     Common stock warrants outstanding at December 31, 1999 are as follows:

        Number               Exercise Price           Expiration Date

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

     As  discussed  in  Note 1, as part  of the  public  offering  commenced  in
     December  1997,  the Company  has sold units which  consist of one share of
     common stock,  $.01 par value, and a .25 Charitable  Benefit Warrant.  Each
     whole Charitable  Benefit Warrant entitles the holder to purchase one share
     of common  stock at a price of $20 per share.  Four units were  required to
     acquire  one  whole  Charitable  Benefit  Warrant.   As  a  result  of  the
     transaction  with Q-Med,  A.B., the offering was temporarily  suspended and
     the  Board of  Directors  approved  changes  in the  offering  including  a
     withdrawal from registration of all unsold Charitable Benefit Warrants,  an
     adjustment  in  the  exercise  price  for  outstanding  Charitable  Benefit
     Warrants  (from  $20/share to  $8/share),  and an increase in the number of
     shares  purchasable  upon  exercise of those  warrants from 8,605 shares to
     21,513. Approved qualified charitable organizations may exercise Charitable
     Benefit Warrants at any time until the expiration date  (December 9,  2007,
     unless  extended);   holders  other  than  approved  qualified   charitable
     organizations  may  not  exercise  except  between  December 9,   2006  and
     December-9,  2007. The Charitable  Benefit Warrants,  will be detached from
     the common stock immediately on purchase. At December 31,  1999, there were
     21,513 Charitable Benefit Warrants outstanding.




                                      F-16
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
Years Ended December 31, 1999 and 1998 and the Period March 25, 1993
(Date of Inception) through December 31, 1999

8.   Stock Option Plan:

     In August 1994, the Board of Directors  adopted the 1994 Stock Option Plan,
     under which  325,000  shares of common stock are reserved for issuance upon
     exercise of options granted to non-employee directors, officers, employees,
     members of the Scientific  Advisory  Board and  consultants of the Company.
     Effective  December  22, 1999,  the Board of Directors  amended the Plan to
     increase the total number of shares  available  for options from 325,000 to
     500,000.  Options  granted  to  members of the  Scientific  Advisory  Board
     generally  vest at the  rate of 25% at the end of each  three-month  period
     following the grant.  All other options  generally  vest at the rate of 20%
     per year and are exercisable within ten years after date of grant. Activity
     under the Company's stock option plan is set forth below:

                                                                      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
        Granted                                         62,500          $10.00
        Exercised                                         -
        Forfeited                                       (5,500)    $3.00-$10.00
                                                        -------
      Outstanding at December 31, 1998                 100,900
        Granted                                         73,000           $4.00
        Exercised                                         -
        Forfeited                                         (400)         $10.00
                                                        -------
       Outstanding at December 31, 1999                173,500
                                                       ========



                                      F-17
<PAGE>

Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
Years Ended December 31, 1999 and 1998 and the Period March 25, 1993
(Date of Inception) through December 31, 1999

  8.    Stock Option Plan - Continued:

        The status of options outstanding at December 31, 1999 is as follows:

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

     $  0.02      2,000     4.5 years            $  0.02              2,000
     $  0.75      3,500     5.5 years            $  0.75              3,150
     $  3.00      8,000     6.5 years            $  3.00              5,600
     $  6.00      3,000     7.33 years           $  6.00              1,600
     $  7.50      2,000     7.4 years            $  7.50              1,040
     $ 10.00     19,900     7.5 years            $ 10.00             16,200
     $ 10.00     62,100     8.5 years            $ 10.00             27,380
     $  4.00     73,000     9.5 years           $  4.00              7,500
                -------                                              -------
                173,500                                              64,470
               =========                                            =========

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

                                                    1999              1998
                                                Low     High     Low      High

         Discount Rate                         5.83%    6.11%    5.46%    5.52%

         Volatility                              30%      60%     30%      60%

         Option Life (Years)                      5        9       5        9




                                      F-18
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
Years Ended December 31, 1999 and 1998 and the Period March 25, 1993
(Date of Inception) through December 31, 1999

  8.    Stock Option Plan - Continued:

     The  weighted   average  fair  value  of  options  granted  to  other  than
     non-employee  consultants during fiscal year 1999 and 1998 was in the range
     of  $1.50 to  $2.90  and  $3.67 to  $7.16  per  option,  respectively.  Had
     compensation  cost for the  Company's  stock-based  compensation  plan been
     determined  based on the fair  value at the grant  dates  for these  awards
     consistent  with  the  method  of FASB  Statement  No. 123,  the  Company's
     reported  net loss and loss per share for  fiscal  year 1999 and 1998 would
     have been as follows:

                                                  Low           High

       1999 Net Loss                           $1,201,439    $1,272,414
       1999 Loss Per Share                          (.045)        (0.48)

       1998 Net Loss                           $  956,001     $  994,943
       1998 Loss Per Share                          (0.38)         (0.40)

     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 to  non-employee  consultants  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 $4.00.


9.     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.  In
     March 1999 under an amendment  to the Board  Retainer  Plan,  up to 250,000
     shares may be issued and outstanding pursuant to the Plan.

     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 charged against capital  deficiency and amortized over the service
     period  to  compensation  expense.  Shares  which  vest upon  delivery  are
     recorded as compensation expense upon issuance.




                                      F-19
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
  9.  Board Retainer Plan  Continued:

     At December 31, 1999, a total of 121,450  shares had been granted under the
     Board Retainer Plan.  Compensation  expense  recognized in connection  with
     such awards under the Board Retainer Plan for the years ending December 31,
     1999 and 1998 was  $132,098  and  $127,390,  respectively.  Total  unearned
     compensation related to Board Retainer Plan awards was $242,102 at December
     31, 1999 and will be recognized as expense over future periods of service.



10.  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 April 1996,  the  Chairman/Chief  Executive  Officer and President  each
     entered  into a revolving  agreement to extend the Company up to $25,000 in
     the form of bridge loans.  Under these  agreements,  the Company borrowed a
     total of  approximately  $32,000,  all of which was repaid in June 1996. In
     addition,  in June  1996,  these  officers  agreed to  increase  their loan
     commitments  to  operations.  Interest on bridge loans 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%. At December 31, 1999, there are total
     loans of $415,000  outstanding  to these  officers of the Company (Note 4).
     These officers have no commitment to lend additional funds in the future.




                                      F-20
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
Years Ended December 31, 1999 and 1998 and the Period March 25, 1993
(Date of Inception) through December 31, 1999

  10.   Related-Party Transactions - Continued:



     In addition,  the Company has agreed to defer the payment of the 1993, 1994
     and part of the 1995 through 1999 salaries of the Chairman/Chief  Executive
     Officer,  the  President  and the  Senior  Vice  President/Chief  Scientist
     pursuant to agreements  between the Company and such  executives.  Payments
     are to be made only upon termination of employment  (which may be by death,
     disability,  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,  and is reset annually at the rate on 30-year  treasury
     bonds in effect on  January 1  of any given year plus 1%.  The rate  during
     1999 was 6.29%. 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, 2002.

     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.

     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,  1998, the printer has been paid a
     total of $11,533.



11.  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, 1999, GI has not exercised  their right for
     an exclusive  license to this  technology and costs of $42,317 are recorded
     as a liability.


                                      F-21
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
Years Ended December 31, 1999 and 1998 and the Period March 25, 1993
(Date of Inception) through December 31, 1999

12. Risks and Uncertainties:

     The Company's product candidates are in an early stage of development.  The
     Company has not completed the development of any products and, accordingly,
     has  not  received  any   regulatory   approvals  or  commenced   marketing
     activities. 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.



13. Commitments:

        Lease

     In October 1998, the Company entered into a lease for  approximately  5,000
     square feet of laboratory  and office  space.  Rents consist of a base rent
     plus an amount  designated  for the Company's  share of operating  costs in
     excess of a certain base level. The lease has a three-year term expiring in
     September,  2001,  with two one-year  renewal  options.  Total rent expense
     under this lease was  approximately  $87,500  and  $16,900  during 1999 and
     1998,  respectively.  Future  minimum  rental  payments  under this  lease,
     including an estimate of excess operating  costs, at December 31,  1999 are
     as follows:

        Year Ending
           2000                                                 $  89,000
           2001                                                    74,000

        Other

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

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




                                      F-22
<PAGE>
Ixion Biotechnology, Inc.
(A Development Stage Company)
Notes to Financial Statements - Continued
Years Ended December 31, 1999 and 1998 and the Period March 25, 1993
(Date of Inception) through December 31, 1999

14. Subsequent Events:

     From  January 1, 2000  through  March 6, 2000,  the  Company  has  received
     proceeds  of $48,400  for 12,100  shares of Common  Stock in their  initial
     public offering which will terminate March 31, 2000.

     From  January 1,  2000  through  March 6,  2000,  the  Company  received an
     additional  $150,000  from Q-Med in exchange  for 75,000  shares of common
     stock.

     From  January 1,  2000  through  March 6,  2000,  the  Company  received an
     additional $41,410 from research grants and sponsored research agreements.

     On  January 1,  2000,  additional  options for 6,000 shares were granted to
     members of the audit and benefits  committee,  and options for 2,000 shares
     were issued to the Company's regulatory consultants.







                                      F-23