================================================================================

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

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

                                   FORM 10-QSB



   [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
                  For the quarterly period ended June 30, 1998

                                       or

                    [ ] TRANSITION REPORT UNDER SECTION 13 OR
                     15 (d) OF THE EXCHANGE ACT OF 1934 For
                          the transition period from to

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

                        Commission file number: 333-34765


                           Ixion Biotechnology, Inc..
        (Exact Name of Small Business Issuer as Specified in Its Charter)


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

     Delaware                                             59-3174033
(State of incorporation)                        (I.R.S. Employer Identification
                                                                No.)

                              12085 Research Drive
                                Alachua, FL 32615
                    (Address of principal executive offices)

                   Registrant's telephone number: 904-418-1428

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

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


The  number of shares of the  registrant's  common  stock,  par value  $0.01 per
share, outstanding as of July 31, 1998 was 2,481,694.

================================================================================



<PAGE>


                            Ixion Biotechnology, Inc
                               Index to Form 10QSB


Part 1 - Financial Information                                             Page
                                                                           ----

Item 1.  Financial Statements (unaudited)

         Condensed Balance Sheet - June 30, 1998.............................2

         Condensed  Statements  of  Operations - Three and 
         Six Months Ended June 30, 1998 and 1997 and for 
         the period March 25, 1993(Date of Inception) through 
         June 30, 1998.......................................................3

         Condensed Statements of Cash Flows - Six Months 
         Ended June 30, 1998 and 1997 and for the period  
         March 25, 1993 (Date of Inception) through June 30, 1998............5

         Notes to Condensed Financial Statements.............................6

Item 2.  Management's Discussion and Analysis of Financial 
         Condition and Results of Operations or Plan of Operation............8

Part II - Other Information

Item 4. Submission of Matters to a Vote of Security Holders.................13

Item 6.  Exhibits and Reports on Form 8-K...................................13

Signatures..................................................................14

Exhibit Index...............................................................15




<PAGE>


Part I.  Financial Information
Item 1.  Financial Statements

Balance Sheet
June 30, 1998
Unaudited

                                     Assets
Current  Assets:
   Cash and cash equivalents                                $           18,961
   Accounts receivable                                                   2,061
   Prepaid expenses                                                        560
   Other current assets                                                    500
                                                           --------------------
                 Total current assets                                   22,082

Property and Equipment, net                                             29,767

Other Assets:
    Patents and patents pending, net                                   245,192
    Other, net                                                           7,011
                 Total other assets                                    252,203
                                                              -----------------
                  Total Assets                               $         304,052
                                                               ================

                       Liabilities and Capital Deficiency

Current Liabilities:
    Accounts payable                                         $          61,565
    Bridge loans payable to officers                                   145,000
    Current portion of notes payable                                    10,770
    Accrued expenses                                                    47,184
    Interest payable                                                     1,797
         Total current liabilities                                     266,316

Long-Term Liabilities:
    Notes payable                                                      607,141
    Liability under research agreement                                  42,317
    Deferred rent, including accrued interest                           14,043
    Deferred fees and salaries, including accrued interest             596,163
                                                               ----------------
                   Total long-term liabilities                       1,259,664
                     Total liabilities                               1,525,980

Capital Deficiency:
    Common stock, $.01 par value; authorized 4,000,000, 
       issued and outstanding 2,476,694 shares at June 30               24,767
    Common stock warrants outstanding                                   35,494
    Additional paid-in capital                                       1,267,246
    Deficit accumulated during the development stage                (2,422,127)
    Less unearned compensation                                        (127,308)
                  Total capital deficiency                          (1,221,928)
Total Liabilities and Capital Deficiency                      $        304,052
                                                                ===============

See accompanying notes to condensed financial statements


<PAGE>




Statements of Operations

                                              Three Months Ended
                                                   June 30,
                                           __1998__        __1997__
                                                   Unaudited
Revenues:
   Income under research agreement        $         0    $    62,688
   Income from SBIR Grant                           0         18,000
   Interest income                                 69          3,043
   Other income                                 1,295            899
                                          -----------    -----------
            Total revenues                      1,364         84,630
                                          -----------    -----------

Expenses:
  Operating, general and administrative        80,909         67,800
  Research and development                    101,310        184,374
  Interest                                     28,204         12,999
                                          -----------    -----------
                 Total expenses               210,423        265,173
                                          -----------    -----------

Net Loss                                  $  (209,059)   $  (180,543)
                                          ===========    ===========

Basic and Diluted Net Loss per Share      $     (0.08)   $     (0.07)
                                          ===========    ===========

Weighted Average Common Shares              2,475,201      2,454,777
                                          ===========    ===========






















See accompanying notes to condensed financial statements


<PAGE>

<TABLE>
<CAPTION>

                                                                            For the Period
                                                                               March 25,
Statements of Operations                                                       1993 (Date
                                                                             of inception)
                                   Six Months Ended                            through
                                      June 30,                                 June 30,
                                      __1998__             __1997__          ____1998____
                                               Unaudited                      Unaudited
Revenues:
<S>                                 <C>                  <C>                <C> 
  Income under research agreement   $         0          $    150,000       $     275,001
   Income from SBIR Grant                     0                18,000              91,650
   Interest income                          215                 7,478              23,182
   Other income                           2,276                 1,799              16,824
                                    --------------       ---------------    ---------------
       Total revenues                     2,491               177,277             406,657
                                    --------------       ---------------    ---------------


Expenses:
  Operating, general and admin.         199,793               160,131           1,297,903
  Research and development              188,872               347,590           1,275,003
  Interest                               56,594                26,154             255,878
                                    --------------       ---------------    ---------------
       Total expenses                   445,259                533,875          2,828,784
                                    --------------       ---------------    ---------------


Net Loss                            $  (442,768)         $    (356,598)     $  (2,422,127)
                                    ==============       ===============    ===============


Basic & Diluted Net Loss per Share  $    (0.18)          $      (0.15)
                                    ==============       ===============  

Weighted Average Common Shares        2,471,228              2,452,094
                                    ==============       ===============  


</TABLE>




















See accompanying notes to condensed financial statements

<PAGE>


Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                                              For the Period
                                                                                                 March 25,
                                                                                                1993 (Date
                                                                                               of inception)
                                                 Six Months Ended                                through
                                                    June 30,                                    June 30,
                                                    __1998__               __1997__           ____1998____
                                                               Unaudited                         Unaudited
Cash Flows from Operating Activities:
<S>                                               <C>                     <C>                <C>
    Net loss                                      $    (442,768)          $     (344,098)    $ (2,422,127)
    Adjustments to reconcile net loss to 
        net cash used in operating activities:
         Depreciation                                     5,928                    5,676           30,328
         Amortization                                     1,578                    1,110            5,422
         Amortization of debt discount                   28,584                     -             104,808
         Stock warrants issued under license 
             agreement                                     -                      20,465           20,465
         Stock options/warrants issued for 
             consulting services                           -                        -              30,000
         Stock compensation                              50,181                   78,658          306,994
         Decrease (increase) in prepaid 
             expenses and other current assets              841                    4,035             (886)
         Decrease (increase) in accounts 
             receivable                                    (291)                 (44,351)          (2,061)
         Increase (decrease) in deferred revenue           -                    (100,000)            -
         Increase (decrease) in liability under
                research agreement                         -                      38,963           42,317
         Increase (decrease) in accounts payable
                and accrued expenses                     16,921                    3,232          112,114
         Increase in deferred fees and salaries         119,747                   15,218          569,611
         Increase in deferred rent                        7,557                     -              14,043
         Increase in interest payable                      -                        -              33,198
                                                  ----------------        ----------------   ----------------

             Net cash used in 
              operating activities                     (211,722)                (321,092)      (1,155,774)
                                                  ----------------        ----------------   ----------------

Cash Flows from Investing Activities:
     Purchase of property and equipment                    -                     (1,702)          (31,897)
     Organization Costs                                    -                       -                 (436)
     Payments for patents and patents pending           (29,156)                (77,802)         (238,926)
                                                  ----------------        ----------------   ----------------
        Net cash used in investing activities           (29,156)                (79,504)         (271,259)
                                                  ----------------        ----------------   ----------------

Cash Flows from Financing Activities:
     Proceeds from issuance of subordinated
         notes payable to related parties                70,000                    -              175,307
     Proceeds from issuance of convertible 
         notes payable                                     -                       -              787,270
     Proceeds from issuance of common stock             195,500                    -              618,200
     Principal reductions in notes payable               (6,282)                 (7,381)          (17,252)
     Payment of deferred offering costs                 (43,822)                   -             (106,451)
     Payment of loan costs                                 -                       -              (11,080)
                                                  ----------------        ----------------   ----------------
            Net cash provided by (used in)
                 financing activities                   215,396                  (7,381)        1,445,994
                                                  ----------------        ----------------   ----------------

Net Increase (Decrease) In Cash and 
      Cash Equivalents                                  (25,482)               (407,977)           18,961

Cash and Cash Equivalents at 
      Beginning of Period                                44,443                 611,539              -
                                                  ----------------        ----------------   ----------------

Cash and Cash Equivalents at 
      End of Period                               $      18,961           $     203,562      $     18,961
                                                  ================        ================   ================
</TABLE>

See accompanying notes to condensed financial statements

<PAGE>


 Notes to Condensed Financial Statements
Six Month Period Ended June 30, 1998

1.   Basis Of Presentation:

     The accompanying unaudited condensed financial statements for the three and
     six months ended June 30, 1998 and 1997,  and for the period March 25, 1993
     (date of inception)  through June 30, 1998 have been prepared in accordance
     with  generally  accepted  accounting   principles  for  interim  financial
     information.  Accordingly,  they do not  include  all the  information  and
     footnotes required by generally accepted accounting principles for complete
     financial statements.  These interim financial statements should be read in
     conjunction  with the December 31, 1997  financial  statements  and related
     notes  included in the Company's  Annual Report on Form 10-KSB for the year
     ended  December 31, 1997. In the opinion of the Company,  the  accompanying
     unaudited   condensed   financial   statements   contain  all  adjustments,
     consisting only of normal recurring  accruals,  necessary to present fairly
     the Company's financial position, results of operations, and cash flows for
     the periods  presented.  The results of operations  for the interim  period
     ended June 30,  1998 are not  necessarily  indicative  of the results to be
     expected for the full year.

2.   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 June 30, 1998:

             Deferred compensation                   $ 235,000
             Net operating loss carryforward           722,000
                                                       ------
             Deferred tax asset                        957,000
             Valuation allowance                     $(957,000)

             Net deferred tax asset                  $  __0__
                                                       =======

3.    Stockholder's Equity

     In  December,  1997,  the Company  commenced  the public  offering of up to
     400,000 Units of  newly-issued  securities  for an aggregate of $4,000,000.
     Each Unit consists of one share of Common Stock, $0.01 par value, and a .25
     Charitable Benefit Warrants. Each whole Charitable Benefit Warrant entitles
     the holder to purchase  one share of the Common  Stock at a price of $20.00
     per share. The Company requires the proceeds of the public offering to meet
     its planned operating  requirements  through December 31, 1998. The Company
     had received  proceeds of $255,500 through July 31, 1998. The offering will
     continue until all Units have been sold or until December 10, 1998,  unless
     sooner  terminated or extended.  If the proceeds from the offering prove to
     be  insufficient,  then the Company would be required to obtain  additional
     funds through equity or debt financing,  strategic alliances with corporate
     partners, or through other sources.

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

     Offering  costs of $100,774  have been offset  against the  proceeds of the
     offering through June 30, 1998.

     In February of 1998, 8,400 shares of stock previously issued to an employee
     in exchange for services to be rendered  were  returned to the Company when
     the employee  resigned.  This resulted in a reversal of paid-in capital and
     unearned compensation, but had no net effect on capital deficiency.

4.    Related Party Transactions

     In 1997, the Company  engaged the services of a printer in connection  with
     its public  offering.  The  printer  is  partially-owned  by the  Company's
     President,  who is also CEO of the  printer.  Through  June 30,  1998,  the
     printer has charged $13,033 in connection with its services.

5.    Subsequent Events

     Through  July 31, 1998,  the Company has  received  proceeds of $255,500 by
     selling 25,550 units of Common Stock and Charitable Benefit Warrants in its
     initial public offering at $10.00 per unit

     Effective July 1, 1998, the Company granted ten-year options under the 1994
     Stock Option Plan to purchase  62,000 shares of Common Stock at an exercise
     price of $10.00 per share.  Stock options are exerciseable  only if vested.
     12,500 of such  options,  granted  to members  of the  Scientific  Advisory
     Board, vest over one year; the remainder vest over five years.



<PAGE>


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
     of Operations or Plan of Operations.

         The following  discussion  and analysis  should be read in  conjunction
with the Condensed  Financial  Statements and the related Notes thereto included
elsewhere in this report. This report contains  forward-looking  statements that
involve  risks and  uncertainties.  The  Company's  actual  results  may  differ
significantly  from the results  discussed  in the  forward-looking  statements.
These and  additional  risk factors are  identified  in our annual report to the
Securities  and  Exchange  Commission  filed on forms  10-KSB  and in other  SEC
filings.


Overview

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

         Since its inception in March of 1993,  the Company's  efforts have been
principally devoted to research and development, securing patent protection, and
raising  capital.  The Company has not received  any  revenues  from the sale of
products.  In June,  the Company  reached an  agreement  in  principle  with the
University of Florida Diagnostic Referral Laboratories (the "DRL"),  pursuant to
which the DRL will offer the Company's initial product,  a molecular  diagnostic
test, the XentrIx TM Oxalobacter  formigenes Monitor, to physicians.  Under this
agreement,  the Company may generate  revenue  during 1998;  however it does not
expect any of its other product  candidates to be commercially  available for at
least the next several years.  From inception through June 30, 1998, the Company
has  sustained  cumulative  losses of  $2,407,127.  These  losses have  resulted
primarily   from   expenditures   incurred  in   connection   with  general  and
administrative  activities,  research and  development,  patent  preparation and
prosecution, and interest.

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

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

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





Results of Operations

Three Months Ended June 30, 1998 and 1997

         Interest  income  decreased  97.7% from $3,043 in the second quarter of
1997 to $69 in the second quarter of 1998. This decrease was attributable to the
expenditure of the proceeds from the sale of Unsecured  Convertible Notes in the
last quarter of 1996, which were invested during 1997.  Interest income relating
to the proceeds of the Unsecured Convertible Notes ceased in 1998.

         Operating,  general and  administrative  expenses  increased 19.3% from
$67,800 in the second  quarter  of 1997 to $80,909 in the  equivalent  period of
1998.  These  increased   expenses  reflect   increased   personnel,   increased
advertising  and promotion  expense,  and increased legal expenses in the second
quarter of 1998 compared to the second quarter of 1997. The Company  expects its
general and  administrative  expense to increase  during 1998 as a result of the
hiring of additional  personnel,  increased  amortization of capitalized  patent
costs as new patents are issued,  continued  amortization of capitalized private
placement  expenses,  and increased legal and accounting expenses resulting from
filings  with the  Securities  and  Exchange  Commission  under  the  Securities
Exchange Act of 1934.

          Research   and   development   expenditures   consist   primarily   of
payroll-related  expenses  of research  and  development  personnel,  laboratory
supplies,   animal  supplies,   laboratory  rent,   depreciation  on  laboratory
equipment, development activities, payments for sponsored research, and payments
to scientific  and regulatory  consultants.  Research and  development  expenses
decreased  45% from  $184,374  in the second  quarter of 1997 to $101,310 in the
second  quarter  of 1998,  mainly  due to a  reduction  of one  technician,  the
termination of the Company's  consulting  contract with its regulatory  advisor,
and a significant  reduction in the  compensation  of the  Company's  scientific
advisors.  The Company  anticipates  that its research and development  expenses
will increase during the remainder of 1998 when the Company expands research and
development  programs and  preclinical  testing for its product  candidates  and
technologies under development.

          Interest expense  increased 117% from $12,999 in the second quarter of
1997 to $28,204 in the second  quarter of 1998 due primarily to cash interest on
the Company's 10% Notes, the amortization of debt discount (initially  $285,835)
attributable  to the  beneficial  conversion  feature of the Company's  Variable
Notes,  both issued in the last  quarter of 1996,  interest  on bridge  loans to
officers,  and the  compounding  of  interest  on  deferred  fees and  salaries,
including deferred interest,  payable to related parties.  Interest expense will
continue to increase  during 1998, as a result of the continued  compounding  of
interest on deferred fees and salaries  accounts and additional bridge loans and
other working capital loans the Company expects to receive.

Six Months Ended June 30, 1998 and 1997

         The Company's revenues under the GI research  agreement  decreased from
$150,000 in the six months  ended June 30 of 1997 to $0 for that period in 1998.
Revenues  under  the  Genetics  Institute  agreement  ceased  at the  end of the
agreement in 1997.

         Interest  income  decreased  97% from $7,479 in the first six months of
1997 to $215 in the first six months of 1998. This decrease was  attributable to
the expenditure of the proceeds from the sale of Unsecured  Convertible Notes in
the last  quarter of 1996,  which were  invested  during 1997.  Interest  income
relating to the proceeds of the Unsecured  Convertible Notes ceased in the first
quarter of 1998.

         Operating,  general and  administrative  expenses  increased 24.7% from
$160,131 in the first six months of 1997 to $199,793 in the equivalent period of
1998.  These increased  expenses  reflect  increased  legal expenses,  increased
accounting fees relating to Securities and Exchange  Commission  reporting,  and
increased  advertising and promotion in the first six months of 1998 compared to
the first six months of 1997. The Company expects its general and administrative
expense  to  increase  during  1998 as a  result  of the  hiring  of  additional
personnel, increased amortization of capitalized patent costs as new patents are
issued, and increased legal and accounting  expenses resulting from filings with
the Securities  and Exchange  Commission  under the  Securities  Exchange Act of
1934.

          Research   and   development   expenditures   consist   primarily   of
payroll-related  expenses  of research  and  development  personnel,  laboratory
supplies,   animal  supplies,   laboratory  rent,   depreciation  on  laboratory
equipment, development activities, payments for sponsored research, and payments
to scientific  and regulatory  consultants.  Research and  development  expenses
decreased  46% from  $347,590 in the first six months of 1997 to $188,872 in the
first six months of 1998,  primarily  as a result of a  temporary  reduction  in
research  and  development  personnel  during  the first  quarter  of 1998,  and
concomitant  reduction  in  lab  supplies,  together  with  a  reduction  of one
technician,  the  termination  of the  Company's  consulting  contract  with its
regulatory  advisor,  and a  significant  reduction in the  compensation  of the
Company's  scientific  advisors.  The Company  anticipates that its research and
development  expenses will increase  during the remainder of 1998 as the Company
expands  research and development  programs and preclinical and clinical testing
for its product candidates and technologies under development.

          Interest  expense  increased 116% from $26,154 in the first six months
of 1997 to  $56,594  in the  first  six  months  of 1998 due  primarily  to cash
interest  on  the  Company's  10%  Notes,  the  amortization  of  debt  discount
(initially  $285,835)  attributable to the beneficial  conversion feature of the
Company's  Variable Notes, both issued in the last quarter of 1996,  interest on
bridge loans to officers,  and the  compounding of interest on deferred fees and
salaries,  including  deferred  interest,  payable to related parties.  Interest
expense  will  continue to increase  during 1998,  as a result of the  continued
compounding  of interest on deferred fees and salaries  accounts and  additional
bridge loans to officers that the Company expects to receive.


Liquidity and Capital Resources

         In December, 1997, the Company commenced the public offering of 400,000
Units of newly issued  securities,  for an aggregate  of  $4,000,000.  Each Unit
consists  of one share of Common  Stock,  $0.01 par  value,  and .25  Charitable
Benefit Warrants.  Each whole Charitable  Benefit Warrant entitles the holder to
purchase one share of Common Stock at a price of $20.00 per share.  The Offering
is being made in nine  states,  primarily  over the  Internet,  directly  by the
Company,  except in Florida where sales must be made through a broker.  There is
no minimum  number of Units to be sold in the Offering,  and all funds  received
will go  immediately  to the Company.  The offering will be terminated  upon the
earliest of: the sale of all Units, December 10, 1998 (unless extended),  or the
date on which the Company  decides to close the  offering.  At July 31,  1998, a
total of 25,550 Units ($255,500) had been sold pursuant to the offering.

         During 1997, the Company's development activities were funded primarily
by a private placement  transaction in which it sold Unsecured Convertible Notes
for an aggregate gross consideration of $787,270. In addition,  the Chairman and
Chief  Executive  Officer and the  President of the Company have entered into an
agreements to extend the Company up to $150,000 and up to $25,000, respectively,
in bridge loans.  Interest on the bridge loans from officers is at 6.54% but can
be reset annually,  at the election of either party, to the prime rate in effect
on January 1 of any given year,  plus 3%.  Under these  agreements,  the Company
borrowed a total of $145,000,  which was still outstanding at June 30, 1998. The
Company expects to borrow and repay under these  facilities from time to time to
meet  working  capital  needs.  The  Company  does not  have any bank  financing
arrangements.   The  Company's  long-term  indebtedness  consists  primarily  of
deferred  fees and salaries  payable to related  individuals  and the  Unsecured
Convertible Notes.

         At June 30, 1998, the Company had $18,961 in cash and cash equivalents.
Until  required  for  operations,  the  Company's  policy is to invest  its cash
reserves  in  bank  deposits,  money  market  funds,  certificates  of  deposit,
commercial  paper,  corporate  notes,  U.S.  government  instruments  and  other
investment-grade quality instruments.

         On January 1, 1996, the Company purchased laboratory equipment pursuant
to a chattel  mortgage  agreement in the amount of $32,309.  The agreement calls
for  monthly  payments of $897,  commencing  August 1, 1996.  At June 30,  1998,
$11,667 in principal remains outstanding under this agreement..

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

         Through June 30, 1998, the Company had paid  offering-related  expenses
of $100,774 which have been applied against the proceeds of the public offering.

         On October 1, 1998,  upon the  expiration  of its  current  lease,  the
Company will relocate to comparable rental facilities near its present location.
The new lease will be for  increased  space and rent and for a  three-year  term
with  two  one-year  renewal  options.  The  estimated  annual  rent  (including
amortization  of an emergency  generator which will belong to the Company at the
end of the lease) will be approximately  $79,000 per year (including  utilities)
compared  to the current  annual  rent  (including  utilities)  of $43,200.  The
Company  will  continue  to  have  access  to  the   Biotechnology   Development
Institute's   specialized   facilities,    centralized   equipment,   and   core
laboratories.  Relocation will not materially affect the Company's  research and
development operations;  however, the Company will incur relocation expenses and
will be obliged to  purchase  or lease  laboratory  and office  furnishings  and
equipment currently available under its lease with the Biotechnology Development
Institute.  The Company  estimates  that the  principal  amount of such lease or
purchase is approximately $80,000.

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



Product Research and Development Plan

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

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

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

     *   further  preclinical  development  of a  quantitative  version  of  the
         Company's molecular diagnostic, the XEntrIx (TM) Oxalobacter formigenes
         Monitor,

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

     *   continuing the prosecution and filing of patent applications; and

     *   hiring additional employees.

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

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




<PAGE>


Part II - Other Information

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

         The  Company's   annual   meeting  was  held  on  June  12,  1998.  The
shareholders  of the Company  elected the following  directors of the Company to
serve until the next annual  meeting.  The total  number of votes cast "For" and
"Withheld" in respect of the following  nominees are as set forth opposite their
respective names:

         Nominees                   Votes For                   Votes Withheld

Weaver H. Gaines                    2,153,294                          0
David C. Peck                       2,153,294                          0
David M. Margulies                  2,153,294                          0
Vincent P. Mihalik                  2,153,294                          0
Karl-E. Arfors                      2,153,294                          0

         Finally,  the  shareholders  of the Company  ratified the  selection of
Coopers & Lybrand  LLP as  independent  accountant  for its  fiscal  year  ended
December 31, 1998, and the total number of shares cast "For," cast "Against" and
"Abstentions" are set forth below:

         Votes For                    Votes Against               Abstentions
         2,153,294                          0                          0

Item 6.  Exhibits and Reports on Form 8-K

   (a)     Exhibits

Exhibit    Description                                                    Page

   (2)     Plan of Acquisition, Reorganization, Arrangement,
               Liquidation or Succession                                  None

   (4)     Instruments defining the Rights of Security Holders            None

  (10)     Material Contracts                                             None

  (11)     Statement re: Computation of Per Share Earnings                None

  (15)     Letter re: Unaudited Interim Financial Information             None

  (18)     Letter re: Change in Accounting Principles                     None

  (19)     Report Furnished to Security Holders                           None

  (22)     Published Report re: Matters Submitted to Vote of
              Security Holders                                            None

  (23)     Consents of Experts and Counsel                                None

  (24)     Power of Attorney                                              None

  (27)     Financial Data Schedule                                  

  (99)     Additional Exhibits                                            None
  
 (b)     Reports on Form 8-K
                  None


<PAGE>



                                   Signatures

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                            Ixion Biotechnology, Inc.


Dated: August 10, 1998               By:  /S/
                                       Weaver H. Gaines
                                       Chairman and Chief  Executive Officer

Dated: August 10, 1998               By:  /S/
                                       David C. Peck
                                       President and Chief Financial Officer
                                       (Principal Financial Officer)

Dated: August 10, 1998               By:  /S/
                                       Kimberly A. Ramsey
                                       Controller (Principal Accounting Officer)



<PAGE>



 Exhibit Index

 Exhibit                          Exhibit
   No.                          Description

    (2)     Plan of Acquisition, Reorganization, Arrangement,
               Liquidation or Succession                                  None

   (4)     Instruments defining the Rights of Security Holders            None

  (10)     Material Contracts                                             None

  (11)     Statement re: Computation of Per Share Earnings                None

  (15)     Letter re: Unaudited Interim Financial Information             None

  (18)     Letter re: Change in Accounting Principles                     None

  (19)     Report Furnished to Security Holders                           None

  (22)     Published Report re: Matters Submitted to Vote of
              Security Holders                                            None

  (23)     Consents of Experts and Counsel                                None

  (24)     Power of Attorney                                              None

  (27)     Financial Data Schedule                                  

  (99)     Additional Exhibits                                            None
  
 (b)     Reports on Form 8-K
                  None



-  --------  (*)  Incorporated  by  reference  from the  Company's  Registration
                  Statement on Form SB-2, file no. 333-34765