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

                     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, 1999

                                       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.)

                          13709 Progress Blvd., Box 13
                                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, 1999 was 2,514,414.

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



<PAGE>


4

                            Ixion Biotechnology, Inc
                               Index to Form 10QSB
<TABLE>
<CAPTION>

Part 1 - Financial Information                                                                    Page
                                                                                                  ----

Item 1.  Financial Statements (unaudited)
<S>         <C>                                                                                     <C>

            Condensed Balance Sheet - June 30, 1999..................................................2

            Condensed Statements of Operations - Three Months and Six Months
            Ended June 30, 1999 and 1998 and for the period March 25, 1993
            (Date of Inception) through June 30, 1999................................................3

            Condensed Statements of Cash Flows - Six Months Ended June 30, 1999
            and 1998 and for the period March 25, 1993
            (Date of Inception) through June 30, 1999................................................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 2. Changes in Securities and Use of Proceeds...................................................15

Item 4.  Submission of Matters to a Vote of Security Holders........................................15

Item 5.  Other Information..........................................................................16

Item 6.  Exhibits and Reports on Form 8-K...........................................................16

Signatures..........................................................................................17

Exhibit Index.......................................................................................17
</TABLE>


                                       1
<PAGE>



Part I.  Financial Information
Item 1.  Financial Statements

Condensed Balance Sheet
June 30, 1999
Unaudited

                                     Assets

Current  Assets:
   Cash and cash equivalents                                           $ 81,016
   Accounts receivable                                                    6,916
   Prepaid expenses                                                       1,359
   Other current assets                                                     500
          Total current assets                                         --------
                                                                         89,791
                                                                       --------
Property and Equipment, net                                             106,924

Other Assets:
    Patents and patents pending, net                                    327,435
    Other...                                                              6,705
                                                                       --------
                 Total other assets                                     334,140
                                                                       --------
                 Total Assets                                          $530,855
                                                                    ===========

                       Liabilities and Capital Deficiency

Current Liabilities:
    Accounts payable                                                   $ 35,923
    Bridge loans payable to officers                                    415,000
    Current portion of notes payable                                      9,716
    Convertible note payable                                            300,000
    Accrued expenses                                                     47,164
    Interest payable                                                     46,605
                                                                       --------
            Total current liabilities                                   854,408
                                                                       --------
Long-Term Liabilities:
    Notes payable                                                       674,432
    Liability under research agreement                                   42,317
    Deferred rent, including accrued interest                            23,213
    Deferred fees and salaries, including accrued interest              840,562
                                                                       --------
                   Total long-term liabilities                        1,580,524
                                                                     ----------
                     Total liabilities                                2,434,932
                                                                      ---------

Capital Deficiency:
    Common stock, $.01 par value; authorized 4,000,000, issued and
       outstanding 2,514,014 shares at June 30                           25,144
    Common stock warrants outstanding                                    35,494
    Additional paid-in capital                                        1,625,888
    Deficit accumulated during the development stage                (3,383,653)
    Less unearned compensation                                        (206,950)
                                                                   ------------
                  Total capital deficiency                          (1,904,077)
                                                                   ------------
Total Liabilities and Capital Deficiency                           $    530,855
                                                                   ============

See accompanying notes to condensed financial statements


                                       2
<PAGE>


Statements of Operations


                                                         Three Months Ended
                                                               June 30,
                                                       __1999__        __1998__
                                                              Unaudited
Revenues:...
   Income under research agreement                    $       0      $        0
   Income from SBIR Grant                                     0               0
   Interest income                                          915              69
   Other income                                             250           1,295
                                                      ---------      ----------
            Total revenues                                1,165           1,364
                                                      ---------      ----------

Expenses:...
  Operating, general and administrative                  88,085          80,909
  Research and development                              129,514         101,310
  Interest..                                             37,559          28,204
                                                      ---------      ----------
                 Total expenses                         255,158         210,423
                                                      ---------      ----------

Net Loss....                                          $(253,993)     $(209,059)
                                                      =========      ==========

Basic and Diluted Net Loss per Share                  $   (0.10)     $   (0.08)
                                                      =========      ==========

Weighted Average Common Shares                        2,514,014       2,475,201
                                                      =========      ==========






















See accompanying notes to condensed financial statements



                                       3
<PAGE>
Statements of Operations
<TABLE>
<CAPTION>

                                                                                                For the Period
                                                                                                   March 25,
                                                                                                  1993 (Date
                                                                                                 of inception)
                                                     Six Months Ended                              through
                                                        June 30,                                   June 30,
                                               __1999__         __1998__                         ____1999____
                                                       Unaudited                                   Unaudited
<S>                                         <C>                <C>                                <C>

Revenues:...
   Income under research agreement            $       0       $        0                        $     275,001
   Income from SBIR Grant                             0                0                               91,650
   Interest income                                  963              215                               24,395
   Other income                                     695           2, 276                               18,500
                                               --------        ---------                         ------------
            Total revenues                        1,658            2,491                              409,546
                                               --------        ---------                         ------------
Expenses:...
  Operating, general and administrative         178,819          199,793                            1,647,326
  Research and development                      238,166          188,872                            1,748,903
  Interest..                                     74,729           56,594                              396,971
            Total expenses                      491,714          445,259                            3,793,199
                                               --------         --------                          -----------
Net Loss....                                 $ (490,056)       $(442,768)                        $(3,383,653)
                                             ==========        =========                         ============
Net Loss per Share (Basic)                   $    (0.19)       $   (0.18)
                                             ===========       =========

Weighted Average Common Shares                 2,514,001       2,471,228
                                             ===========       =========
</TABLE>






















See accompanying notes to condensed financial statements

                                       4

<PAGE>


Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                                                                   For the Period
                                                                                                                   March 25, 1993
                                                                                Six Months                      (Date of inception)
                                                                              Ended June 30,                          through
                                                                          1999           1998                      June 30, 1999
                                                                        --------       --------                    -------------
                                                                                Unaudited                            Unaudited
<S>                                                                  <C>            <C>                           <C>

Cash Flows from Operating Activities
    Net loss                                                           $(490,056)      $(442,768)                  $ (3,383,653)
    Adjustments to reconcile net loss to net cash used in
        operating activities:

 ............Depreciation                                                  12,711           5,928                         50,566
 ............Amortization                                                   2,234           1,578                          8,234
 ............Amortization of debt discount                                 28,584          28,584                        161,976
 ............Stock warrants issued under license agreement                      -               -                         20,465
 ............Stock options/warrants issued for consulting services              -               -                         30,000
 ............Stock compensation                                            81,650          50,181                        465,853
 ............Decrease (increase) in prepaid expenses and
 ............    other current assets                                        (283)            841                         (1,684)
 ............Decrease (increase) in accounts receivable                    (5,000)           (291)                        (6,916)
 ............Increase (decrease) in liability under
 ............    research agreement                                             -               -                         42,317
 ............Increase (decrease) in accounts payable and
 ............    accrued expenses                                         (34,998)          6,921                        163,561
 ............Increase in deferred fees and salaries                       121,286         119,747                        814,012
 ............Increase in deferred rent                                      1,118           7,557                         23,213
                                                                        -------         --------                     -----------
 ............    Net cash used in operating activities                   (212,757)       (211,722)                    (1,611,055)
                                                                        --------        --------                     -----------

Cash Flows from Investing Activities:
     Purchase of property and equipment                                  (58,553)              -                       (102,850)
     Organization Costs                                                        -               -                           (436)
     Payments for patents and patents pending                            (39,443)        (29,156)                      (323,558)
                                                                        --------         --------                    -----------
 ............   Net cash used in investing activities                     (97,996)        (29,156)                      (426,844)
                                                                        --------         --------                    -----------

Cash Flows from Financing Activities:
     Loans from officers                                                  90,000                -                       445,307
     Proceeds from issuance of convertible notes payable                 300,000                -                     1,087,270
     Proceeds from issuance of common stock                                1,000          195,500                       756,900
     Proceeds from issuance of subordinated notes
               payable to related parties                                      -           70,000                             0
     Principal reductions in notes payable                                (9,793)          (6,282)                      (33,738)
     Payment of deferred offering costs                                   (8,070)         (43,822)                     (124,631)
     Payment of loan costs                                                     -                -                       (12,194)
                                                                        --------           -------                    ----------
 ............   Net cash provided by (used in)
 ............     financing activities                                    373,137           215,396                    2,118,915
                                                                        --------           -------                    ----------
Net Increase (Decrease) In Cash and Cash Equivalents                      62,383           (25,482)                      81,016

Cash and Cash Equivalents at Beginning of Period                          18,633            44,443                            -
                                                                        --------           -------                    ----------
Cash and Cash Equivalents at End of Period                              $ 81,016           $18,961                    $   81,016
                                                                        ========           =======                    ==========


</TABLE>



See accompanying notes to condensed financial statements



                                       5
<PAGE>


Notes to Condensed Financial Statements
Six Month Period Ended June 30, 1999

1.    Basis Of Presentation:

      The accompanying unaudited condensed financial statements for the three
      and six months ended June 30, 1998 and 1999, and for the period March 25,
      1993 (date of inception) through June 30, 1999, 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, 1998
      financial statements and related notes included in the Company's Annual
      Report on Form 10-KSB for the year ended December 31, 1998. 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, 1999 are not necessarily
      indicative of the results to be expected for the full year.

2.    Notes Payable:

      On April 16, 1999, in connection with an agreement in principle between
      the Company and Q-Med AB, described below in Note 6, Q-Med advanced
      $300,000 to the Company. The loan, which is convertible at the Company's
      election, will be converted into 150,000 restricted shares of the
      Company's common stock.

3.    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, 1999:

           Deferred compensation                                   $   332,000
           Net operating loss carryforward                           1,004,000
           Deferred tax asset                                        1,336,000
           Valuation allowance                                     $(1,336,000)

           Net deferred tax asset                                  $     __0_ _
                                                                   ============

4.    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 .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 has received proceeds of $344,200 through
      June 30, 1999. The offering, which is currently suspended, will be
      continued until all securities have been sold or until December 10, 1999,
      unless sooner terminated or extended. If the proceeds from the offering
      and the Q-Med AB investment, described below in Note 6, 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 funds through other sources.

      Offering costs of $124,631 have been offset against the proceeds of the
offering through June 30, 1999.


                                       6
<PAGE>


5.    Related Party Transactions

      The Chairman and Chief Executive Officer and the President of the Company
      have agreed to extend the Company financing in the form of bridge loans.
      Interest on the bridge loans from officers is at 8% but can be reset
      annually, at the election of either party, to the prime rate in effect on
      January 1 of any given year, plus 3%. Under these agreements, the Company
      borrowed a total of $415,000, which was still outstanding at June 30, 1999
      and is due on demand. These officers have no commitment to lend additional
      funds in the future.

6.    Subsequent Events

      Under the agreement in principle executed on April 16, 1999, Q-Med AB, a
      Swedish company whose headquarters are in Uppsala, Sweden, agreed to
      purchase not less than three million shares of the Company's common stock,
      in exchange for

      o   $6,000,000 in cash,

      o   a royalty-free license to Q-Med's non-animal, stabilized hyaluronic
          acid  technology for use as an encapsulation material for
          transplantable islets, and
      o   the redemption of up to $571,670 of the Company's Convertible
          Unsecured Notes which note holders elect not to convert in August2001.

      The original transaction was contingent on the execution of a mutually
      satisfactory stock purchase agreement and the successful completion of
      additional financing by Q-Med, on or before July 15, 1999. Q-Med was
      unable to complete its additional financing by July 15, 1999, and,
      accordingly, the Company and Q-Med are discussing an amendment to the
      agreement in principle.

      Q-Med advanced $300,000 on April 16, 1999, upon execution of the original
      agreement in principle, which was converted into 150,000 newly-issued
      shares of Ixion common stock on August 2, 1999. Q-Med has agreed to
      advance at least an additional $75,000 to the Company on August 15, 1999.

      On July 12, 1999, as a result of the pending Q-Med transaction, the Board
      of Directors of the Company approved a retroactive reduction in the
      offering price of the Company's suspended public offering (see Note 4)
      from $10.00 per Unit to $4.00 per Unit. The Board also approved 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 will result in the
      issuance of a total of 51,630 shares (approximately 2% of the current
      outstanding) 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 $1,600,000. In order to change the terms of the
      public offering, the Company will be required to file a post-effective
      amendment to the current registration statement.

      On July 12, 1999, the Company granted ten-year options under the 1994
      Stock Option Plan to purchase 73,000 shares of Common Stock at an exercise
      price of $4.00 per share. Stock options are exercisable only if vested.
      15,000 of such options, granted to members of the Scientific Advisory
      Board, vest over one year, the remainder vest over five years. In
      addition, the Company has determined that it will cancel and reissue
      82,400 options previously granted at exercise prices ranging from $6.00
      per share to $10.00 per share. There will be no change in the vesting
      period for reissued options.

                                       7

<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. Our 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

            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.

            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 in principle 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. Provided the Diagnostic
Referral Laboratories markets the service and provided doctors accept the test
as useful, we may receive revenue from this test during 1999. However we do not
expect any of our other product candidates to be commercially available for at
least several years. From inception through June 30, 1999, we incurred
cumulative losses of $3,383,653. 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 general and administrative costs, including

        o  amortization of patents,
        o  additional administrative personnel;
        o  legal and regulatory costs necessary to support preclinical
development and clinical trials,
        o   SEC reporting costs, and
        o   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.

            We have only a limited operating history upon which you can base an
evaluation of our prospects. You should consider the risks, expenses, and
difficulties encountered by companies at an early stage of development when
evaluating our prospects. To address these risks, we must, among other things,

        o   successfully develop and commercialize our products,
        o   secure all necessary proprietary rights,
        o   respond to competitive developments, and
        o   continue to attract, retain and motivate qualified persons.


                                       8
<PAGE>

            There can be no assurance that we will be successful in addressing
these risks.

            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 and you should not rely on them as an indication of
future performance. Due to all of the foregoing factors, it is possible that our
operating results will be below the expectations of market analysts, if any, and
investors. In such event, the prevailing market price, if any, of our common
stock would likely be materially adversely affected.

Results of Operations

Three Months Ended June 30, 1999 and 1998

            Total revenues decreased by 15% from $1,364 for the second quarter
of 1998 to $1,165 for the second quarter of 1999 mainly as a result of the
decline in other income resulting from a reduction in consulting provided by us.
We expect income to increase in 1999 as a result of the award of a research
contract under the Small Business Technology Transfer ("STTR") Program which
will provide approximately $40,000 of income in 1999.

            Operating, general and administrative expenses increased 9% from
$80,909 for the second quarter of 1998 to $88,085 for the equivalent period of
1999. These increased expenses reflect increased directors fees resulting from
an increased number of directors, increased travel expenses, and increases in
various other administrative categories, offset, to some degree, by a decline in
salaries and advertising expense for the second quarter of 1999 compared to the
second quarter of 1998. The Company expects its general and administrative
expense to increase during the remainder of 1999 as a result of an increase in
the scale of operations which may result from the pending Q-Med transaction, an
increase in amortization of capitalized patent costs as new patents are issued,
and continued amortization of capitalized debt issue costs.

             Research and development expenditures consist primarily of
payroll-related expenses of research and development personnel, laboratory
supplies, animal supplies, laboratory rent and associated utilities,
depreciation on laboratory equipment, development activities, payments for
sponsored research, and payments to scientific and regulatory consultants.
Research and development expenses increased 28% from $101,310 for the second
quarter of 1998 to $129,514 for the second quarter of 1999, mainly due to an
increase in laboratory personnel, increased rent, utilities, and interest
charges on the purchase of lab equipment and on deferred fees and salaries. The
Company's research and development expenses could increase during the remainder
of 1999 as a result of an increase in the scale of operations which may result
from the pending Q-Med transaction and as a result of the receipt of the STTR
grant referred to above.

             Interest expense increased 33% from $28,204 for the second quarter
of 1998 to $37,559 for the second quarter of 1999 due primarily to interest on
bridge loans from 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 1999, as a result of the continued
compounding of interest on deferred fees and salaries accounts and loans we have
received and expect to receive.

Six Months Ended June 30, 1999 and 1998

            Total revenues decreased by 33% from $2,491 in the first half of
1998 to $1,658 in the first half of 1999 mainly as a result of the decline in
other income resulting from a reduction in consulting provided by us. We expect
income to increase in 1999 as a result of the award of a research contract under
the Small Business Technology Transfer ("STTR") Program which will provide
approximately $40,000 of income in 1999.


                                       9
<PAGE>

            Operating, general and administrative expenses decreased 10% from
$199,793 in the first half of 1998 to $178,819 in the equivalent period of 1999.
These decreased expenses reflect decreased personnel during the first quarter,
decreased legal fees, and decreased advertising expenses in the first half of
1999 compared to the first half of 1998. The Company's general and
administrative expense should increase during the remainder of 1999 as a result
of an increase in personnel and an increase in the scale of operations which may
result from the pending Q-Med transaction, an increase in amortization of
capitalized patent costs as new patents are issued, and continued amortization
of capitalized debt issue costs.

             Research and development expenditures consist primarily of
payroll-related expenses of research and development personnel, laboratory and
animal supplies, laboratory rent and associated utilities, depreciation on
laboratory equipment, development activities, payments for sponsored research,
and payments to scientific and regulatory consultants. Research and development
expenses increased 26% from $188,872 in the first half of 1998 to $238,166 in
the first half of 1999, mainly due to an increase in laboratory personnel, rent,
utilities, interest charges on the purchase of lab equipment and on deferred
fees and salaries, and scientific advisors fees; offset somewhat by a reduction
in preclinical expenses and lab supplies. The Company's research and development
expenses could increase during the remainder of 1999 as a result of an increase
in the scale of operations which may result from the pending Q-Med transaction
and as a result of the receipt of the STTR grant referred to above.

             Interest expense increased 32% from $56,594 in the first half of
1998 to $74,729 in the first half of 1999 due primarily to interest on bridge
loans from 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 1999, as a result of the continued
compounding of interest on deferred fees and salaries and loans we have received
and expect to receive.

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 consists
of one share of common stock and .1/4 of a Charitable Benefit Warrant. Each
whole Charitable Benefit Warrant entitles someone to purchase one share of
common stock at a price of $20.00 per share. Ixion is directly (except in
Florida where sales must be made through a broker) making the offering selected
states, primarily over the Internet. There is no minimum number of Units 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 the earliest of:

        o   the sale of all Units,
        o   December 10, 1999, or
        o   the date we decide to close the offering.

            In connection with the proposed transaction with Q-Med AB, described
below, we temporarily suspended the offering. On July 12, 1999, in consequence
of the pending Q-Med transaction, the Board of Directors approved a retroactive
reduction in the offering price of the Company's suspended public offering from
$10.00 per Unit to $4.00 per Unit. The Board also approved 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
will result in the issuance of a total of 51,630 shares (approximately 2% of the
current outstanding) to purchasers in the public offering for no additional
consideration.

            In order to change the terms of the public offering, the Company
will be required to file a post-effective amendment to the current registration
statement. The reduction in the offering price will reduce the aggregate maximum
potential amount to be raised from $4,000,000 to $1,600,000.

            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 is June 15,
1999 and as of June 30, 1999 we have accrued $3,212 to be applied toward the
grant. These funds are available and were drawn on beginning in July, 1999. We


                                       10
<PAGE>

will subcontract approximately $60,000 to the University of California, Irvine,
but the remaining $40,000 will be available during 1999 to support oxalate
research at Ixion. We have several 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 second quarter of 1999 were funded primarily from funds
advanced by Q-med. The bridge loans total $415,000 at June 30, 1999. 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 to meet working capital needs. Although additional bridge loans may
not be necessary during the remainder of 1999 because of the pending Q-Med
transaction, we can not assure you that, should such loans be necessary, 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.

            At June 30, 1999, we had $81,016 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. On April 20, 1999, we received $300,000 in the form of a
convertible loan from Q-Med pursuant to the Q-Med transaction described below.
On August 2, 1999, the loan was converted into 150,000 shares of restricted
Ixion common stock.

            On January 1, 1996, we 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, 1999, one
payment of $897 in principal remains outstanding under this agreement.

            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 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.

            Through June 30, 1999, we have paid offering-related expenses of
$124,631 which have been applied against the proceeds of the public offering. We
expect further offering-related expenses to be modest.

            On October 8, 1998, upon the expiration of our lease at the
Biotechnology Development Institute, we moved to comparable rental facilities
across the street from our former location. The new lease is for increased space
and rent and for a three-year term, with two one-year renewal options. We expect
that annual payments under the new lease (including repayment of funds provided
by lessor for tenant improvements and an emergency generator) will be
approximately $92,000 per year. We will continue to have access, as a graduate
affiliate, to the Biotechnology Development Institute's specialized facilities,
centralized equipment, and core laboratories. Relocation has not materially
affected our research and development operations; however, we incurred
relocation expenses and have been obliged to purchase or lease laboratory and
office furnishings and equipment in the amount of approximately $100,000.

            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

        o  the completion of a Q-Med transaction described below
        o  the success of the continuing public offering of our securities (in
the event of a failure of the Q-Med transaction),


                                       11
<PAGE>


        o  the successful commercialization of our medicinal food product, a
probiotic product, the XEntrIx (TM) Oxalobacter formigenes Monitor (our new
diagnostic test) and IxC1-62/47 (our lead therapeutic compound),
        o  progress in our product development efforts,
        o  the magnitude and scope of development efforts,
        o  progress with preclinical studies and clinical trials,
        o  the cost of contract manufacturing and research organizations,
        o  cost of filing, prosecuting, defending and enforcing patent claims
and other intellectual property rights, o competing technological and market
developments, and o the development of strategic alliances for the development
and marketing of our products.

The Q-Med Transaction

            On April 16, 1999, we reached an agreement in principle with Q-Med
AB, a biotechnology company based in Uppsala, Sweden. Under the original
agreement, Q-Med agreed to purchase not less than three million shares of Ixion
common stock, in exchange for

        o   $6,000,000 in cash,
        o   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   the  redemption of up to $571,670 of our Convertible Unsecured
Notes which note holders elect not to convert in August 2001.

            Q-Med, a growing, profitable Swedish company, develops, manufactures
and sells natural, specialized medical implants. All of Q-Med(180)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.

            The original transaction was contingent on the execution of a
mutually satisfactory stock purchase agreement and the successful completion of
additional financing by Q-Med, on or before July 15, 1999. Q-Med was unable to
complete its additional financing by July 15, 1999, and, accordingly, the
Company and Q-Med are discussing an amendment to the agreement in principle.

            Q-Med advanced $300,000 on April 16, 1999, upon execution of the
original agreement in principle, which was converted into 150,000 newly-issued
shares of Ixion common stock on August 2, 1999. Q-Med has agreed to advance an
additional $75,000 to the Company on August 15, 1999.

            We must reach an amended agreement with Q-Med to meet our planned
operating requirements through December 31, 1999. We cannot assure you that we
will be able to reach agreement with Q-Med on satisfactory terms, or at all.
Failing that, we must successfully complete the suspended public offering.
Shortfalls in the proceeds of the public offering to date have forced a
curtailment in our operations to adjust to reduced resources. In the event our
plans change or our assumptions change or prove to be inaccurate or we fail to
close a satisfactory Q-Med transaction or the proceeds of the offering continue
to be insufficient to fund operations at the planned level (due to further
unanticipated expenses, delays, problems or otherwise), 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 products through regulatory approval
to commercialization. The terms and prices of any equity or debt financings or
corporate combination may be significantly more favorable to new investors than
those of the Units sold in the offering, resulting in significant dilution to
current investors. We do not have any material committed sources of additional
financing. We can not assure you that additional funding, consolidation, or
alliance, if necessary, will be available on acceptable terms, if at all. If



                                       12
<PAGE>


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.

Product Research and Development Plan

      Our plan of operation for the remainder of 1999 consists primarily of
research and development and related activities, resources permitting,
including:

          o  further research into the biology of islet and islet stem cell
growth and differentiation, aimed at developing cell lines of functioning
islets for transplantation into diabetic patients;
          o   further research into identifying and characterizing novel growth
factors associated with islets to discover factors important in islet cell
differentiation and possible regulation of diabetes and to identify stem cell
markers to which we hope to produce monoclonal antibodies useful in stem cell
isolation
          o research into differential gene expression studies on differentiated
islet cells;
          o further research into encapsulation materials for transplantation of
islets;
          o development of a medicinal food product not requiring regulatory
approval;
          o further preclinical development of a quantitative version of our
molecular diagnostic test, the XEntrIx(TM)Oxalobacter formigenes Monitor,
          o further preclinical development of our oxalate therapeutic compound,
 IxC1-62/47;
          o continuing the prosecution and filing of patent applications; and
          o hiring additional employees.

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

            We can not assure you that we will be able to commercialize our
technologies or that profitability will ever be achieved. We expect that our
operating results will fluctuate significantly from quarter to quarter in the
future and will depend on a number of factors, most of which are outside our
control.

Year 2000 Compliance

            Many computer systems and computer chips embedded in equipment are
unable to tell the difference between the year 1900 and the year 2000. This is
known as the Year 2000 issue. Many businesses are at risk for possible
miscalculations or systems failures as a result of their computers, software, or
equipment's not being Year 2000 compliant.

            Our assessment of Year 2000 compliance issues is substantially
complete.

            Software and Computers. Our computers all run Windows operating
systems which are or will be Year 2000 compliant according to our tests and
information received from Microsoft. We have been assured by the vendors that
our office applications programs are Year 2000 compliant. We have been also been
assured by the vendor that our finance and accounting software, our only
mission-critical software, is Year 2000 compliant.

            Equipment. Most of our laboratory equipment does not use a computer
or embedded chip. Our policy is that all new equipment that we purchase must be
Year 2000 compliant. Our assessment of our laboratory equipment is complete, and
all essential equipment is compliant.

                                       13
<PAGE>

            With respect to equipment made available to us as a result of our
affiliation with the Biotechnology Development Institute, we have requested a
statement of compliance.

            Suppliers. We are contacting key suppliers regarding their Year 2000
compliance in order to determine if there might be any effect on our operations.
In general, our suppliers (primarily scientific reagent and disposable equipment
vendors), have developed or are in the process of developing plans to address
Year 2000 issues. We will continue to monitor and evaluate the progress of our
suppliers.

            In general our review of the potential consequences of Year 2000
compliance issues on us leads us to believe that those issues will prove to be
immaterial to our business, operations, and financial condition. Accordingly, we
do not have contingency plans and have no plans to develop any unless our
further assessment indicates one is necessary. No material expenses have been
incurred to date, and none are anticipated.



                                       14
<PAGE>


Part II - Other Information

Item 2.  Changes in Securities and Use of Proceeds

            In 1997, the Company registered 400,000 newly-issued Units of its
securities for direct sale on Form SB-2 at a price of $10.00 per Unit. The
registration statement, Commission Registration No. 333-334765, was declared
effective on December 10, 1997 and Post-Effective Amendment No. 1 was declared
effective on March 19, 1998. On December 10, 1998, the Company extended the
offering, and thereafter filed Post-Effective Amendment No. 2 to reduce the
number of Units being registered to 150,000 Units (including the Units already
sold), for an aggregate offering price of $1,500,000. Each Unit consists of one
share of common stock, $0.01 par value, and .25 Charitable Benefit Warrant.
There is no minimum number of Units to be sold in the offering, and all funds
received will go immediately to the Company. The offering has not terminated and
is not scheduled to terminate until the earliest of: the sale of all Units,
December 10, 1999, or the date on which the Company decides to close the
offering; however, the offering is currently suspended pending the completion of
the Q-Med transaction described elsewhere in this report. 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). See Liquidity and Capital Resources, above,
for proposed changes in the offering.

            As of June 30, 1999, a total of 34,420 Units at an aggregate price
of $344,200 have been sold. From the effective date of the offering to June 30,
1999, $200 in expenses and $1,854 in commissions have been paid to Unified
Management Company as broker and there have been no finders' fees. Other
offering related expenses through June 30, 1998, amounted to $122,577, all of
which have been offset against proceeds. No payments were made to directors,
officers, general partners of the Company, or to their associates in connection
with the offering.

            Net offering proceeds as of June 30, 1999 amounted to $219,569. The
net proceeds were used entirely to fund the operations of the Company 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.

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

            The Company's annual meeting was held on June 11, 1999. The
shareholders of the Company elected the following directors of the Company to
serve until the next annual meeting.

Weaver H. Gaines
David C. Peck
David M. Margulies
Vincent P. Mihalik
Karl-E. Arfors

            The shareholders approved an amendment to the Company's certificate
of incorporation to increase the Company's authorized number of shares of common
stock from 4,000,000 shares to 20,000,000 shares and to authorize up to
1,000,000 shares of a new class of preferred stock. The total number of shares
cast "For," cast "Against," and "Abstentions" are set forth below.

        Votes For               Votes Against                       Abstentions
        2,043,694                           0                            10,000

            The shareholders approved an amendment to the 1994 Board Retainer
Plan which increased the total number of shares which may be issued and
outstanding to 250,000 (including, 99,050 previously issued). The amended plan
also limited the total number of shares reserved for issuance to 250,000 by
bringing issuances to employees and consultants under the 250,000 cap. The total
number of shares cast "For," cast "Against," and "Abstentions" are set forth
below.



                                       15
<PAGE>

       Votes For               Votes Against                       Abstentions
       2,043,694                       0                                10,000

            Finally, the shareholders of the Company ratified the selection of
PricewaterhouseCoopers LLP as independent accountants for its fiscal year ended
December 31, 1999, and the total number of shares cast "For," cast "Against" and
"Abstentions" are set forth below:

       Votes For               Votes Against                       Abstentions
       2,053,694                       0                                   0

Item 5.  Other Information

            On July 12, 1999, Bengt (W067)gerup, Ph.D., majority stockholder in
Q-Med and its former Managing Director, and Thomas Stagnaro, Chairman of US
Biomaterials, were elected to the Ixion board of directors.

            The Q-Med transaction previously reported on Form 8-K has been
modified as described above in Part I, Item 2.

Item 6.  Exhibits and Reports on Form 8-K

            (a)     Exhibits
<TABLE>
<CAPTION>
<S>            <C>                                                                         <C>

Exhibit                 Description                                                              Page

(2)         Plan of Acquisition, Reorganization, Arrangement,
                        Liquidation or Succession                                                None
*(3.5)      Certificate of Amendment of Certificate of Incorporation, dated June 11, 1999
*(3.6)                Certificate of Incorporation, as amended and restated
   (4)                Instruments defining the Rights of Security Holders                        None

*(10.39)    Agreement in Principle dated April 16, 1999, with Q-Med AB

*(10.40)    1994 Board Retainer Plan, as amended.

 (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



                                       16
<PAGE>

*(27)       Financial Data Schedule

 (99)       Additional Exhibits                                                                  None
</TABLE>


-----------
*Filed herewith

            (b)     Reports on Form 8-K

            The Company filed a Form 8-K on April 30, 1999 in connection with
the execution of an agreement in principal with Q-Med AB, pursuant to which
Q-Med could acquire up to 50% of the common stock of the Company which could
lead to a change in control of the Company

- ----------

                                   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 13 1999               By: /s/ Weaver H. Gaines
                                      -----------------------------------------
                                       Weaver H. Gaines
                                       Chairman and Chief  Executive Officer

Dated: August 13, 1999              By: /s/ David C. Peck
                                        ---------------------------------------
                                        David C. Peck
                                        President and Chief Financial Officer
                                       (Principal Financial Officer

Dated: August 13, 1999              By: /s/ Kimberly A. Ramsey
                                        ---------------------------------------
                                        Kimberly A. Ramsey
                                        Vice President and Controller
                                       (Principal Accounting Officer)

          Exhibit Index
<TABLE>
<CAPTION>
<S>           <C>                                                                    <C>

Exhibit         Description                                                             Page

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

*(3.5)       Certificate of Amendment of Certificate of Incorporation,
                dated June 11, 1999

*(3.6)       Certificate of Incorporation, as amended and restated

(4)          Instruments defining the Rights of Security Holders                        None

*(10.39)     Agreement in Principle dated April 16, 1999, with Q-Med AB

*(10.40)     1994 Board Retainer Plan, as amended.


                                       17
<PAGE>

(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

(23)         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


--------------
*Filed herewith
</TABLE>