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                                  United States

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-K/A

(Mark One)

  X     Annual report pursuant to Section 13 or 15(d) of the Securities
-----   Exchange Act of 1934 For the fiscal year ended December 31, 1998.

        Transition report pursuant to Section 13 or 15(d) of the Securities
-----   and Exchange Act of 1934 [No Fee Required] For the transition period
        from                            to
             --------------------------     -------------------------------

                         Commission File number 0-27082
                             FUISZ TECHNOLOGIES LTD.
               (Exact name of registrant as specified in charter)

        Delaware                                            52-1579474
 (State or other jurisdiction                            (I.R.S. Employer
 of incorporation or organization)                      Identification No.)

                             14555 Avion at Lakeside
                            Chantilly, Virginia 20151
                    (Address of Principal Executive Offices)

       Registrant's telephone number including area code: (703) 995-2400

   Securities registered pursuant to Section 12(b) of the Act:  None

   Securities registered pursuant to Section 12(g) of the Act:
   Common Stock, $.01 par value


Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ ]

As of March 26, 1999, the aggregate market value of the Common stock of the
Registrant (based upon the average bid and asked prices of the Common Stock as
reported by the National Association of Securities Dealers, Inc. through its
Automated Quotation System) held by nonaffiliates of the Registrant was
approximately $141,837,000.

As of March 26, 1999, 21,925,723 shares of Common Stock of the Registrant were
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

 PORTIONS OF THE PROXY STATEMENT TO BE FILED WITH THE SECURITIES AND EXCHANGE
  COMMISSION IN CONNECTION WITH THE ANNUAL MEETING OF STOCKHOLDERS OF THE
  REGISTRANT, TO BE HELD MAY 27, 1999, ARE INCORPORATED BY REFERENCE INTO PART
  III, ITEMS 10-13 OF THIS FORM 10-K.


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Introductory Note

This Form 10-K/A is being filed to i) correct the column headings on the
balance sheet which were mislabeled in the initial submission and ii) make
other non-substantive edits to the initial submission. 

                                     PART I

                                    BUSINESS

GENERAL

    The Company is engaged in the development, manufacture and
commercialization of a wide variety of pharmaceutical and consumer healthcare
products and technologies. The Company uses its unique drug delivery
technologies, including its CEFORM(TM) and Shearform(TM) technologies, to
conduct research and development activities on behalf of pharmaceutical and
consumer healthcare companies. Products flowing from these research and
development efforts include drug and consumer healthcare formulations using the 
Company's innovative Flash Dose(R), EZ Chew(R), soft chew and Spoon Dose(R) 
formats.

    The Company made significant strides in 1998 to commercialize its
technologies in a range of drug delivery, nutraceutical and food ingredient
applications. In 1998, the Company signed fifteen new agreements with major
pharmaceutical partners. The Company now has over twenty partner projects at
various stages of development in therapeutic areas such as pain management,
cardiovascular, central nervous system and gastrointestinal medicine, among
others. Two of the Company's collaborative partners submitted regulatory
applications for product approvals utilizing the Company's technology which are
expected to be approved by year-end 1999. In preparation for the production of
these products, the Company's newly commissioned 750 million dosage unit
pharmaceutical facility in Chantilly, Virginia was inspected and is now
approved by both the European regulatory authorities and the Food and Drug
Administration. In the period from late 1998 through early 1999, the Company
also launched four products utilizing the Company's proprietary technologies
through two new collaborative partners.

    During 1998, the Company also continued to make significant advances in the
development of its CEFORM microsphere and rapid dissolve tablet manufacturing
capabilities. Independent studies commissioned by the Company indicate that the
Company can engineer CEFORM microspheres with controlled release and
taste-masked characteristics which not only match existing dissolution profiles
of specified over-the-counter ("OTC") and prescription drugs, but that also 
improve the absorption rate of currently marketed drugs. The Company
manufactures its rapid dissolving Flash Dose tablets on conventional tablet
press machinery, resulting in a fast cost effective manufacturing process,
greater tablet integrity and compatibility with conventional high speed
packaging processes.

    On March 12, 1998, the Company completed the acquisition of all the issued
and outstanding equity interests of Fuisz Pharma KG, a subsidiary of Dr.
Rentschler Arzneimittel GmbH & Co., a pharmaceutical sales and distribution
company based in Laupheim, Germany, for an aggregate price of DM 35.0 million
(approximately $19.4 million) in cash. The purchase marks the Company's fifth
business acquisition since the beginning of 1997. Four of the acquired
companies provide a substantial portion of their products and services in
Europe. Consequently, the Company derives a significant portion of its
consolidated revenues from its European operations (see "Segment
Analysis-Pharmaceutical Operations" and "Notes to Consolidated
Financial Statements").

    Utilizing its CEFORM microsphere technology, the Company produces
microspheres of pharmaceutical compounds, which are coated to create controlled
release or taste-masked pharmaceutical products. These coated microspheres may
be incorporated into rapid dissolving formats utilizing the Company's Shearform
technology and into conventional oral drug delivery formats such as capsules,
tablets and liquid suspensions. The microspheres are uniform in size and shape
and, the Company believes, have enhanced controlled release and taste-masking
characteristics when compared to pharmaceuticals processed through other
currently available techniques. The Company believes that its CEFORM
microsphere technology is superior to competitors' microparticle technology
because the CEFORM manufacturing process involves fewer steps, does not require
the use of solvents, and results in stable microspheres which can be processed
with conventional tableting and packaging processes. In addition, the Company
believes its CEFORM microsphere technology allows for higher drug loading and
more uniform coating than competing technologies. Finally, by utilizing a newly
developed platform, CEFORM microspheres with modified absorption properties may
be formulated. These microspheres can result in faster absorption of poorly
soluble drugs or, in certain cases, an increase in the total amount of drug
absorbed.


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    Utilizing its Shearform technology, the Company has developed a variety of
rapid dissolving oral dosage formulations. These oral dosage formats are
compatible with the Company's CEFORM microsphere technology and include:

    - Flash Dose, a tablet which dissolves in the mouth in several seconds with
      or without water.

    - EZ Chew, a chewable tablet which dissolves in the mouth with a few chews.

    - Dry Sachet/Spoon Dose, an innovative unit dosage system that delivers a
      dry powder mixture which dissolves almost instantaneously in the mouth.

    The Company's Shearform technology also has been used to develop the
Company's soft chew consumer healthcare products, including mineral and vitamin
supplements. During the first quarter of 1999, the Company completed delivery
of launch quantities of its soft chew calcium product to Pharmavite, a division
of Otsuka-Japan, who is distributing it as CalBurst(TM) as part of the Nature
Made(R) product family. Initial sales forecasts for the product have caused the
Company to significantly expand its manufacturing capacity.

    The Company believes that its collaborative partners turn to the Company to
improve their product performance or compliance in terms of (i) clinical effect
(for example, faster absorption of an analgesic product resulting from the
application of the Company's CEFORM technology), (ii) consumer
acceptance (for example, combining the Company's CEFORM microspheres in a
Shearform matrix dosage to produce pleasant tasting, rapid dissolving Flash
Dose tablets for pediatric, geriatric or other users who have difficulty in
swallowing conventional dosage forms) and/or (iii) providing novel solutions to
drug delivery challenges (such as the combination of modified drug release in a
pleasant tasting, convenient dosage form). Using a combination of its CEFORM
and Shearform technologies, the Company can develop Flash Dose and EZ-Chew
tablets with controlled release properties, making certain products suitable
for once daily administration. For major OTC products, the Company generally
seeks to partner with large pharmaceutical companies who have or wish to
acquire a significant franchise in a particular market segment. For proprietary
prescription products, the Company offers its technologies to patent holders
for development of product extensions or enhanced drug delivery formulations.
Under the Company's collaborative agreements, the Company generally seeks to 
retain CEFORM microsphere manufacturing rights and, where appropriate, also 
seeks to manufacture the Company's proprietary dosage formulations, such as 
Flash Dose tablets.

    The Company has also continued work on a limited number of self-funded
development projects in instances where it believes that a high market
potential exists (such as where patent protection has ceased for an active
ingredient or will cease within three to five years) with the objective of
developing improved delivery or dosage characteristics, e.g., faster or
improved absorption, controlled release and/or taste-masked products.
Application of the Company's technology to drugs reaching the end of their
patent protection may permit reformulations or product extensions of such drugs
and generate new patent protection for valuable drug compounds or otherwise
maintain use of the originating company's product. The Company intends to seek
partnering agreements for commercialization of self-funded projects with major
pharmaceutical companies and, indeed, a number of such agreements were signed 
in 1998. With respect to customer-funded and Company-funded development
collaborations, the Company seeks to retain comarketing rights in the
pharmaceutical products for sale through its own distribution channels,
principally those in major European markets.

SEGMENT ANALYSIS

    The Company's activities may be generally characterized into three
reportable segments: Pharmaceutical Operations, Pharmaceutical Research and
Development and Consumer Healthcare. Financial information regarding these
three operating segments is set forth in the "Notes to Consolidated Financial
Statements." In addition, four of the Company's subsidiaries provide a
substantial portion of their products and services in Europe. Consequently, the
Company derives a significant portion of its consolidated revenues from its
European operations. See "Notes to Consolidated Financial Statements".

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    Pharmaceutical Operations - The Company sells and distributes a wide
variety of pharmaceutical products through five of its subsidiaries: Fuisz
Pharma KG in Germany, Laboratoires Murat in France, Istoria Farmaceutici in
Italy, Pangea Ltd. in the U.S. and Clonmel Healthcare Limited ("Clonmel") in
Ireland. These companies detail a portfolio of different products, primarily in
the areas of cardiovascular, pain management, antibiotics therapy, dermatology
and gynecology, to doctors through a direct sales force. Distribution takes
place through typical pharmaceutical distribution channels. This segment also
includes the Company's manufacturing activities which, through December 31,
1998, have principally taken place at the manufacturing facilities of Clonmel,
revenues from which accounted for almost 50% of the total consolidated revenues
of the Company. During 1999, management expects that an increasing portion of
this segment will be made up of revenues from pharmaceuticals utilizing the
Company's proprietary technologies. Production of these such products is
expected to occur at the Company's newly commissioned manufacturing facility in
Chantilly, Virginia and at Clonmel.

    Pharmaceutical Research and Development - The Company's pharmaceutical
research and development is fundamental to the Company's strategic purpose. As
the developer and repository of the Company's core CEFORM and Shearform
technologies, the segment focuses mainly on the development of proprietary
pharmaceutical products with collaborative partners. As previously noted,
fifteen new collaborations were entered into in 1998 and two products from two
different collaborators are expected to receive regulatory approval and be
commercially launched in 1999. The Company's collaborative arrangements
typically provide for a customer-funded development project and contemplate a
licensing arrangement under which, if a product is commercialized by the
collaborative partner, the Company would receive license fees, royalty payments
from product sales and manufacturing revenue. The division also pursues a
limited number of Company-funded products, although this has been of reduced
significance for the Company as the number of partner-sponsored projects has
proliferated.

    In light of the developmental nature of the division's activities, this
segment accounted for approximately 19% of the Company's total revenues and
approximately 76% of the Company's net operating loss in 1998.

    Consumer Healthcare - This segment includes product research and
development efforts primarily focused on developing food and nutraceutical
products for the Company's collaborators as well as the manufacture and sale of
such products through conventional distribution channels. The Company's
collaborative arrangements are structured similar to those of the
Pharmaceutical Research and Development segment. This segment was focused
predominantly in 1998 on the launch, in early 1999, of four products utilizing
the Company's proprietary technology: (i) the Shearform calcium supplement
CalBurst, marketed by Pharmavite as part of its Nature Made line, (ii)
Chew-eze, a Shearform calcium product marketed by Beeline Healthcare (an Irish
Company); (iii) Zinc-eze (a Shearform cold/cough product), marketed by Beeline,
and (iv) Easi-chew Vitamin C, an easy chew vitamin C product also marketed by
Beeline. In addition, the segment also continued its research and development
work with its collaborative partners, including a food product ingredient
collaboration with ConAgra Inc. ("ConAgra"), and significantly expanded the 
Shearform technology into innovative active ingredient encapsulations and 
medicated gum products

STRATEGY

    The Company's objective is to continue to develop and improve its
proprietary technologies and to expand the applications of its technologies in
the OTC and prescription pharmaceutical and consumer healthcare markets. The
Company is pursuing this objective with the following strategy:

    - Develop Existing and New Collaborative Customer-Funded Agreements. In
      order to increase market exposure of its products and to capitalize on its
      collaborative partners' market position and distribution capabilities, the
      Company intends to continue to develop its projects with its existing
      collaborative partners and to seek new collaborative partners who will
      fund further product development projects incorporating the Company's
      technology. The Company's existing collaborative arrangements typically
      provide for a customer-funded development project and contemplate a
      licensing arrangement (which may be entered into at the same time as the
      development project or at a later date) under which, if a project is
      commercialized by the collaborative partner, the Company would receive
      license fees, royalty payments from product sales and manufacturing
      revenue. The Company believes that such arrangements with major


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      partners serve to validate the Company's technologies in the
      pharmaceutical area and thereby assist the Company in attracting
      additional licensing arrangements on favorable terms.

    - Pursue Company-Funded Development Projects for Further Collaboration. In 
      order to pursue enhanced royalty or marketing terms over those obtained
      under customary development and licensing agreements, the Company intends
      to continue to develop a limited number of drug formulations through
      Company-funded projects in market segments where the Company believes
      there is strong market potential and that its technology may provide a
      significant competitive advantage, such as markets for ethical drugs for
      which patents have expired or are about to expire. Application of the
      Company's technology to drugs reaching the end of their patent protection
      may permit reformulations or product extensions of such drugs which in
      turn can obtain new patent protection for valuable drug compounds or
      otherwise maintain use of the originating company's product. After
      carrying such projects to an appropriate development stage, the Company
      will offer companies that are seeking to maintain or expand their market
      share an opportunity to enter into marketing agreements covering the
      Company-funded products.

    - Enhance Manufacturing Capability. The Company whenever practical seeks to
      retain manufacturing rights to its products to capture greater revenue and
      generate production economies that may not be available to pharmaceutical
      companies seeking to apply the Company's technologies to only one or a few
      products. In order to manufacture products using the Company's
      technologies, the Company has a newly commissioned 750 million dosage unit
      cGMP manufacturing facility at its Chantilly, Virginia headquarters. The
      Company also is planning to construct an additional commercial-scale
      manufacturing plant at its Clonmel facility. The Company has explored and
      will continue to evaluate the possibility of entering into strategic
      manufacturing alliances with appropriate third parties. In addition to
      manufacturing products for its licensees, the Company's manufacturing
      facilities will be available for products that the Company wishes to sell
      through its own distribution networks.

    - Recruit and Retain Key Personnel. The Company seeks to hire qualified
      scientists and key employees who have demonstrated their capabilities at
      other drug development companies. The Company expects to continue to
      recruit additional talent from the pharmaceutical industry to strengthen
      its operations, while also seeking to retain current personnel.

    - Protect Proprietary Technology.  The Company has sought and intends to
      continue to pursue protection for its technology in the United States and
      key international markets. At December 31, 1998, the Company had been
      granted 87 U.S. patents and has filed a substantial number of
      applications for additional U.S. patents, as well as corresponding patent
      applications outside the United States, relating to the Company's
      technology.

INDUSTRY OVERVIEW

    Pharmaceutical Industry

The global market for OTC and prescription drugs has become more competitive
and experienced other significant changes in recent years in response to
increased emphasis on containing healthcare costs. These changes in the
healthcare industry have also had an impact on participants in the
pharmaceutical industry. In particular, healthcare providers and payors have
implemented a variety of strategies to reduce the cost of medical care,
including the use of drugs having greater efficacy and/or higher patient
compliance, the use of generic versions of prescription and OTC drugs and the
use of OTC remedies when appropriate. Pharmaceutical companies have responded
to these concerns by developing treatments with improved efficacy, reduced
complications and side effects, more convenient dosing and lower costs. In 
addition, many pharmaceutical companies are extending their presence in a
particular therapeutic area with the introduction of non-prescription, or OTC,
versions of a prescription drug.

    As pharmaceutical companies adjust to the evolving healthcare industry,
they are seeking to differentiate their products in an increasingly crowded
therapeutic market. To do this effectively, they are developing products or
product extensions that can successfully compete in the generic and OTC market
for drugs, develop products or product extensions that enhance patient
compliance and brand loyalty, and accomplish this within a highly regulated and
cost-constrained environment.

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    The Company believes that its proprietary technologies can improve product
performance and consumer acceptance of prescription pharmaceutical products. In
some circumstances, the Company's CEFORM technology may be applied to develop
new drug delivery forms or to produce reformulations, such as reduced dosages.
Application of the Company's technology to drugs reaching the end of their
patent protection may permit reformulations or product extensions of such drugs
which may permit new patent protection of valuable drug compounds or otherwise
maintain use of the originating company's product.

    In the OTC markets, competition typically is intense since most OTC drugs
do not enjoy patent protection. For this reason, several pharmaceutical
companies typically compete for sales of the same or equivalent OTC drugs.
Product differentiation and brand name identity are critical to marketing
success in this context, and pharmaceutical companies are continually seeking
new methods of distinguishing their products from those of their competitors.
In addition to the use of extensive advertising, packaging innovations and
flavor differences, pharmaceutical companies attempt to differentiate their OTC
products using improved drug dosage formats.

    The Company believes that incorporating its technology into OTC products 
can provide a fundamental differentiating characteristic, and a sustainable
marketing advantage, for pharmaceutical companies that offer their products in
this format. The Company believes that many consumers of OTC drugs will prefer
its rapid dissolving tablets and granules because of their more attractive
organoleptic properties to more conventional oral drug delivery formats, such as
traditional tablets, capsules, liquid gel capsules and syrups. In particular,
rapid dissolving formulations may be especially attractive to consumers who
experience difficulty in swallowing conventional tablets or capsules, such as
pediatric or geriatric consumers.

    Consumer Healthcare

    This area generally covers products falling within the nutraceutical and
food ingredient fields which do not currently require pre-approval to market in
the U.S. The market is characterized by a large number of competitors with
substantially greater resources than the Company. Because consumer healthcare
is a consumer-driven industry, economies-of-scale are important in order to
capitalize on relationships with resellers such as supermarkets and bulk sale
stores. The Company seeks to succeed in this market by entering into
partnerships with large food processors, such as ConAgra for the Company's food
ingredients, and high profile marketers such as Pharmavite with its Nature
Made(R) brand and Abbott Laboratories for the sale of its proprietary products.

    The Company believes that its proprietary soft chew delivery format and its
encapsulation and taste isolation technologies offer potential partners a
variety of beneficial additions to existing nutraceutical and food ingredient
products.

TECHNOLOGY

    The Company's core proprietary technologies are its CEFORM microsphere and
Shearform technologies. The Company's CEFORM microsphere technology allows
pharmaceutical compounds to be formulated to provide for various delivery
profiles such as rapid absorption, long-acting performance, taste isolation and
targeted delivery. The Company's Shearform technology can be utilized to
produce rapid dissolving, chewable tablet and powder dosing pharmaceutical
formulations and certain nutraceutical formulations. In addition, the Company's
Shearform technology has broad applications for food product ingredients.

    The Company's research and development efforts are focused on developing
products with its partners and on expanding the potential commercial
applications of its proprietary technologies. The Company seeks to have its
collaborative partners fund certain elements of its research and development
efforts but also continues to invest significant amounts of its own resources on
both collaborative and internal research and development. The Company earned 
$4.3 million for client-sponsored research and development activities in 1998
(and $5.4 million and $2.4 million in 1997 and 1996, respectively) and incurred
$19.7 million on Company-sponsored research and development in 1998 (versus
$11.6 million and $6.8 million in 1997 and 1996, respectively).

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    CEFORM MICROSPHERE TECHNOLOGY

    The Company has focused extensive activity on developing and applying its
CEFORM microsphere technology. This technology allows the Company to produce
uniformly sized and shaped microspheres of pharmaceutical compounds which the
Company believes demonstrate utilization and processing advantages over other
drug processing and delivery technologies. The proprietary CEFORM manufacturing
process produces microspheres which are almost perfectly spherical, have a
diameter that is typically 150-180 microns (or approximately twice the diameter
of human hair), and allow for high drug content.

    In utilization terms, independent studies have indicated that CEFORM
microspheres can be formulated without loss of bioavailability for a variety of
drug delivery criteria ranging from improved or faster absorption to long-acting
controlled delivery products. Based on development work to date, the Company
believes that a wide range of OTC and prescription drugs may be processed using
its CEFORM microsphere technology. The flexibility of the CEFORM technology
enables CEFORM microspheres to be used in solid or liquid formulations at high
dosage levels and to be incorporated into a wide range of dosage forms,
including the Company's rapid dissolving formulations, such as the Flash Dose,
EZ Chew and Dry Sachet/Spoon Dose formulations, as well as conventional tablets,
capsules, suspensions, effervescent tablets and sachets.

    In processing terms, the Company's CEFORM microspheres can be produced using
a continuous, single-step and solvent-free process which the Company believes to
be available for a wide range of pharmaceutical applications and to involve a
simpler manufacturing process than competing microparticle production
techniques. Due to the very brief application of heat and the wide range of
temperatures which can be used, even drugs which are thermally unstable may be
formulated into microspheres without degradation. The Company also believes that
all excipients used in the generation of CEFORM microspheres are standard
Generally Recognized As Safe ("GRAS") materials. Currently, the Company can
process CEFORM microspheres in batch sizes of at least 120 Kg under current Good
Manufacturing Practices ("cGMP") conditions. In its collaborative agreements,
the Company typically has retained manufacturing rights to its CEFORM
microspheres.

    The Company's microspheres, depending on desired release characteristics or
chosen oral dosage format, can be formulated for enhanced absorption (CEFORM
EA), or taste isolation (CEFORM TI), and may be further coated for controlled
release (CEFORM CR), provided with an enteric coating (CEFORM EC), or combined
into a "fast/slow" release combination (CEFORM EA/CR). The microspheres are then
blended and/or compressed into the pre-selected oral delivery dosage format.

            - CEFORM EA represents a major advancement in the Company's 
              technology. Early results of human tests indicate that proprietary
              formulations for certain drugs allow the drug to be absorbed
              faster and/or more efficiently by the body.

            - CEFORM TI microspheres provide significant taste masking
              capabilities. For more complete taste isolation, extreme
              uniformity of the microspheres allow them to be evenly coated
              with a micro-thin layer of polymeric material. This material
              forms a physical barrier around the microsphere preventing a
              bitter tasting drug or burning sensation from occurring by
              stopping raw drug from touching the tongue or mouth. At the same
              time, the thinness of the coating does not significantly affect
              the drug's bioavailability.

            - CEFORM CR microspheres can be coated to control how, where and
              when a drug is released in the body. The benefits of controlled
              release include reducing the number of times per day a drug must
              be taken to maintain therapeutic levels (thus improving
              compliance with a doctor's orders) or maintaining sufficient
              amounts of drug in the blood over a longer period.

            - CEFORM EC microspheres can be coated to dissolve in the
              gastrointestinal tract after passage through the stomach.

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    CEFORM EA/CR is the process whereby the Company formulates two types of
CEFORM microspheres that are combined in the same dosage format to achieve the
benefits of both quick release and sustained absorption. This would be
particularly useful for certain analgesics, anti-inflammatories, and
cardiovascular medications.

    SHEARFORM TECHNOLOGY

    The Company's Shearform technology is used to produce matrices of
saccharides, polysaccharides or other carrier materials, which are then
processed into amorphous fibers or flakes and recrystallized to a predetermined
level. This process is used to produce the Company's Flash Dose and other rapid
dissolving formulations, as well as its soft chew products. The Shearform
technology can also be applied to food product ingredients to provide for
enhanced flavoring and performance.

PRODUCT APPLICATIONS

    Pharmaceutical Applications

    To produce the Company's rapid dissolving formulations, a carrier material
produced using the Shearform Matrix technology is combined with a
pharmaceutical compound, which is typically in the form of CEFORM microspheres.
The result is a microscopic crystalline floss that can be formed into a matrix
in which the voids or cavities contain the active pharmaceutical compound. The
floss provides adhesive properties for bonding and tablet formulation. When
placed on the tongue, the crystalline floss rapidly dissolves, leaving the
active drug ingredient to be ingested or absorbed. The Company's experience
indicates that the Shearform process does not change the physical or chemical
characteristics of a pharmaceutical compound, and the Company expects that this
would be true for most drugs.

    In addition to its application in rapid dissolving formulations, the
Company believes its Shearform technology has several beneficial attributes,
including (i) compatibility with pharmaceutical compounds (including CEFORM
microspheres) that have been coated to mask their unpleasant taste, which is
critical in a rapid dissolving formulations because the pharmaceutical compound
is exposed directly to the mouth; (ii) capability of achieving high dosage
levels, allowing the Company in many cases to match the range of doses
available in conventional tablets or capsules; and (iii) applicability for use
with CEFORM microspheres with modified release properties and for combinations
of drug compounds with varying properties.

    In contrast to traditional wet granulation production techniques, the
Company's Shearform matrix tablet production methods use dry granulation
processes. The Company believes that its dry granulation processes are less
costly than the freeze-drying and effervescent processes employed in
manufacturing competing rapid dissolving tablet technologies. Because the
Company's Flash Dose tablet formulations can be processed on a conventional
high-speed tablet press, the Company believes that it can manufacture its rapid
dissolve tablets more economically than other competing rapid dissolve
technologies.

    The Company has developed a number of dosage formats for pharmaceutical
products employing the Company's Shearform technology:

    Flash Dose. Flash Dose is a tablet that dissolves in the mouth in several
seconds with or without water. The tablet can incorporate pharmaceutical
compounds processed using the Company's CEFORM microsphere technology or using
traditional taste-masking techniques. Flash Dose tablets can incorporate large
doses of drug and can be manufactured and blister packaged on standard
equipment.

    EZ Chew. EZ Chew is a chewable tablet produced through a modified Shearform
matrix that dissolves in the mouth with a few chews to provide a texture and
taste that consumers may find superior to conventional chewables. Like Flash
Dose tablets, EZ Chew tablets use both Shearform and CEFORM technologies. The
manufacturing process is similar to that of Flash Dose tablets but can
incorporate an even larger drug dosage and also be packaged in conventional
bottles.
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    Dry Sachet/Spoon Dose. Spoon Dose is an innovative unit dosage system
designed to deliver a dry powder mixture of pharmaceutical compounds into the
mouth. The dosage format can be poured directly in the mouth from a foil
packet, sachet, or on a spoon, and taken with or without water. Spoon Dose
relies on a blend of CEFORM microspheres and various excipients to deliver a
drug formulation which turns to a pleasant tasting, creamy-textured syrup when
placed in the mouth. Dry Sachet/Spoon Dose systems can incorporate a broad
range of drugs and compounds and are manufactured by a cost-effective process.

    Consumer Healthcare Applications

    The Company's Shearform technology also has broad applications for
improving the performance of many other types of ingredients. The Company's
food product development efforts focus on producing long-lasting flavor systems
and enhancing the performance of food ingredients such as emulsifiers, salt
replacing agents and sweeteners. The Company has entered into an exclusive
manufacturing and selling agreement with ConAgra in order to promote rapid
commercialization of food product ingredients incorporating the Company's
technologies in North and South America. The Company is exploring similar
arrangements to promote food ingredients sales in Europe and Japan.

        The Company's soft chew products utilize the Shearform technology to
produce a very smooth and pleasant tasting way to take a mineral supplement.
For example, the Company has developed a soft chew calcium supplement which has
been commercially available since 1997. During the first quarter of 1999, the
Company completed delivery of launch quantities of its soft chew calcium
product to Pharmavite, who is distributing it as CalBurst as part of the Nature
Made product family.

    In confection and food applications, the Company's Shearform technology can
be used to produce spheres containing flavor and sweetener which function as
sustained release flavor delivery systems. The Company's sustained release
flavor delivery technology has been incorporated into chewing gums, in which
flavor release of 40 minutes has been achieved, a duration more than double
that of typical chewing gums. This attribute is useful in conventional chewing
gums, for which long lasting flavor is desirable, or in functional chewing
gums, such as medicated gums, for which long-lasting flavor is essential to
promote user compliance.

COLLABORATIVE AGREEMENTS

    The Company has agreements with a number of companies for the development
and licensing of products utilizing the Company's technology. In addition to
its current collaborative partners, the Company is engaged in active
discussions with a number of other companies to enter into similar
arrangements.

    The Company's collaborative arrangements typically provide for a
development project which may be followed by commercialization pursuant to a
licensing arrangement. Under the license agreements, the Company expects that
its licensee typically will be responsible for marketing and distributing the
products incorporating the Company's technology. The Company usually will
retain the right to manufacture CEFORM microsphere formulations of the
pharmaceutical product and, where appropriate, also will seek to secure an
agreement to handle tableting manufacture of the product, applying either the
Company's proprietary rapid dissolve formulations or traditional manufacturing
processes. The Company's existing license agreements generally provide for a
one-time license fee upon execution, certain milestone or scheduled license
payments, an ongoing royalty equal to a percentage of net sales of the
licensee's products utilizing the licensed technology, subject in certain cases
to minimum royalty payments, and provision for manufacturing revenues on a cost
plus basis. The licensee typically is granted the right, which may be exclusive
or coexclusive with the Company or another party, to market and in certain
cases to manufacture products incorporating the Company's technology for a
designated class of products in a designated territory. In general, however,
under existing license agreements the licensee has no contractual obligation to
bring the product to market despite the Company's completion of the development
and formulation phases of a project. The collaborative partner typically can
terminate the development and license agreements at any time, although the
agreements generally provide that any fees previously paid to the Company are
non-refundable.

===============================================================================
                                      Page 8

<PAGE>   10

    During 1998, the Company entered into fifteen new pharmaceutical 
collaborations resulting in over twenty active collaborative arrangements on
which the Company is now working. The Company's collaborative arrangements
cover both OTC and prescription products and are with several different
pharmaceutical companies including such partners as, Hoechst Marion Roussel,
Merck & Co., Pfizer Inc. and Whitehall Robins Healthcare (a division of
American Home Products Corporation) in the U.S., together with Bayer AG and The
Boots Company plc in Europe.

    In the consumer healthcare market, the Company has a number of active
collaborative agreements. Of particular importance are those with Pharmavite
and ConAgra, Inc. in the U.S. plus Abbott Laboratories and Beeline Healthcare
in international markets.

DEVELOPMENT PROJECTS FUNDED BY THE COMPANY

    In order to pursue enhanced royalty or marketing terms over those
obtainable under customary development and licensing agreements, the Company
intends to develop drug formulations under its own research and development
projects in markets where it believes there is strong market potential and that
its technology may provide a significant competitive advantage, such as markets
for ethical drugs for which patents have or are about to expire. After carrying
such projects to an appropriate development stage, the Company intends to offer
companies that are seeking to maintain or expand their market share an
opportunity to enter into marketing agreements covering the Company-funded
products. With respect to Company-funded development collaborations, the
Company intends to seek to retain co-marketing rights in the pharmaceutical
products for sale through its own distribution channels, principally those
acquired in major European markets.

MANUFACTURING

    The Company has been actively developing its manufacturing capabilities in
order to position the Company to manufacture its own and its collaborators'
requirements for CEFORM microspheres and products. The Company believes that by
manufacturing products incorporating its technologies, it will be able to earn
greater revenue and realize production economies of scale that may not be
available to a pharmaceutical company licensing the Company's technology for
only one or a few products. The Company intends to leverage its retained
co-marketing rights, its Company-funded projects and other proprietary
technologies and its manufacturing capacity by acquiring businesses, products
and marketing capabilities, primarily in overseas markets.

    The Company's Clonmel site currently includes a cGMP and FDA approved
facility for both antibiotics and multipurpose pharmaceutical manufacture. The
Company's newly commissioned 750 million dosage unit pharmaceutical facility in
Chantilly, Virginia was inspected and is now approved by both the European
regulatory authorities and the FDA.

    In addition to developing manufacturing capabilities on its own, third
parties or the Company's licensees may, under certain circumstances,
manufacture products incorporating the Company's proprietary technologies. In 
addition, the Company has explored and will continue to evaluate the 
possibility of entering into strategic manufacturing alliances with appropriate 
third parties.

    PATENTS AND PROPRIETARY RIGHTS

    The Company's policy is to aggressively protect its proprietary technology
by a variety of means including applying for patents in the United States and
in appropriate foreign countries. The Company has been granted 87 U.S. patents
as of December 31, 1998 and has filed a substantial number of additional U.S.
patent applications, as well as corresponding patent applications outside the
United States, relating to the Company's technology.

    The Company also relies upon trade secrets and other unpatented proprietary
know-how in its product development activities. The Company's employees are
required to enter into agreements providing for confidentiality and the
assignment of rights to inventions made by them while in the employ of the
Company. The Company also has entered into nondisclosure agreements which are
intended to maintain the secrecy of its confidential information delivered to
third parties for research and other purposes.

===============================================================================
                                      Page 9

<PAGE>   11


GOVERNMENT REGULATIONS

    The Company's research and development activities and the manufacturing and
marketing of products incorporating the Company's technology are subject to
regulation by numerous governmental agencies in the United States and in other
countries. In the United States, the Company expects that the U.S. Food and
Drug Administration (the "FDA") will regulate the Company's products and
technologies in three different categories depending on the specific product:
as drugs, as dietary supplements or as food ingredients. In addition, the
Company's manufacturing activities will be subject to the FDA's current Good
Manufacturing Practices ("cGMP") regulations. If the Company or any of its
customers fail to comply with FDA regulations, the FDA may take a variety of
regulatory actions against the Company or such customers, including initiating
product recalls, enjoining further sales of the product, seizing and destroying
existing products, halting operations and imposing criminal liability on the
manufacturer. Approval of the Company's products by regulatory authorities in
countries outside the United States must be obtained prior to the commencement
of marketing of such products in such countries. The requirements governing the
conduct of clinical trials and product approvals vary widely from country to
country, and the time required for approval may be longer or shorter than that
required for FDA approval. Although there are some procedures for unified
filings for certain European countries, in general, each country at this time
has its own procedures and requirements.

    FDA Regulations of Drugs

    The FDA may regulate the Company's pharmaceutical products as OTC or
prescription drugs, depending on the regulatory status of the drug in which the
Company's technology is used. OTC drugs using the Company's products may be
regulated under the OTC monograph process or the more complex and lengthy new
drug application ("NDA"), depending upon the specific drug product. OTC
monographs establish conditions under which a drug category is generally
recognized as safe and effective ("GRASE") by the FDA for use in OTC products.
Drugs listed in OTC monographs (such as aspirin, acetaminophen or antacids)
that meet specified doses and labeling requirements, comply with specified
testing procedures and are manufactured in compliance with cGMPs do not require
a separate approval process for marketing. If the Company's OTC drug product is
not covered by an OTC monograph but is demonstrated to be bioequivalent to a
marketed product, the Company may petition the FDA for approval by an
Abbreviated NDA ("ANDA"). Additionally, if the Company or its licensee has an
existing NDA for an OTC drug such as ibuprofen, the Company may obtain market
approval by filing a Supplemental NDA ("SNDA"). An SNDA or the more lengthy NDA
may be required for an OTC monograph drug approval if the FDA believes that the
incorporation of the Company's technology changes or reduces the drug's safety
or efficacy, or where the Company has incorporated its microsphere technology
to create a controlled release or modified release formulation of a current OTC
monograph product.

    The Company's drug products marketed in the U.S. that are not subject to a
monograph will be regulated by the various new drug application approval
processes. ANDA approval may be sufficient for new versions of drugs equivalent
to an existing drug. In the event that there are any modifications to the drug,
including changes in indication, manufacturing process, active ingredients,
labeling or a change in manufacturing facility, an NDA or an SNDA may be
required. Marketing of OTC or prescription drug products outside the U.S. will
require the Company to comply with appropriate requirements of foreign
regulatory agencies, which vary widely from country to country.

===============================================================================
                                      Page 10


<PAGE>   12



    FDA Regulation of Dietary Supplements of Vitamins and Minerals

    Certain OTC products and nutraceuticals incorporating the Company's 
technology are regulated by the FDA as dietary supplements. The applicable
statute and regulations regulate among other things, the labeling and
advertising of health claims and statements of nutritional support. Governments
outside the United States may also have separate regulatory mechanisms for
dietary supplements with which the Company will have to comply to market its
products.

    FDA Regulation of Food Ingredients

    The Company's products used as food ingredients are regulated by the FDA as
foods under the Federal Food, Drug and Cosmetic Act of 1938 (the "Act"), which
requires that materials used in food products and the food products themselves
must meet certain manufacturing, purity and labeling requirements. In addition,
manufacturers of ingredients added to food must generally establish that such
ingredients are Generally Recognized As Safe ("GRAS"), either through an
application process or through a self-affirmation process that may be
challenged by the FDA. If such requirements are met, no regulatory approval is
required for foods.

    Good Manufacturing Practices

    The FDA has issued comprehensive regulations setting forth stringent
minimum cGMPs for the preparation of pharmaceuticals, food products and food
ingredients. Failure to comply with cGMP regulations will subject the product,
as well as the person responsible for the noncompliance, to regulatory action.
Pharmaceutical cGMP requirements specify detailed criteria for personnel,
buildings and facilities, equipment, control of components and drug product
containers and closures, warehousing and distribution procedures, laboratory
controls, records and reports and returned and salvaged drug products. Key
personnel involved in the manufacture and control of drugs must have
appropriate education, training and/or experience. cGMPs for food products and
ingredients generally cover the sanitary practices of personnel, construction
of buildings and facilities, design and care of equipment and production and
process controls, and, for certain products, record keeping requirements to
ensure efficient recall of foods found to be contaminated.

    The FDA conducts periodic, unannounced inspections of food and drug
production facilities to ensure compliance with cGMPs. Failure to maintain
compliance with cGMPs could result in regulatory action, including recall,
injunction or seizure.

    Other Regulations

    In addition to the FDA regulatory framework for product approvals, the
Company is subject to regulation under state and federal laws, including
requirements regarding occupational safety, laboratory practices, environmental
protection and hazardous substance control, and may be subject to other present
and possible future local, state, federal and foreign regulations. To date,
compliance with federal, state and local laws and regulations relating to
protection of the environment have had no material effect upon the capital
expenditures, results of operations or competitive position of the Company.
Environmental regulations may be expected to increasingly affect the Company as
it expands its manufacturing activities.

COMPETITION AND MARKETS

    The markets for prescription and OTC pharmaceutical products, drug delivery
systems and food products are highly competitive. In the pharmaceutical market,
the Company competes with other providers of oral drug delivery systems,
including rapid dissolving tablets and other delivery forms, to attract
licensees. In addition, the products of the Company's licensees which
incorporate the Company's technologies will compete with products of other
pharmaceutical companies for sales to the ultimate consumer. Other providers of
drug delivery systems and food ingredients products include major
pharmaceutical and diagnostic companies, companies specializing in drug
delivery technology, chemical companies, food ingredient companies, consumer
food companies and other companies, universities and institutions. Many of
these competitors have substantially greater financial and technical resources
and production and marketing capabilities than the Company. Technological
advances by the Company's competitors which result in processes or technologies

===============================================================================
                                      Page 11
<PAGE>   13

superior to those of the Company could render the Company's proprietary
technology obsolete or lead to competition from other companies.

    Among the technologies expected to provide competition for the Company's
rapid dissolving tablets are the Zydis(R) technology developed by Scherer,
which is based on a freeze dried gelatin tablet, and the OraSolv(R) technology
of CIMA, which produces an effervescent tablet. The principal competitive
factors in the market for rapid dissolving tablet technologies are
compatibility with taste-masking techniques, dosage capacity, drug
compatibility, cost and ease of manufacture and required capital investment for
manufacturing. The Company believes that its rapid dissolving tablet technology
competes favorably with respect to these factors. Both Scherer and CIMA have,
however, preceded the Company in the market for rapid dissolving tablets and
each has been successful in licensing its technology to a number of
pharmaceutical companies. The Company also believes that certain pharmaceutical
companies may be developing other rapid dissolving tablet technologies which
might be competitive with the Company's technology. CIMA has a license from
Beecham Group plc, an affiliate of SmithKline, one of the Company's
collaborative partners, pursuant to which CIMA licenses certain of its
technology and pays a royalty based on sales of its rapid dissolving tablets.
The Company understands that technology upon which the Scherer tablets are
based is owned by a subsidiary of American Home Products, the parent of
Whitehall, one of the collaborative partners of the Company. As a result, both
Whitehall and SmithKline may have an incentive to utilize technologies
developed by the Company's competitors, although, to date, the Company does not
believe these relationships have had a material adverse effect on the Company.
There can be no assurance that the Company will be able to compete effectively
with these technologies in either their current versions or in improved
versions that might be developed. In addition, other collaborative partners of
the Company may be involved in development of technologies that compete with
those of the Company. One or more of these technologies could in the future
provide competition for the Company's products and technologies. The Company's
microsphere products will compete with commercially available products, such as
those produced by Eurand America (a division of American Home Products), as
well as taste-masked pharmaceutical products manufactured internally by
pharmaceutical companies.

    Four of the Company's subsidiaries provide a substantial portion of their
products and services in Europe. Consequently, the Company derives a
significant portion of its consolidated revenues from its European operations
(see "Segment Analysis - Pharmaceutical Operations" and "Notes to Consolidated 
Financial Statements").

EMPLOYEES

    As of December 31, 1998 the Company had 435 employees, of which 192 were
engaged in manufacturing and operations, 120 were engaged directly in
scientific and product research and development and 123 were engaged in sales
and administrative functions. Of the 435 employees, 258 were employed by the
Company's international subsidiaries. All hourly employees of Clonmel are
members of the Services, Industrial, Professional, Technical Union ("SIPTU") or
are otherwise covered pursuant to the terms of a collective bargaining
agreement with SIPTU. Management believes it maintains good relations with its
employees.

===============================================================================
                                      Page 12

<PAGE>   14


EXECUTIVE OFFICERS

    The executive officers of the Company, and their ages as of December 31,
1998 are as follows:

<TABLE>
<CAPTION>

             NAME                      AGE     POSITION
             ----                      ---     ---------
             <S>                      <C>      <C>
             Richard C. Fuisz, M.D.    59      Chairman of the Board of Directors

             Kenneth W. McVey          59      President and Chief Executive Officer of the Company and Director

             S. Rao Cherukuri          55      Executive Vice President and President of Consumer Healthcare Division

             Michael Myers, Ph.D.      37      Executive Vice President and President of Pharmaceutical Division

             Patrick D. Scrivens       45      Executive Vice President, Chief Financial Officer, Assistant Secretary
                                               and Treasurer to the Board of Directors

             Donal T.M. Tierney        33      Executive Vice President and Chief Operating Officer

             Stephen H. Willard        38      Executive Vice President, General Counsel and Secretary to the 
                                               Board of Directors 
</TABLE>


    Richard C. Fuisz, M.D., founder of the Company, has served as the Chairman
of the Board since 1989. Until April 1997, Dr. Fuisz was also the Company's
President and Chief Executive Officer. From 1975 until 1982, Dr. Fuisz was
President and Chief Executive Officer of Medcom, a publicly traded medical
training company, which was subsequently acquired by Baxter Healthcare
Corporation. Inventor of the Company's core technology, Dr. Fuisz founded the
Company in June 1988. Dr. Fuisz received his B.S. and M.D. from Georgetown
University.

    Kenneth W. McVey joined the Company in December 1996 as a director and as
President and Chief Executive Officer of Fuisz International Holdings Limited, a
wholly-owned subsidiary of the Company. In April 1997, Mr. McVey was also
appointed as President and Chief Executive Officer of the Company. Mr. McVey has
spent more than thirty years in the pharmaceutical industry. Prior to joining
the Company, Mr. McVey served as President of Elan Pharma International, a
division of Elan Corporation PLC ("Elan") and as Executive Vice President of
Elan responsible for commercial and business development, licensing and
intellectual property. He served on the Board of Directors of Elan from 1992
until 1996.

    S. Rao Cherukuri joined the Company in 1992 as Vice President, Research and
Development, OTC and Consumer Products. In April 1997, Mr. Cherukuri was
promoted to Executive Vice President and President of the Consumer Healthcare 
division. From 1981 to 1992, Mr. Cherukuri was employed by Warner Lambert
Company, a multinational pharmaceutical company, most recently as Director,
Worldwide Technology, Consumer Products Research and Development. Mr. Cherukuri
holds a B.S. and an M.S. from Andhra University and an M.B.A. from the
University of Pennsylvania.

    Dr. Michael Myers joined the Company in November 1995 as Vice President,
Sustained Release. In April 1996, Dr. Myers was promoted to Executive Vice
President and President of the Pharmaceutical division. From 1987 to 1995, Dr.
Myers worked for Elan Corporation PLC, a leading drug delivery company, most
recently as Head of Pharmaceutical Development. Dr. Myers holds a B.Sc. and a
Ph.D. from University College, Cork, Ireland.

    Patrick D. Scrivens joined the Company in April 1994 as Executive Vice
President and Chief Financial Officer and in November 1995, assumed the
additional position of Treasurer. From February 1993 to March 1994, Mr. Scrivens
was a private consultant to telemarketing and ATM networking companies. From
1988 to February 1991, Mr. Scrivens served as Chief Financial Officer for
William Schneider, Inc., an international jewelry manufacturing company and from
February 1991 to January 1993 served as its Chief Executive Officer. Mr.
Scrivens holds a B.S. from the University of Maryland and is a Certified Public
Accountant.

===============================================================================
                                      Page 13

<PAGE>   15





    Donal T.M. Tierney joined the Company as Chief Executive of Clonmel in
September 1997.  In September 1998, Mr. Tierney was promoted to Executive Vice 
President and Chief Operating Officer.  Since September 1993, he served as
Deputy CEO of Clonmel prior to the acquisition by the Company.  From 1989 to
1993, Mr. Tierney was General Manager of Bimeda Division of the Cross Vetpharm
Group.  He holds BA and MBA degrees from University College, Dublin, Ireland.

    Stephen H. Willard joined the Company in September 1997 as Secretary of the
Board of Directors and as Executive Vice President and General Counsel of Fuisz
International Holdings Limited. In July 1998, he assumed the positions of
Executive Vice President and General Counsel of the Company. Prior to joining
the Company, Mr. Willard was an attorney with Gibson, Dunn & Crutcher LLP in
their Washington D.C. office. Previously, he was a vice president of CS First
Boston in New York City and an associate director of the Federal Deposit
Insurance Corporation in Washington. He is a graduate of Williams College and
Yale Law School.



===============================================================================
                                      Page 14


<PAGE>   16



ITEM 2.  PROPERTIES

    The Company leases approximately 121,000 square feet of laboratory,
production and office space in Northern Virginia. Of the leased facilities,
approximately 28,000 square feet are leased through various dates in 2002, and
the remaining space is leased through the year 2005 with a five-year renewal
option.

    The Company owns approximately 3,000 square feet of office space in Dublin,
Ireland for administrative and business development uses and has a lease for
approximately 6,000 square feet of laboratory space outside of Dublin.

    The Company also owns two buildings through its Clonmel subsidiary in
Clonmel, Ireland. One building contains approximately 48,000 square feet of
cGMP manufacturing, laboratory and office space. The other building contains
approximately 25,000 square feet of cGMP manufacturing space.

    The Company leases approximately 15,000 square feet of office space through
its Pangea, Murat, Istoria and Fuisz Pharma KG subsidiaries in Georgia, France,
Italy and Germany, respectively.

    The Company believes that these facilities are adequate to meet the
Company's short-term needs and that any additional required space will be
available on commercially reasonable terms.

ITEM 3.    LEGAL PROCEEDINGS

    In February 1999, the Company brought suit against Elan Corporation, plc
("Elan") for breach of an Agreement entered into in December 1998 under which
Elan agreed to pay a fee to the Company for the right, until January 31, 1999,
to conclude a manufacturing and licensing agreement regarding manufacturing, as
a third party contractor, of certain Company products.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    None.


===============================================================================
                                      Page 15

<PAGE>   17

                                    PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS

    On December 20, 1995, the Company completed its initial public offering of
Common Stock at a price of $8.00 per share. The Common Stock is admitted for
trading on The Nasdaq Stock Market's National Market under the symbol "FUSE."
The following table sets forth the high and low sale prices per share of Common
Stock, as reported by Nasdaq, for the periods indicated. These quotations and
sales prices do not include retail mark-ups, mark-downs or commissions.

<TABLE>
<CAPTION>

                                                                    HIGH             LOW
                                                                    ----             ---
<S>                                                               <C>           <C>
Year Ended December 31, 1997:
           First Fiscal Quarter...............................    $   9.50       $   5.62
           Second Fiscal Quarter..............................       10.50           5.37
           Third Fiscal Quarter...............................       16.00           8.50
           Fourth Fiscal Quarter..............................       14.18           7.69


Year Ended December 31, 1998:
           First Fiscal Quarter...............................       13.75           7.25
           Second Fiscal Quarter..............................       14.38          10.44
           Third Fiscal Quarter...............................       12.63           7.13
           Fourth Fiscal Quarter..............................       14.13           6.00

</TABLE>

    According to records of the Company's transfer agent, as of March 22, 1999,
the Company had approximately 270 stockholders of record. Because many of such
shares are held by brokers and other institutions on behalf of stockholders,
the Company is unable to estimate the total number of stockholders represented
by these record holders.

    The Company has never paid cash dividends on its Common Stock and does not
anticipate doing so in the foreseeable future. The Company currently intends to
retain future earnings to fund the development and growth of its business.


===============================================================================
                                      Page 16


<PAGE>   18

ITEM 6.    SELECTED FINANCIAL DATA

    The following selected consolidated financial data for the Company should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Report. The consolidated
statement of operations data for the years ended December 31, 1998, 1997 and
1996 and the consolidated balance sheet data at December 31, 1998 and 1997 are
derived from the consolidated financial statements of the Company, audited by
PricewaterhouseCoopers LLP, independent accountants, included elsewhere in this
Report. The statement of operations data for the years ended December 31, 1995
and 1994 and the balance sheet data at December 31, 1996, 1995 and 1994 are
derived from financial statements audited by PricewaterhouseCoopers LLP that
are not included herein.

<TABLE>
<CAPTION>

                                                                For the years Ended December 31,
                                                  --------------------------------------------------------------
                                                     1998         1997         1996         1995        1994
                                                     ----         ----         ----         ----        ----
                                                              (In thousands, except per share data)

CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<S>                                               <C>          <C>          <C>          <C>         <C>
Operating revenues:
  Product sales...............................    $    47,898  $    11,968  $        48  $       56  $       26
  Research and development....................          4,334        5,390        2,426       2,002         843
  Licensing fees and other....................          8,987        4,840        6,052       3,600         500
                                                    ---------    ---------     --------   ---------   ---------
     Total operating revenues.................         61,219       22,198        8,526       5,658       1,369
                                                    ---------    ---------     --------   ---------   ---------
Operating expenses:
  Cost of sales...............................         27,924        7,807           --          --          --
  Research and development....................         24,058       16,944        9,232       4,623       3,561
  Selling, general and administrative.........         29,482       13,877        9,073       4,219       4,279
  Other operating expenses....................              -        4,694           --          --          --
                                                    ---------    ---------     --------   ---------   ---------
     Total operating expenses..................        81,464       43,322       18,305       8,842       7,840
                                                    ---------    ---------     --------   ---------   ---------
Net operating loss............................       (20,245)     (21,124)      (9,779)     (3,184)     (6,471)
Other income (expense)........................        (2,973)        1,523        2,973        (87)       (142)
                                                    ---------    ---------     --------   ---------   ---------
Net loss before income taxes..................       (23,218)     (19,601)      (6,806)     (3,271)     (6,613)
Income tax provision..........................          (361)           --           --          --          --
                                                    ---------    ---------     --------   ---------   ---------
Net loss......................................      $(23,579)    $(19,601)     $(6,806)   $ (3,271)   $ (6,613)
                                                    =========    =========     ========   =========   =========
Net loss per share (basic and diluted)........      $  (1.07)    $  (0.92)     $ (0.35)   $  (0.34)   $  (0.69)
                                                    =========    =========     ========   =========   =========
Weighted average shares outstanding
  (basic and diluted).........................         22,129       21,234       19,496       9,763       9,603
                                                    =========    =========     ========   =========   =========
</TABLE>

<TABLE>
<CAPTION>

                                                                          December 31,
                                                 ---------------------------------------------------------------
                                                     1998         1997         1996         1995        1994
                                                     ----         ----         ----         ----        ----
                                                                         (In thousands)

CONSOLIDATED BALANCE SHEET DATA:
<S>                                               <C>          <C>          <C>          <C>          <C>
Cash, cash equivalents and marketable
securities (including restricted cash
of $11.0 million in 1998 and $10.3 million
in 1997)......................................    $    39,887  $    88,937  $    60,500  $    32,721  $   4,288
Working capital...............................         30,584       77,936       57,855       30,438      3,282
Total assets..................................        145,736      170,120       69,083       34,394      6,140
Total liabilities.............................        111,288      109,339        4,892        2,492      4,200
Redeemable preference shares of subsidiary....              -        1,173           --           --         --
Accumulated deficit...........................       (72,658)     (49,055)     (29,435)     (22,629)   (19,358)
Total stockholders' equity....................    $    34,448  $    59,608  $    64,191  $    31,902  $   1,940

</TABLE>


===============================================================================
                                      Page 17


<PAGE>   19



ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS

NOTICE CONCERNING FORWARD-LOOKING STATEMENTS

     This Form 10-K contains forward-looking statements that involve risks and
uncertainties. The actual future results of Fuisz Technologies Ltd. may differ
materially due to a number of factors, including those discussed below under
"Risk Factors."

OVERVIEW

    Fuisz Technologies Ltd., a Delaware corporation, was formed on June 9, 1988
(Fuisz Technologies Ltd., together with its wholly owned subsidiaries, is
referred to collectively herein as the "Company"). The Company is engaged in
the development, manufacture and commercialization of a wide variety of
pharmaceutical and consumer healthcare products and technologies. The Company
uses its unique drug delivery technologies, including its CEFORM(TM) and
Shearform(TM) technologies to conduct research and development activities on
behalf of pharmaceutical and consumer healthcare companies. Products flowing
from these research and development efforts include drug and consumer
healthcare formulations using the Company's innovative Flash Dose(R), EZ
Chew(R), soft chew and Spoon Dose(R) formats.

    During 1998 and 1997, the Company acquired five companies, each of which
has been accounted for as a purchase and, accordingly, their operating results
have been included in the Company's consolidated financial statements since the
respective dates of acquisition. The five business acquisitions consisted of
Laboratoires Murat ("Murat"), Pangea Ltd. ("Pangea"), Clonmel Healthcare
Limited ("Clonmel"), Istoria Farmaceutici ("Istoria") and Dr. Rentschler GmbH &
Co. Medizin KG ("Fuisz Pharma KG"), which are collectively referred to herein
as the "Acquired Companies." Four of the Acquired Companies provide a
substantial portion of their products and services in Europe. Consequently, the
Company derives a significant portion of its consolidated revenues from its
European operations (see "Notes to Consolidated Financial Statements").

    Although the Company has not been profitable to date, on a full fiscal year 
basis, it is expecting to report a profit in 1999. However, the Company's
dependence on license and milestone payments from its collaborative partners
and the timing relating thereto, plus any delays in concluding new license
agreements with partners or achieving certain milestones of any ongoing
collaborations, may cause the Company to continue to incur additional losses in
the near term.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

    Operating revenues were $61,219,000 for 1998, compared to $22,198,000 for
1997, an increase of $39,021,000, or 176%. The increases were primarily due to
the inclusion of product sales from each of the five Acquired Companies for a
full year in 1998, except Fuisz Pharma KG, which was acquired effective
February 1, 1998. Corresponding amounts for 1997 include product sales for only
four of the Acquired Companies, which were included only for the portion of the
year after each of their respective dates of acquisition. The 1998 revenue
increases over 1997 were also due to fees from additional licensing agreements
signed during 1998.

    Cost of sales was $27,924,000 for 1998, compared to $7,807,000 for 1997, an
increase of $20,117,000. Cost of sales increased due to the increase in product
sales attributable to the Acquired Companies as discussed in the preceding
paragraph.

     Research and development expenses were $24,058,000 for 1998, compared to
$16,944,000 for 1997, an increase of $7,114,000, or 42%. The increase was
primarily due to increases in research personnel, facility expansion,
pharmaceutical bioavailability studies and equipment and materials necessary to
support the Company's continued investment in product research and development
for internal and partner projects.

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                                      Page 18

<PAGE>   20


    Selling, general and administrative expenses were $29,482,000 for 1998,
compared to $13,877,000 for 1997, an increase of $15,605,000, or 112%. The
increase was primarily due to increases in personnel (primarily sales
personnel), selling and marketing costs, expanded administrative activities and
amortization of goodwill associated with the Acquired Companies.

    Other expense was $2,973,000 for 1998, compared to other income of
$1,523,000 for 1997, an increase in expense of $4,496,000. The increase in
other expense was primarily due to a full year of interest expense (including
amortization of deferred financing costs) associated with the 7% Convertible
Subordinated Debentures issued in October 1997 which was offset by net foreign
currency gains of $1,172,000 primarily relating to loans made by the Company to
certain of its foreign subsidiaries that are denominated in U.S. dollars.
Should the foreign currency exchange rates weaken against the U.S. dollar
subsequent to December 31, 1998, the Company may be required to recognize
foreign currency losses in 1999 (see "Quantitative and Qualitative Disclosures
about Market Risk").

    As a result of the foregoing, the net loss was $23,579,000 for 1998
compared to a net loss of $19,601,000 for 1997.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

    Operating revenues were $22,198,000 for 1997, compared to $8,526,000 for
1996, an increase of $13,672,000, or 160%. The revenue increases were primarily
due to the inclusion of $11,968,000 of product sales from the Acquired
Companies occurring after the respective dates of acquisition. The 1997 revenue
increases over 1996 were also due to increases in development fees due to the
Company's additional collaborative development agreements.

    Cost of sales was $7,807,000 for 1997, with no corresponding amount for
1996. The increase was due to the inclusion of the cost of product sales by the
Acquired Companies.

    Research and development expenses were $16,944,000 for 1997, compared to
$9,232,000 for 1996, an increase of $7,712,000, or 84%. The increases were
primarily due to increases in research personnel and materials and supplies
necessary to support the Company's additional development and license
agreements and the Company's continued emphasis on developing its own product
applications.

    Selling, general and administrative expenses were $13,877,000 for 1997,
compared to $9,073,000 for 1996, an increase of $4,804,000, or 53%. The
increases were primarily due to increases in personnel and expanded
administrative activities primarily associated with the operations of the
Acquired Companies and the start-up of the international facilities in Ireland.
Selling, general and administrative expenses for 1996 included $3,000,000 of
noncash compensation expense related to stock granted in the fourth quarter of
1996.

    Other operating expenses for 1997 represent the effect of two, one-time,
nonrecurring charges totaling $4,694,000. There is no corresponding amount for
1996. The Company recorded a one-time nonrecurring charge of $2,400,000 in the
second quarter of 1997 arising from the settlement of certain litigation
against the Company. The Company recorded a one-time noncash charge of
$2,294,000 in the third quarter of 1997 relating to certain stock warrants
exercisable at $25 per share and issued pursuant to the Company's collaborative
agreement with ConAgra, Inc.

    Net interest income was $1,523,000 for 1997, compared to $2,973,000 for
1996, a decrease of $1,450,000, or 49%. The decrease in net interest income for
1997 was primarily due to a decrease in the average balances of funds available
for investment.

    As a result of the foregoing, the net loss was $19,601,000 for 1997
compared to a net loss of $6,806,000 for 1996.

LIQUIDITY AND CAPITAL RESOURCES

    As of December 31, 1998, the Company's portfolio of cash and marketable
securities totaled $39.9 million (including $11.0 million which is pledged as
collateral for the term loan issued to finance the installment notes for the
purchase of Clonmel), compared to $88.9 million as of


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                                      Page 19

<PAGE>   21

December 31, 1997. Major uses of cash during the year ended December 31, 1998
included approximately $19.4 million for the acquisition of Fuisz Pharma KG
(see below), $5.2 million in capital expenditures (net of $7.9 million financed
by the Equipment LOC - see below), $5.6 million in treasury stock repurchases,
$5.2 million in interest payments on the 7% Convertible Subordinated
Debentures, $1.2 million for the redemption of all 750,000 outstanding
preference shares of Clonmel, $3.0 million for installment note and term loan
obligations, and $19.7 million on Company-sponsored research and development.

    On March 12, 1998, the Company completed the acquisition of all the issued
and outstanding equity interests of Fuisz Pharma KG, a subsidiary of Dr.
Rentschler Arzneimittel GmbH & Co., a pharmaceutical sales and distribution
company based in Laupheim, Germany, for an aggregate price of approximately
$19.4 million in cash. During the next several years, the Company will
periodically evaluate additional acquisitions of businesses, products and
technologies that extend or enhance the Company's current business and line of
products.

    In February 1999, the Company brought suit against Elan Corporation, plc
("Elan") for breach of an agreement entered into in December 1998 under which
Elan agreed to pay a $5.0 million fee to the Company for the right, until
January 31, 1999, to conclude a manufacturing and licensing agreement regarding
production of certain Company products. The Company has not recorded any income
relating to this option fee.

    In connection with the stock purchase agreement entered on December 31,
1998 to sell all of the issued and outstanding share capital of its
wholly-owned subsidiary, FuiszDrugstore.com  Ltd. (see Note 14 in "Notes to
Consolidated Financial Statements"), in February 1999, the Company and a 
wholly-owned subsidiary of Dr. Fuisz (the "Subsidiary") concluded a 20 year
license agreement (the "License Agreement"), which grants the Subsidiary the
non-exclusive right to sell Licensed Products (as that term is defined in the
License Agreement) through the Internet. The license covers all existing
products of the Company as well as certain additional products developed by the
Company over the next four years. In consideration for the license, the Company
received a non-interest bearing promissory note for $2.4 million, payable by
the Subsidiary in four annual installments commencing on December 31, 1999.

    During 1999, the Company anticipates capital expenditures ranging from $5.0
to $10.0 million, some of which may be financed with the Equipment LOC
discussed below. Such expenditures will primarily be used to further expand and
improve the Company's laboratory and production facilities in both Virginia and
Ireland.

    The Company has an $18.0 million equipment leasing line of credit (the
"Equipment LOC") with an outside group of lenders. The Equipment LOC is
available through June 30, 2000, provides equipment financing under three or
four year operating leases, and may be utilized to finance a portion of the
1999 capital expenditures mentioned above (approximately $7.9 million of
equipment was financed during the year ended December 31, 1998). Through
December 31, 1998, the Company has financed a total of approximately $11.2
million of equipment under the Equipment LOC.

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                                      Page 20


<PAGE>   22


    The Company's long-term debt totals $92.9 million as of December 31, 1998
and includes $75.0 million related to the Company's 7% Convertible Subordinated
Debentures (the "Debentures") due October 15, 2004. The Debentures were
privately placed on October 22, 1997 and the Company received net proceeds of
approximately $72.8 million related to the sale thereof. The Debentures are
subordinated to the Company's present and future Senior Indebtedness (as
defined) and interest is payable semiannually. In addition, long-term debt
includes $14.1 million related to term loans, $2.9 million related to
installment notes, and $861,000 related to capital leases. Maturities of
long-term debt during the next twelve months will be approximately $2.3
million. The Company also has available international banking lines of credit
totaling approximately $3.5 million for short-term financing, of which
approximately $633,000 had been drawn down as of December 31, 1998.

    In November 1996, the Company's Board of Directors authorized a stock
repurchase program under which the Company is authorized to repurchase up to
1,000,000 shares of the Company's common stock for reissuance upon the exercise
of employee stock options and for other compensation programs utilizing the
Company's common stock. During 1996, the Company repurchased 100,000 shares at
a cost of $775,000 under this program. In December 1996, the 100,000
repurchased shares were reissued to an officer/director of the Company in
connection with an employment agreement. During 1998, the Company repurchased
638,200 shares for $5,565,000.

    The Company expects to continue to incur substantial expenses related to
further research and development of its technologies and products, increased
staffing levels, acquisition and support of patent rights, additional capital
equipment and facility expansion. The Company expects that, at least for the
near term, its cash flow will be derived principally from product sales and
development and license fees from collaborative partners. The Company believes
that the currently available funds and internally generated cash flow will be
adequate to meet the Company's cash needs through 1999.

    The Company's capital needs, however, will depend on many factors,
including revenues from product sales, continued progress in the research and
development of the Company's technologies, the ability of the Company to
establish and maintain additional collaborative agreements and the terms
thereof, payments received from collaborative partners under research and
development agreements, the cost involved in filing and enforcing patent
claims, and the status of competitive products and other factors. If the
Company's currently available funds and internally generated cash flow are not
sufficient to satisfy its financing needs, the Company would be required to
seek additional funding through other arrangements with collaborative partners,
through the sale of certain Company assets, through bank borrowings and through
public or private sales of its securities, including equity securities. There
can be no assurance that additional funds, if required, will be available to
the Company on favorable terms, if at all.

RECENTLY ISSUED ACCOUNTING STANDARDS

    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This Statement
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The Company will be required to adopt this new accounting standard beginning
with the quarter ended March 31, 2000. The Company believes that the effect of
adoption of SFAS No. 133 will not be significant.


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                                      Page 21


<PAGE>   23


YEAR 2000 COMPLIANCE

    The Company has reviewed the software systems and related applications used
in each of its operating business segments and geographic regions to assess its
requirements regarding the "Year 2000 Issue," which generally refers to the
inability of system hardware and software to correctly identify two-digit
references to specific calendar years, beginning with 2000. The Year 2000 Issue
can affect a company directly (i.e., in its internal database operations or
processing) or indirectly (e.g., if its suppliers' and customers' systems are
not "Year 2000 compliant"). As a result of its review, the Company has
established an internal project team that has developed a plan of action to i)
assess the potential impact of the Year 2000 Issue, including an evaluation of
third parties with which the Company has a material relationship, ii) renovate,
upgrade or replace hardware and/or software systems, where necessary, with
systems certified to be Year 2000 compliant, iii) test and validate the new
and/or updated systems and iv) establish contingency plans for the failure of
critical systems.

    Several of the Company's systems have been confirmed as Year 2000
compliant. However, the Company is still in the process of completing the
effort to identify and correct any non-compliant software or systems that would
cause a significant detrimental effect on the Company. This program is expected
to be complete by July 31, 1999. The Company has identified its Year 2000 risk
in three categories: internal administrative software; internal operational
software and imbedded chip technology; and external noncompliance by customers
and suppliers.

    INTERNAL ADMINISTRATIVE SOFTWARE. Substantially all of the Company's
internal administrative software is "off-the-shelf" commercially available
software. The Company is currently gathering data to assess the impact of the
Year 2000 Issue on its administrative systems such as the accounting, legal and
human resources systems, with Year 2000 compliance scheduled for July 31, 1999.
Based on this schedule, the Company expects to be in full compliance with its
internal administrative systems before the Year 2000. However, if due to
unforeseen circumstances, the implementation is not completed on a timely
basis, the Year 2000 Issue could have a material impact on the operations of
the Company. Contingency plans are being developed where the Company feels
there is some risk that a compliant system cannot be implemented before the
Year 2000.

    INTERNAL OPERATIONAL SOFTWARE AND IMBEDDED CHIP TECHNOLOGY. The Company is
currently gathering data to assess the impact of the Year 2000 Issue on its
operational systems, such as the manufacturing and laboratory systems, with
Year 2000 compliance scheduled for July 31, 1999. The Company believes it can
achieve compliance in this timeframe because most of the key systems involved
were acquired over the past two years and are commercially available packages
that can be replaced by alternatives in a short timeframe. The Company does
not, at this time, have sufficient data to estimate the cost of achieving Year
2000 compliance for its operational systems. While the Company does not believe
there is any material non-compliance in the manufacturing and laboratory
systems, the Company is still in the process of completing its assessment.

    EXTERNAL NONCOMPLIANCE BY CUSTOMERS AND SUPPLIERS. The Company has
identified several third parties with which it has a material relationship and
is in the process of contacting them to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remedy their own Year 2000 issues. It is expected that full identification will
be completed by July 31, 1999. To the extent that responses to Year 2000
readiness are unsatisfactory, the Company intends to change suppliers, service
providers or contractors to those who have demonstrated Year 2000 readiness.
The Company cannot be assured that it will be successful in finding such
alternative suppliers, service providers and contractors. The Company does not
currently have any formal information concerning the Year 2000 compliance
status of its customers but has received indications that most of its customers
are working on Year 2000 compliance. In the event that any of the Company's
significant suppliers, service providers or contractors do not successfully and
timely achieve Year 2000 compliance, and the Company is unable to replace them
with new or alternate suppliers, service providers or contractors, the
Company's business or operation could be adversely affected.

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                                      Page 22

<PAGE>   24

    All costs associated with the Year 2000 project to date have been expensed
as incurred. The Company will incur costs that include internal resources,
external consulting, software and certain equipment upgrades. Most of these
costs are expected to relate to testing and validation of the new and/or
updated systems. However, since many of the Company's critical systems are
already Year 2000 compliant, including the administrative, manufacturing and
laboratory systems, these costs are not expected to be significant. The Company
is still in the process of evaluating the external systems for compliance and
will make modifications as necessary. The Company believes that the remaining
cost to gain company-wide compliance will not be material.

    To date, the Company has not completed a formal contingency plan for
non-compliance, but continues to develop such plans based on the information
obtained from the third parties with which it has a material relationship and
the completion of the evaluation of its systems.

    The foregoing discussion regarding the Year 2000 project's timing,
effectiveness, implementation, and cost, contains forward-looking statements,
which are based on management's best estimates, derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, and actual results could
differ materially from those contemplated estimates. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties and
remediation success of the Company's customers and suppliers.

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                                      Page 23


<PAGE>   25



                                  RISK FACTORS

    The Company wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual results for 1999
and beyond to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.

LEVERAGE

    The Company's indebtedness is significant in relation to its stockholders'
equity. Such debt accounted for approximately 73% of the Company's total
capitalization as of December 31, 1998. Prior to its 1998 and 1997
acquisitions, the Company's revenues have been generally limited to
non-recurring research and development fees and license fees pursuant to the
Company's collaborative agreements and not from product sales. The annual
interest expense to the Company relating to the 7% Convertible Subordinated
Debentures (the "Debentures"), is $5,250,000 (assuming none of the Debentures
are converted). There can be no assurance that the Company's revenue stream and
earnings will be sufficient to enable the Company to cover its interest
obligations on the Debentures or to enable it to repay principal upon maturity
of the Debentures.

HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT

    The Company has incurred net losses in each year since its inception,
including net losses of approximately $23.6 million during the year ended
December 31, 1998. These losses have resulted in an accumulated deficit of
$72.7 million at December 31, 1998.

    The Company's ability to generate significant revenue and become profitable
will be dependent in large part on the ability of the Company to enter into
additional collaborative agreements and on the ability of the Company and its
collaborators to successfully manufacture and commercialize products
incorporating the Company's technologies. To date, the Company has not received
any significant revenue from sales of, or royalties from, products
incorporating its proprietary technologies.

PRODUCTS IN DEVELOPMENT STAGE

    Prior to 1999, the Company's soft chew calcium supplements were the only
commercially available products utilizing the Company's proprietary technology,
and the Company has not realized significant revenues from sales or royalties
of products incorporating its proprietary technologies. Most of the Company's
potential product applications are in the research or development stage. Since
inception, the Company's operating revenue has consisted principally of
research and development fees and license fees. To achieve profitable
operations, the Company, alone or with others, must successfully complete
development of its products, obtain any necessary regulatory approvals,
complete manufacturing scale-up and introduce and market its products.

PRODUCT COMMERCIALIZATION

    A component of the Company's strategy is to leverage its proprietary
technology to develop, manufacture and commercialize its own products. Such
products include those that are subject to existing development and license
agreements where the Company has retained co-exclusive manufacturing and
marketing rights to the end-user products and others that are the subject of
self-funded development programs of the Company. The development of commercial
scale manufacturing facilities and marketing efforts by the Company will
require significant commitments of capital by the Company. Although several of
the businesses acquired by the Company have manufacturing and marketing
experience, prior to such acquisitions, the Company had limited manufacturing
experience and no marketing experience. There can be no assurance that the
Company can successfully develop or capitalize on such experience, or that the
Company's products will be accepted in the marketplace. Commercialization
efforts by the Company may compete with activities of the Company's
collaborative partners, most of which have greater financial resources than the
Company. Moreover, there can be no assurance that the Company's active pursuit
of its own efforts

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                                      Page 24

<PAGE>   26


to develop and commercialize products using the Company's proprietary
technology will not otherwise adversely affect the Company's relations with its
existing and potential collaborative partners.

ACQUISITION RISKS

    One element of the Company's strategy is to capitalize on retained
co-marketing rights by acquiring marketing and distribution organizations with
existing product sales that the Company believes have been or in the near term
will be financially self-sufficient and which it believes will serve as a
platform to sell products incorporating the Company's proprietary technologies.
The Company has consummated five acquisitions since the beginning of 1997 and
may consider additional transactions in the future. There can be no assurance
that any such transaction will be completed, that completed acquisitions will
be successfully integrated or that, once integrated, such acquisitions will
achieve levels of revenue, profitability or productivity comparable to those
historically achieved by such acquired businesses or products or otherwise
perform as expected. Acquisitions involve special risks, including risks
associated with unanticipated liabilities and contingencies, diversion of
management attention and possible adverse effects on earnings resulting from
increased goodwill amortization, increased interest costs, the issuance of
additional securities and difficulties related to the integration of the
acquired business or products. There can be no assurance that acquired entities
will generate positive cash flows and/or profits. Four of the businesses
acquired by the Company are located in Europe. Foreign acquisitions may subject
the Company to the further risks of assimilating differences in foreign
business practices, hiring and retaining qualified personnel, overcoming
language barriers, limiting asset transfers, changes in foreign regulations and
political turmoil. There can be no assurance that the Company will be able
successfully to identify additional suitable acquisition candidates, complete
additional acquisitions or successfully integrate acquired businesses into its
operations. The failure to integrate acquired businesses into its operations
could have a material adverse effect on the Company's business, financial
condition and results of operations, including cash flow.

LIMITED MANUFACTURING EXPERIENCE; RISK OF MANUFACTURING SCALE-UP

    Products incorporating the Company's CEFORM and Shearform technologies have
been manufactured by the Company at a commercial scale on a limited basis. The
Company also has had limited commercial experience with its nutraceutical
products, which have been manufactured by third parties. The Company currently
plans to retain rights to manufacture commercial quantities of pharmaceutical
compounds processed using the Company's proprietary technologies and to conduct
other manufacturing operations. Prior to the Company's 1997 acquisition of
Clonmel, the Company had limited experience manufacturing pharmaceutical
products for commercial purposes. The Company intends to use Clonmel's
facilities in Ireland for manufacturing activities and is expanding this
facility so that it may be used to manufacture products employing the Company's
proprietary technology. The Company also intends to use its newly commissioned
750 million dosage unit pharmaceutical facility in Chantilly, Virginia to
manufacture products employing the Company's proprietary technology. There can
be no assurance that manufacturing and control problems will not arise as the
Company begins to scale up manufacturing facilities or that manufacturing can
be scaled up in a timely manner or at a commercially reasonable cost to enable
production in sufficient quantities. Failure by the Company to successfully
develop commercial-scale manufacturing facilities and develop in a timely
manner or at a commercially reasonable cost the facilities necessary to
manufacture products utilizing the Company's technology could have a material
adverse effect on the Company. If such manufacturing or control problems arise
or if the Company is not able to successfully scale-up manufacturing in a
timely or cost effective manner for any reason, the Company's business could be
materially adversely affected.

    As part of the Company's strategy, the Company seeks to manufacture
products incorporating the Company's technologies and has been expanding its
manufacturing capabilities. In the past, the Company has entered into license
agreements that grant the Company's collaborative partners the exclusive right
to utilize the Company's technology to manufacture, or to sublicense the right
to manufacture, the pharmaceutical products covered by such license agreements,
other than the right to manufacture CEFORM microspheres (which right generally
is retained by the Company on an

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                                      Page 25

<PAGE>   27

exclusive basis). There can be no assurance that the Company's collaborative
partners will contract with the Company to manufacture licensed products using
the Company's technology. Failure of the Company's collaborative partners to
contract with the Company for the manufacture of products could have a material
adverse effect on the Company's business, financial condition or results of
operations.

    In connection with the manufacture of pharmaceuticals and food ingredient
products, the Company will be required to adhere to cGMP regulations enforced by
the U.S. Food and Drug Administration ("FDA") through its facilities inspection
program. The Company also will be required to comply with manufacturing
standards prescribed by various federal, state and local regulatory agencies in
the United States and other countries.

DEPENDENCE UPON COLLABORATIVE PARTNERS; POTENTIAL CONFLICTS OF INTEREST

    Although the Company intends to develop and commercialize certain of its
own products, the Company also has and anticipates that it will continue to
enter into collaborative arrangements with other companies, which will market
and which may manufacture products incorporating the Company's technologies.
The Company's prospects are, therefore, in part dependent upon the Company's
ability to attract and retain collaborative partners and to develop products
and manufacturing processes that meet the requirements of such collaborative
partners. There can be no assurance that the Company's existing or future
collaborative arrangements will result in successful product commercialization.
In addition, the Company is applying significant resources to Company-funded
development of products for which it later intends to seek collaborative
partners. There can be no assurance that the Company will be able to enter into
collaborative agreements with respect to such Company-funded projects.

    The amount and timing of resources which the parties to collaborative
arrangements with the Company devote to these activities is not within the
control of the Company. If any of the Company's collaborators breaches or
terminates its agreement with the Company or otherwise fails to conduct its
collaborative activities in a timely manner, the development or
commercialization of the product candidate or research program under such
collaborative agreement may be delayed, and the Company may be required to
devote unforeseen additional resources to such development or
commercialization, or terminate such programs. The termination of collaborative
arrangements could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
disputes will not arise in the future with respect to the ownership or rights
to any technology developed with third parties. These and other possible
disagreements between collaborators and the Company could lead to delays in the
collaborative research, development or commercialization of certain product
candidates, or could require or result in litigation or arbitration, which
could be time consuming and expensive and could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company may also be dependent upon the testing, regulatory approval and
marketing efforts and, in certain cases, the manufacturing capabilities of its
collaborative partners. The Company anticipates that most licensees will be
given the exclusive or co-exclusive right to market products incorporating the
Company's technologies for a particular class of products for a particular
territory. The amount and timing of resources to be devoted by the Company's
collaborators to marketing are not within the control of the Company and there
can be no assurance that the Company's existing collaborative efforts will
result in the commercialization of products.

    In addition, the Company's collaborators may develop, either alone or with
others, products that compete with the development and marketing of the
Company's product candidates. Competing products, either developed by the
Company's collaborators or to which the collaborators have rights, may result
in the Company's collaborators withdrawing research, development or marketing
support with respect to all or a portion of the Company's technology, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.

NO ASSURANCE OF PRODUCT LICENSES; OTHER RISKS ASSOCIATED WITH
COLLABORATIVE AGREEMENTS

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                                      Page 26

<PAGE>   28

    The Company has entered into development agreements with collaborative
partners for products using the Company's technologies. Pursuant to these
agreements, the Company typically has agreed to develop product prototypes for
the collaborative partner's evaluation. A definitive license agreement for the
manufacture and marketing of a product or products may be entered into at the
same time as the development agreement relating to such product, or at a later
date. In any event, under the Company's existing collaborative agreements,
collaborative partners generally have the right to abandon a product, and
consequently to terminate funding, at any time and for any reason without
penalty. Collaborative partners are also generally free to market products
using drug delivery or other technologies that are competitive with those of
the Company. A decision by a collaborative partner to delay introduction or
abandon one or more of its products incorporating the Company's technology or
to adopt a competing technology could adversely affect the Company's business,
financial condition and results of operations.

    The Company's license agreements currently in effect generally provide, and
it is expected that future license agreements will provide, for the Company to
receive a payment at the time of execution of the agreement, additional
scheduled payments or payments based on the attainment of certain milestones
and royalty payments based on net sales of products by the licensee. The timing
and amount of such payments will fluctuate, and such fluctuations could have a
material adverse effect on the Company's cash position and results of
operations.

    In addition, royalty rates for licenses of the Company's technologies for
OTC products are expected, consistent with industry practices, to be lower than
royalty rates for licenses relating to prescription products.

LIMITED MARKETING AND SALES EXPERIENCE

    Prior to the Company's recent acquisitions of Murat, Pangea, Clonmel,
Istoria and Fuisz Pharma KG, the Company had no marketing and sales experience.
Prior to 1999, the only commercially available product incorporating the
Company's proprietary technology was a soft chew calcium supplement distributed
by Pangea. There can be no assurance that the Company will be able to
successfully integrate the sales and marketing resources of its subsidiaries
into its current operations. Pangea's sales and marketing system involves
independent sales representatives who purchase products from the Company. The
Company, therefore, has limited control over actual sales activities. There can
be no assurance that Pangea or the Company's other recently acquired
subsidiaries will provide adequate sales and distribution networks for the
Company's products. The Company may require additional capital and/or third
party commitments to effectively sell and market the Company's products.

RISKS INHERENT IN INTERNATIONAL OPERATIONS

    On a pro forma basis, giving effect to the Company's recent acquisitions of
Murat, Pangea, Clonmel, Istoria and Fuisz Pharma KG, the Company's
international operations accounted for 78% of consolidated net revenues for
the year ending December 31, 1998 and 73% for the year ended 1997. The Company
has made significant investments in its European subsidiaries and may make
additional acquisitions outside the United States. As such, the Company's
financial results could be adversely affected by fluctuations in foreign
exchange rates (see "Quantitative and Qualitative Disclosures About Market Risk
- Foreign Currency Exchange Risk"). Fluctuations in the value of foreign 
currencies affect the dollar value of the Company's net investment in foreign
subsidiaries, with this fluctuation being included in a separate component of
stockholders' equity. Operating results of foreign subsidiaries are translated
into U.S. dollars at average monthly exchange rates. In addition, the U.S.
dollar value of transactions based in foreign currency (collection on foreign
sales or payments for foreign purchases) also fluctuates with exchange rates.
On January 1, 1999, eleven of the fifteen member nations of the European
Economic and Monetary Union ("EMU") adopted a common currency, the "Euro." For
a three-year transition period, both the Euro and individual participants'
currencies will remain in circulation; after January 1, 2002, the Euro will be
the sole legal tender for EMU countries. The Company's European subsidiaries
operate in Ireland, Germany, France and Italy, all of which have adopted the
Euro. While the Company is reviewing the impact of the introduction of the Euro
on various aspects of its business (including information systems, currency
exchange risk, taxation, contracts, competitive position and pricing), such
introduction is not expected to have a material impact on the Company.

    Foreign operations may subject the Company to the further risks of
assimilating differences in foreign business practices, hiring and retaining
qualified personnel, overcoming language barriers, limiting asset transfers,
changes in foreign regulations and political turmoil.

===============================================================================
                                      Page 27

<PAGE>   29


COMPETITION AND TECHNOLOGICAL CHANGE

    The Company operates in a highly competitive and rapidly evolving field,
and new developments are expected to continue at a rapid pace, especially in
the drug delivery market. Competition from large pharmaceutical, nutraceutical,
food, consumer product and industrial companies including its collaborators,
joint ventures, academic institutions and other public and private research
organizations is expected to be intense. Many of these competitors have
substantially greater financial and technical resources and production and
marketing capabilities than the Company and many have substantially greater
experience in conducting clinical trials, obtaining regulatory approvals and
manufacturing and marketing pharmaceutical, nutraceutical, food and other
commercial products.

PATENTS AND PROPRIETARY RIGHTS

    The Company's success depends in large part on its ability to obtain
patents, maintain trade secret protection and operate without infringing on the
proprietary rights of third parties. As of December 31, 1998, the Company has
been granted 87 U.S. patents and has filed a substantial number of applications
for additional U.S. patents, as well as corresponding patent applications
outside the United States, relating to the Company's technologies. There can be
no assurance that any of the pending patent applications will be approved, that
the Company will develop additional proprietary products that are patentable,
that any patents issued to the Company will provide the Company with
competitive advantages or will not be challenged by any third parties or that
the patents of others will not prevent the commercialization of products
incorporating the Company's technologies. Furthermore, there can be no
assurance that others will not independently develop similar products,
duplicate any of the Company's products or, if patents are issued to the
Company, design around the Company's patents. Any of the foregoing actions or
results could have a material adverse effect on the Company.

GOVERNMENT REGULATION AND PRODUCT APPROVAL

    Manufacturing and sales of products and potential products by the Company
and its collaborative partners may be subject to extensive regulation by the
FDA and by comparable agencies in foreign countries. Although the nature and
extent of regulation varies by type of product, in general, products must meet
standards regarding safety and efficacy, manufacturing practices, labeling and
purity. In addition, certain products must receive FDA approval prior to
marketing. The FDA has extensive enforcement powers, including the power to
withhold approvals of new products, to initiate product recalls, to seize
products, to delay or prevent product sales and to halt operations.

    In addition, governments outside the United States will each have their own
set of regulatory standards, and possibly regulatory approvals, with which the
Company or its collaborators must comply to market products incorporating the
Company's technologies. Any failure to comply with such standards, or to obtain
such approvals, would adversely affect the Company.

===============================================================================
                                      Page 28

<PAGE>   30


    The Company is also subject to numerous environmental and safety laws and
regulations. Any violation of, and the cost of compliance with, these
regulations could adversely impact the Company's operations.

FINANCING REQUIREMENTS AND ACCESS TO CAPITAL

    Implementation of the Company's business strategy will require significant
expenditures of capital. The Company believes that the currently available
funds and internally generated cash flow will be sufficient to meet its
operating needs through the end of 1999. The Company's ability to meet its
future capital requirements, however, will depend on many factors, including
the ability of the Company to establish and maintain existing collaborative
arrangements and establish and maintain new collaborative arrangements with
others; ability to have partners convert development agreements into license
agreements; the costs involved in preparing, filing, prosecuting, maintaining
and enforcing patent claims; complying with regulatory requirements; competing
technological and market developments; changes in the Company's existing
research relationships; and the effectiveness of product commercialization
activities and arrangements. In addition, if the Company elects, or is required
by its collaborative partners, to engage in significant commercial-scale
manufacturing beyond its current plans, to conduct significant marketing
activities, or to seek, independent of its collaborative partners, regulatory
approvals for its products, the Company will require substantial funds for
these purposes. If the Company's currently available funds and internally
generated cash flow are not sufficient to satisfy its financing needs, the
Company would be required to seek additional funding through other arrangements
with corporate collaborators, through bank borrowings or through public or
private sales of its securities, including equity securities. Any such
collaboration could result in limitations on the Company's ability to control
the research, development and commercialization of resulting products, if any,
as well as its profits therefrom. In addition, the terms of any future bank
borrowings could place restrictions on the Company's ability to take certain
actions, and any equity financing could result in dilution to the Company's
stockholders. The Company does not currently have any committed sources of
additional capital.

PRODUCT LIABILITY AND INSURANCE

    The development and sale of products in the pharmaceutical, nutraceutical
and food areas involve an inherent risk of product liability claims. There can
be no assurance that product liability claims will not be filed against the
Company for products sold by others that incorporate the Company's technologies
or that such companies would not seek indemnification or other relief from the
Company for any such claims brought against them. In addition, there can be no
assurance that product liability claims will not be filed directly against the
Company with respect to products manufactured by it. A product liability claim
could have a material adverse effect on the business or financial condition of
the Company. The Company currently maintains product liability insurance in
amounts, which it believes, are appropriate. There can be no assurance,
however, that product liability insurance will continue to be available to the
Company in the future on acceptable terms, if at all, or that, if available,
the coverages will be adequate to protect the Company against future product
liability claims.


===============================================================================
                                      Page 29

<PAGE>   31


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The Company is exposed to market risk related to changes in interest rates
and foreign currency exchange rates in its cash, debt and foreign currency
transactions.

INTEREST RATE RISK

    The Company's investment portfolio consists of cash and cash equivalents
and marketable securities classified as "available for sale." The Company's
investments are held for an unspecified period of time and are sold to meet its
liquidity needs. The Company maintains its portfolio in a variety of high
credit quality securities, including U.S. Government and corporate obligations,
certificates of deposit and money market funds. Approximately 51% of the
Company's portfolio matures in less than three months and the remaining 49% has
an average maturity of less than eighteen months. The carrying value of the
investment portfolio approximates the fair market value at December 31, 1998.
Because the Company's investments are diversified and are of relatively short
maturity, a hypothetical 10% change in interest rates would not have a material
effect on the Company's consolidated financial statements.

    Approximately 85% of the Company's long-term debt at December 31, 1998 is
subject to fixed interest rates and principal payments. The remaining 15% of
long-term debt is subject to variable interest rates but has fixed principal
payments. The fair market value of all debt instruments is approximately $98.9
million at December 31, 1998. Management does not believe that the interest
rate exposure of its variable interest rate debt is likely to have a material
effect on the Company's consolidated financial statements.

FOREIGN CURRENCY EXCHANGE RISK

    The Company is exposed to foreign currency risk by virtue of its
international operations that commenced in 1997. The Company conducts business
in several European countries and, as a result, excluding U.S. export sales
which are principally denominated in U.S. dollars, approximately 68% and 42% of
the Company's net revenues for the years ended December 31, 1998 and 1997,
respectively, were derived from the Company's operations in Europe. A 10%
appreciation or depreciation of the U.S. dollar against foreign currencies
would have resulted in a reduction in net revenues for 1998 of approximately
$4.8 million or an increase in net revenues of approximately $5.3 million,
respectively, based on 1998 net revenue.

    The Company's cash position includes amounts denominated in foreign
currencies. The Company manages its worldwide cash requirements considering
available funds among its subsidiaries and the cost effectiveness with which
these funds can be accessed. The repatriation of cash balances from certain of
the Company's affiliates could have adverse tax consequences. However, those
balances are generally available without legal restrictions to fund ordinary
business operations.

    The Company's consolidated financial statements are denominated in U.S.
dollars and, accordingly, changes in the exchange rates between the Company's
subsidiaries' local currency and the U.S. dollar will affect the translation of
such subsidiaries' financial results into U.S. dollars for purposes of
reporting the Company's consolidated financial results. Translation adjustments
are reflected as a component of other comprehensive income (loss) as a separate
component of stockholders' equity. Financial statement translation has not, to
date, been material to the Company's balance sheet. Such adjustments may in the
future be material to the Company's financial statements.


===============================================================================
                                      Page 30


<PAGE>   32



    The Company has made loans to certain of its foreign subsidiaries that are
denominated in U.S. dollars. Currency gains and losses on loans for which
settlement is planned are included as part of net loss. Currency gains and
losses on loans for which no settlement is planned are reflected as a component
of other comprehensive income in stockholders' equity. During 1998, the Company
recognized $1.2 million in net foreign currency gains resulting primarily from
the loan to its German subsidiary. A 10% appreciation or depreciation of the
U.S. dollar against foreign currencies would have resulted in a reduction in
the net foreign currency gain for 1998 of approximately $2.3 million or an
increase in the net foreign currency gain of approximately $3.0 million,
respectively.

    The Company currently hedges certain of its foreign currency assets with
foreign currency liabilities. The Company is, however, actively considering
expanding its hedging strategies to utilize forward contracts and/or
cross-currency swaps.

===============================================================================
                                      Page 31


<PAGE>   33



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The following financial statements are filed as a part of this report:

<TABLE>
<CAPTION>
                                                                                                  Page
                                                                                                  ----
<S>                                                                                               <C>
            Report of Independent Accountants...............................................       F-2
            Consolidated Balance Sheets.....................................................       F-3
            Consolidated Statements of Operations...........................................       F-4
            Consolidated Statements of Stockholders' Equity.................................       F-5
            Consolidated Statements of Cash Flows...........................................       F-6
            Consolidated Statements of Comprehensive Income (Loss)                                 F-7
            Notes to Consolidated Financials Statements.....................................       F-8
</TABLE>


ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
           ACCOUNTING AND FINANCIAL DISCLOSURE

    None.


===============================================================================
                                      Page 32


<PAGE>   34



                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS

    Those portions of the Company's definitive proxy statement, to be filed
with the Commission on or about April 15, 1998 (the "Proxy Statement")
appearing under the caption (i) "Election of Directors," beginning with the
subsection "Nominees" up to, but not including the subsection "Committees and
Board Meetings" and (ii) "Section 16(a) Beneficial Ownership Reporting
Compliance" are incorporated herein by reference.

    Information regarding executive officers of the Company is located under
the caption "Executive Officers" appearing at Part I, Item 1 of this Form 10-K.

ITEM 11.   EXECUTIVE COMPENSATION

    Those portions of the Proxy Statement appearing under the caption (i)
"Executive Compensation," up to, but not including "Report of the Compensation
Committee on Executive Compensation," (ii) "Compensation Committee Interlocks
and Insider Participation" and (iii) " Directors Compensation" are incorporated
herein by reference.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    That portion of the Proxy Statement appearing under the caption "Security
Ownership of Certain Beneficial Owners and Management" is incorporated herein
by reference.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    That portion of the Proxy Statement appearing under the caption
"Compensation Committee Interlocks and Insider Participation" is incorporated
herein by reference.


===============================================================================
                                      Page 33


<PAGE>   35


                                    PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
           FORM 8-K

         (a)      1.  CONSOLIDATED FINANCIAL STATEMENTS

                  The following consolidated financial statements are filed as a
                  part of this report:

<TABLE>
<CAPTION>

                                                                                                        Page
                                                                                                        ----
<S>                                                                                                     <C>
                  Report of Independent Accountants...............................................       F-2
                  Consolidated Balance Sheets.....................................................       F-3
                  Consolidated Statements of Operations...........................................       F-4
                  Consolidated Statements of Stockholders' Equity ................................       F-5
                  Consolidated Statements of Cash Flows...........................................       F-6
                  Consolidated Statement of Comprehensive Income (Loss)...........................       F-7
                  Notes to Consolidated Financial Statements......................................       F-8
</TABLE>

                  2.  FINANCIAL STATEMENT SCHEDULES

                  The following financial statement schedules are filed as a
                  part of this report:

                  None.

                  3.  EXHIBITS

                  The following exhibits are filed herewith or are incorporated
                  by reference to exhibits previously filed with the Commission.
                  The Company will furnish copies of exhibits at a reasonable
                  fee (covering the expense of furnishing copies) upon request.

<TABLE>

<S>                                  <C>
                    3.1*        -     Fourth Amended and Restated Certificate of Incorporation of the Registrant, as amended.

                    3.2*        -     Certificate of Amendment of the Certificate of Incorporation of the Registrant.

                    3.3*        -     Amended and Restated Bylaws of the Registrant.

                    4.1         -     Indenture, dated as of October 17, 1997, between the Company and the Bank of New
                                      York. (Filed as Exhibit 4.2 with the Company's registration statement on Form S-3,
                                      Registration No. 333-41037).

                    4.2         -     Registration Rights Agreement, dated as of October 22, 1997, by and among the
                                      Company, Smith Barney Inc., Credit Suisse First Boston Corporation and Lehman
                                      Brothers, Inc. (Filed as Exhibit 4.3 with the Company's registration statement on Form
                                      S-3, Registration No.
                                      333-41037).

                    10.1*#      -     1991 Stock Option Plan.

                    10.1A*#     -     Amendment to 1991 Stock Option Plan.

                    10.2*#            1994 Stock Incentive Plan, as amended.

                    10.3*#      -     1994 Director Stock Option Plan, as amended.

                    10.4*#      -     1994 Employee Stock Purchase Plan, as amended.

                    10.5*       -     Warrants issued to Edgewater Private Equity Fund L.P. and John Pappajohn, dated
                                      June 14, 1994.

                    10.6*       -     1995 Common Stock Purchase Warrants.

                    10.7*             Lease Agreements between Avion (Fairfax) Associates, L.P. and the Company, each
                                      dated December 10, 1993.

                    10.8*       -     Lease Agreement by and between Avion (Fairfax) Associates, L.P. and the Company,
                                      dated July 19, 1995.

                    10.9++      -     Sublease Agreement by and between Global Mail, Ltd. and the Company, dated
                                      February 10, 1997.

                    10.10*#     -     Employment Agreement between Patrick D. Scrivens and the Company, dated
                                      October 19, 1994. (Filed as Exhibit 10.20 with the Company's registration statement on
                                      Form S-1, Registration No. 33-99092).

                    10.11+#     -     Employment Agreement between Kenneth W. McVey and the Company, dated
                                      December 16, 1996.
                    10.12+#
                                      Employment Agreement between Michael Myers and the Company, dated October 24,
                                      1995.

                    10.13++     -     Lease Agreement by and between Avion (Fairfax) Associates, L.P. and the Company,
                                      dated January 17, 1997.
</TABLE>

===============================================================================
                                      Page 34

<PAGE>   36

<TABLE>
<S>                                   <C>
                    10.14++     -     Stock Purchase Agreement for the Acquisition of Pangea, Ltd., dated May 20, 1997.

                    10.15++     -     Share Purchase Agreement for the Acquisition of Clonmel Healthcare Limited, dated
                                      July 29, 1997.

                    10.16++     -     Warrant Agreement with ConAgra, Inc. (to be filed by amendment).

                    10.17++#    -     Amendments to the 1994 Director Stock Option Plan, 1994 Employee Stock Purchase
                                      Plan and 1994 Stock Incentive Plan of the Company.

                    10.18++     -     Deed of Lease Agreement by and between Shaw Road Business Park, L.L.C., dated
                                      January 30, 1998.

                    10.19++#    -     Executive Management Bonus Incentive Plan.

                    10.20#      -     Form of Supplemental Employment Agreement for Michael Myers and S. Rao Cherukuri.

                    21.1        -     Subsidiaries of the Registrant.

                    23.1        -     Consent of PricewaterhouseCoopers LLP

                    27.1        -     Financial Data Schedule.

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

                  * Incorporated by reference to the Company's registration statement on Form S-1, Registration No. 33-99092.

                  # Management contract or compensatory plan.

                  + Incorporated by reference to the Company's 1996 annual report on Form 10-K, Comm. File No. 0-27082,
                    filed March 31, 1997.

                 ++ Incorporated by reference to the Company's 1997 annual report on Form 10-K, Comm. File No. 0-27082,
                    filed March 31, 1998.

</TABLE>

         (b)      REPORTS ON FORM 8-K

         No Current Reports on Form 8-K were filed by the Registrant during the
         last fiscal quarter.

===============================================================================
                                      Page 35

<PAGE>   37


                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<CAPTION>
<S>                                                           <C>
                                                               FUISZ TECHNOLOGIES LTD.

                                                               By:  /S/
                                                                  --------------------------
                                                                  Kenneth W. McVey
                                                                  Chief Executive Officer

</TABLE>

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
<S>                                                            <C>
March 31, 1999                                                 By:   /S/
                                                                  -----------------------
                                                                  Kenneth W. McVey
                                                                  Chief Executive Officer

March 31, 1999                                                 By:   /S/
                                                                  -----------------------
                                                                  Patrick D. Scrivens
                                                                  Chief Financial Officer

Directors:

March 31, 1999                                                       /S/
                                                                  -----------------------
                                                                  Richard C. Fuisz, M.D.

March 31, 1999                                                       /S/
                                                                  -----------------------
                                                                  John R. Fuisz

March 31, 1999                                                       /S/
                                                                  -----------------------
                                                                  Louis Lauer


March 31, 1999                                                       /S/
                                                                  -----------------------
                                                                  Antone J. Lazos


March 31, 1999                                                       /S/
                                                                  -----------------------
                                                                  Kenneth W. McVey


March 31, 1999                                                       /S/
                                                                  -----------------------
                                                                  Donald E. O'Neill


March 31, 1999                                                       /S/
                                                                  -----------------------
                                                                  Fredrik C. Schreuder


March 31, 1999                                                       /S/
                                                                  -----------------------
                                                                  Daniel Tierney

</TABLE>

===============================================================================
                                      Page 36

<PAGE>   38





                    FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                                                  PAGE
<S>                                                                                             <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   F-2
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   F-3
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   F-4
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . .   F-5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   F-6
Consolidated Statements of Comprehensive Income (Loss)  . . . . . . . . . . . . . . . . . . . .   F-7
Notes to Consolidated Financial Statements  . . . . . . . . . . . . . . . . . . . . . . . . . .   F-8
</TABLE>


                                       F-1

<PAGE>   39


                       REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
FUISZ TECHNOLOGIES LTD.

  In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive loss, changes in
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of Fuisz Technologies Ltd. and its subsidiaries (the
"Company") at December 31, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits.  We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis for the
opinion expressed above.

                                               PricewaterhouseCoopers LLP

McLean, Virginia
February 25, 1999


                                       F-2

<PAGE>   40



                    FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)


<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                                        -------------------------
                                                                                            1998         1997
                                                                                        -----------  ------------
                                    ASSETS
<S>                                                                                    <C>         <C>
Current assets:
    Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $   9,238   $    5,548
    Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      19,678       73,134
    Accounts receivable, net  . . . . . . . . . . . . . . . . . . . . . . . . . . . .      13,889       10,237
    Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       5,072        5,375
    Other current assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,621        1,263
                                                                                       ----------   ----------
       Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      49,498       95,557
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      10,971       10,255
Property, plant and equipment, net  . . . . . . . . . . . . . . . . . . . . . . . . .      26,554       22,941
Intangibles, net  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      55,550       34,883
Other assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       3,163        6,484
                                                                                       ----------   ----------
       Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $ 145,736    $ 170,120
                                                                                       ==========   ==========

   LIABILITIES, REDEEMABLE PREFERENCE SHARES AND STOCKHOLDERS' EQUITY


Current liabilities:
    Lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $   633    $   1,042
    Current portion of notes payable  . . . . . . . . . . . . . . . . . . . . . . . .       2,266        2,679
    Accounts payable  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       8,159        8,973
    Accrued and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .       5,192        4,305
    Deferred revenue  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       2,664          622
                                                                                       ----------   ----------
       Total current liabilities  . . . . . . . . . . . . . . . . . . . . . . . . . .      18,914       17,621

Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      90,639       90,184
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,735        1,534
                                                                                       ----------   ----------
       Total liabilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     111,288      109,339
                                                                                       ==========   ==========

Commitments and contingencies

Redeemable preference shares of subsidiary  . . . . . . . . . . . . . . . . . . . . .          --        1,173
                                                                                       ----------   ----------

Stockholders' equity:
   Preferred stock, par value $.01 per share; authorized 1,000,000 shares;
    none issued or outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . .          --           --
  Common stock, par value $.01 per share; authorized 50,000,000 shares;
     issued 22,541,638 and 22,189,462, respectively; and outstanding 21,903,438 and
     22,189,462 shares, respectively  . . . . . . . . . . . . . . . . . . . . . . . .         225          222
  Additional paid-in capital  . . . . . . . . . . . . . . . . . . . . . . . . . . . .     111,163      109,332
  Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (72,658)     (49,055)
  Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . .      1,283         (891)
  Treasury stock, at cost; 638,200 shares in 1998 . . . . . . . . . . . . . . . . . .     (5,565)           --
                                                                                       ----------   ----------
     Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . .      34,448       59,608
                                                                                       ----------   ----------
     Total liabilities, redeemable preference shares and stockholders' equity . . . .   $ 145,736   $  170,120
                                                                                       ==========   ==========


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

</TABLE>


                                       F-3

<PAGE>   41
                    FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>


                                                                               FOR THE YEARS ENDED
                                                                                  DECEMBER 31,
                                                                  -------------------------------------------------
                                                                    1998               1997               1996
                                                                  -------------------------------------------------
<S>                                                                <C>             <C>               <C>
 Operating revenues:
     Product sales . . . . . . . . . . . . . . . . . . . . .        $  47,898       $      11,968     $         48
     Research and development  . . . . . . . . . . . . . . .            4,334               5,390            2,426
     Licensing fees and other  . . . . . . . . . . . . . . .            8,987               4,840            6,052
                                                                    ---------        ------------      -----------
        Total operating  revenues  . . . . . . . . . . . . .           61,219              22,198            8,526
                                                                    ---------        ------------      -----------
 Operating expenses:
     Cost of sales . . . . . . . . . . . . . . . . . . . . .           27,924               7,807               --
     Research and development  . . . . . . . . . . . . . . .           24,058              16,944            9,232
     Selling, general and administrative . . . . . . . . . .           29,482              13,877            9,073
     Other operating expenses  . . . . . . . . . . . . . . .               --               4,694               --
                                                                    ---------        ------------      -----------
        Total operating expenses . . . . . . . . . . . . . .           81,464              43,322           18,305
                                                                    ---------        ------------      -----------
 Net operating loss  . . . . . . . . . . . . . . . . . . . .         (20,245)            (21,124)          (9,779)
                                                                    ---------        ------------      -----------
 Other income (expense), net:
     Interest income . . . . . . . . . . . . . . . . . . . .            3,212               3,013            2,977
     Interest expense  . . . . . . . . . . . . . . . . . . .          (7,357)             (1,490)              (4)
     Foreign currency gain, net  . . . . . . . . . . . . . .            1,172                  --               --
                                                                    ---------        ------------      -----------
        Total other income (expense) . . . . . . . . . . . .          (2,973)               1,523            2,973
                                                                    ---------        ------------      -----------
 Net loss before income taxes  . . . . . . . . . . . . . . .         (23,218)            (19,601)          (6,806)
 Income tax provision  . . . . . . . . . . . . . . . . . . .            (361)                   -                -
                                                                    ---------        ------------      -----------
 Net loss  . . . . . . . . . . . . . . . . . . . . . . . . .        $(23,579)        $   (19,601)       $  (6,806)
                                                                    =========        ============      ===========
 Net loss per share (basic and diluted)  . . . . . . . . . .        $  (1.07)        $     (0.92)       $   (0.35)
                                                                    =========        ============      ===========
 Weighted average shares outstanding (basic and diluted) . .           22,129              21,234           19,496
                                                                    =========        ============      ===========


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

</TABLE>
                                       F-4

<PAGE>   42
                    FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                       (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>



                                                                      Common stock                     Treasury stock
                                                              ----------------------------      ----------------------------
                                                                Shares            Amount          Shares            Amount
                                                              ------------   -------------      ------------   -------------
<S>                                                           <C>           <C>               <C>             <C>
Balance, December 31, 1995..........................          18,038,987    $         180          -           $ -
Secondary public offering of Common Stock,
  $25.00 per share, net of expenses.................           1,894,550               19          -             -
Repayment of obligations under Section 16(b) of
  the Securities Exchange Act of 1934...............                -            -                 -             -
Exercise of stock options...........................             430,880                4          -             -
Exercise of warrants................................              39,160                1          -             -
Purchase of treasury stock..........................                -                          (100,000)            (775)
Issuance of 380,952 shares of stock in connection                                -
  with employment agreement.........................             280,952                3        100,000              775
Amortization of deferred compensation...............                -            -                 -             -
Net loss............................................                -            -                 -             -
                                                          ---------------   --------------    ------------  --------------
Balance, December 31, 1996..........................          20,684,529              207          -             -
Exercise of stock options...........................             215,699                2          -             -
Exercise of warrants................................             194,828                2          -             -
Issuance of 1,000,000 warrants in connection with
  license agreement.................................                -              -               -             -
Common Stock issued in connection with business
  acquisitions......................................           1,094,406               11          -             -
Other comprehensive income..........................                -            -                 -             -
Dividends on redeemable preference shares...........                -            -                 -             -
Net loss............................................                -            -                 -             -
                                                          ---------------   --------------    ------------  --------------
Balance, December 31, 1997..........................          22,189,462              222          -             -
Exercise of stock options...........................             345,151                3          -             -
Exercise of warrants................................               7,025         -                 -             -
Purchases of treasury stock.........................                -            -               (638,200)        (5,565)
Other comprehensive income..........................                -            -                 -             -
Acceleration of stock option vesting................                -            -                 -             -
Dividends on redeemable preference shares...........                -            -                 -             -
Net loss............................................                -            -                 -             -
                                                          ---------------   --------------    ------------  --------------
Balance, December 31, 1998..........................          22,541,638    $         225       (638,200)   $     (5,565)
                                                          ===============   ==============    ============  ==============
</TABLE>



<TABLE>
<CAPTION>

                                                                                                        Accumulated
                                                                Additional                                other
                                                                 paid in             Accumulated       comprehensive
                                                                 capital              deficit          income (loss)
                                                              ----------------    ----------------  ------------------

<S>                                                             <C>                <C>                 <C>
Balance, December 31, 1995..........................             $     54,452       $        (22,629)   $    -
Secondary public offering of Common Stock,
  $25.00 per share, net of expenses...................                 35,764               -                -
Repayment of obligations under Section 16(b) of
  the Securities Exchange Act of 1934........                              40               -                -
Exercise of stock options...........................                      897               -                -
Exercise of warrants................................                      129               -                -
Purchase of treasury stock..........................                   -                    -                -
Issuance of 380,952 shares of stock in connection
  with employment agreement..........................                   2,222               -                -
Amortization of deferred compensation...............                      (86)              -                -
Net loss............................................                   -                      (6,806)        -
                                                              -----------------     -------------------  --------------
Balance, December 31, 1996..........................                   93,418                (29,435)        -
Exercise of stock options...........................                      741               -                -
Exercise of warrants................................                      996               -                -
Issuance of 1,000,000 warrants in connection with
  license agreement...................................                  2,294               -                -
Common Stock issued in connection with business
  acquisitions........................................                 11,883               -                -
Other comprehensive income..........................                   -                    -                     (891)
Dividends on redeemable preference shares...........                   -                         (19)        -
Net loss............................................                   -                     (19,601)        -
                                                              -----------------     -------------------  --------------
Balance, December 31, 1997..........................                  109,332                (49,055)             (891)
Exercise of stock options...........................                    1,555               -                -
Exercise of warrants................................                   -                    -                -
Purchases of treasury stock.........................                   -                    -                -
Other comprehensive income..........................                   -                    -                    2,174
Acceleration of stock option vesting................                      276               -                -
Dividends on redeemable preference shares...........                   -                         (24)        -
Net loss............................................                   -                     (23,579)        -
                                                              -----------------     -------------------  --------------
Balance, December 31, 1998..........................             $    111,163       $        (72,658)    $       1,283
                                                              =================     ===================  ==============
</TABLE>


<TABLE>
<CAPTION>

                                                                   Deferred
                                                                 compensation
                                                                   on stock
                                                                   options
                                                                   granted             Total
                                                               ----------------  ------------------

<S>                                                            <C>                 <C>
Balance, December 31, 1995..........................           $         (101)     $         31,902
Secondary public offering of Common Stock,
  $25.00 per share, net of expenses...................             -                         35,783
Repayment of obligations under Section 16(b) of
  the Securities Exchange Act of 1934........                      -                             40
Exercise of stock options...........................               -                            901
Exercise of warrants................................               -                            130
Purchase of treasury stock..........................               -                          (775)
Issuance of 380,952 shares of stock in connection
  with employment agreement..........................              -                          3,000
Amortization of deferred compensation...............                       101                   15
Net loss............................................               -                        (6,806)
                                                               ------------------     ---------------
Balance, December 31, 1996..........................               -                         64,190
Exercise of stock options...........................               -                            743
Exercise of warrants................................               -                            998
Issuance of 1,000,000 warrants in connection with
  license agreement...................................             -                          2,294
Common Stock issued in connection with business
  acquisitions........................................             -                         11,894
Other comprehensive income..........................                                          (891)
Dividends on redeemable preference shares...........               -                           (19)
Net loss............................................               -                       (19,601)
                                                               ------------------     ---------------
Balance, December 31, 1997..........................                                         59,608
Exercise of stock options...........................               -                          1,558
Exercise of warrants................................               -
Purchases of treasury stock.........................               -                        (5,565)
Other comprehensive income..........................                                          2,174
Acceleration of stock option vesting................               -                            276
Dividends on redeemable preference shares...........               -                           (24)
Net loss............................................               -                       (23,579)
                                                               ------------------     ---------------
Balance, December 31, 1998..........................           $   -                  $      34,448
                                                               ==================     ===============



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


</TABLE>

                                       F-5

<PAGE>   43


                    FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                               FOR THE YEARS ENDED,
                                                                                   DECEMBER 31,
                                                                         1998          1997           1996
                                                                     ----------     ----------    ----------
<S>                                                                  <C>           <C>            <C>
Operating activities:
    Net loss  . . . . . . . . . . . . . . . . . . . . . . . . .      $  (23,579)    $  (19,601)    $  (6,806)
    Adjustments to reconcile net loss to net cash used by operating
       activities:
       Depreciation and amortization  . . . . . . . . . . . . .            8,455          2,439           703
       Amortization of deferred financing costs . . . . . . . .              423             74            --
       Amortization of discount on notes payable  . . . . . . .            1,124            364            --
       Noncash compensation expense . . . . . . . . . . . . . .              276             --         3,015
       Noncash warrant issue expense  . . . . . . . . . . . . .               --          2,294            --
    Increase (decrease) in cash resulting from changes in working
       capital items, net of effects of business acquisitions:
       Accounts receivable and other current assets . . . . . .          (1,271)        (2,703)       (2,050)
       Accounts payable and other liabilities . . . . . . . . .              208            873         2,458
                                                                     -----------     ----------    ----------
          Net cash used by operating activities . . . . . . . .         (14,364)       (16,260)       (2,680)
                                                                     -----------     ----------    ----------
Investing activities:
    Decrease (increase) in marketable securities  . . . . . . .           52,939       (28,171)      (45,051)
    Capital expenditures  . . . . . . . . . . . . . . . . . . .          (5,236)       (12,789)       (4,449)
    Acquisitions of businesses, net of acquired cash  . . . . .         (19,654)        (8,021)            --
    Additions to intangibles  . . . . . . . . . . . . . . . . .          (3,474)        (2,403)            --
    Decrease (increase) in other assets . . . . . . . . . . . .            2,763        (2,068)       (1,114)
                                                                     -----------     ----------    ----------
          Net cash provided (used) by investing activities.....           27,338       (53,452)      (50,614)
                                                                     -----------     ----------    ----------
Financing activities:
    Net proceeds from sale of subordinated convertible debentures             --         72,750            --
    Net proceeds from sale of Common Stock  . . . . . . . . . .               --             --        35,824
    Purchases of treasury stock . . . . . . . . . . . . . . . .          (5,565)             --         (775)
    Proceeds from exercise of stock options . . . . . . . . . .            1,558            743           901
    Proceeds from exercise of stock warrants  . . . . . . . . .               --            997           130
    Redemption of preference shares of subsidiary . . . . . . .          (1,159)             --            --
    Net borrowings under line of credit agreements  . . . . . .            (451)        (1,338)            --
    Payments of debt obligations  . . . . . . . . . . . . . . .          (2,976)        (2,283)          (58)
                                                                     -----------     ----------    ----------
          Net cash provided (used) by financing activities.....          (8,593)         70,869        36,022
                                                                     -----------     ----------    ----------
Effect of exchange rate changes on cash . . . . . . . . . . . .            (691)          (891)            --
                                                                     -----------     ----------    ----------
Net increase (decrease) in cash and cash equivalents  . . . . .            3,690            266      (17,272)
Cash and cash equivalents, beginning of period  . . . . . . . .            5,548          5,282        22,554
                                                                     -----------     ----------    ----------
Cash and cash equivalents, end of period  . . . . . . . . . . .            9,238          5,548         5,282

Marketable securities and restricted cash, end of period  . . .           30,649         83,389        55,218
                                                                     -----------     ----------    ----------
Cash, cash equivalents and  marketable securities, end of period      $   39,887      $  88,937     $  60,500
                                                                     ===========     ==========    ==========


Supplemental cash flow disclosures:
    Cash paid for interest  . . . . . . . . . . . . . . . . . .        $   5,452     $      105     $      52
                                                                     ===========     ==========    ==========
    Noncash investing and financing activities:
      Equipment acquired under capital leases . . . . . . . . .        $     893     $              $        
                                                                     ===========     ==========    ==========
      Offering and acquisition costs financed in accounts payable      $      --     $      406     $      --
                                                                     ===========     ==========    ==========
      Common stock issued in connection with business
       acquisitions. . . . . . . . . . . . . . . . . . . . . ..        $      --     $   11,894     $      --
                                                                     ===========     ==========    ==========
      Issuance of installment notes in connection with business and
        product acquisitions, net of discount of $2,082 . . . .        $      --     $   15,437     $      
                                                                     ===========     ==========    ==========
      Accrued dividends . . . . . . . . . . . . . . . . . . . .        $      24     $       19     $      --
                                                                     ===========     ==========    ==========



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

</TABLE>



                                       F-6
<PAGE>   44

                    FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           FOR THE YEARS ENDED

                                                                                DECEMBER 31,
                                                               ----------------------------------------
                                                                     1998          1997         1996
                                                               -----------   ------------   -----------
                   <S>                                         <C>            <C>           <C>
                   Net loss................................     $  (23,579)    $ (19,601)    $ (6,806)

                   Other comprehensive income (loss).......           2,174         (891)            -
                                                                -----------   ------------   ----------
                   Comprehensive loss......................     $   (21,405)   $  (20,492)    $ (6,806)
                                                                ===========   ============   ==========



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


</TABLE>
                                       F-7

<PAGE>   45



                    FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BUSINESS

  Fuisz Technologies Ltd., a Delaware corporation, was formed on June 9, 1988
(Fuisz Technologies Ltd., together with its wholly owned subsidiaries, is
referred to collectively herein as the "Company"). The Company is engaged in
the development, manufacture and commercialization of a wide variety of
pharmaceutical and consumer healthcare products and technologies.  The Company
uses its unique drug delivery technologies, including its CEFORM(TM) and
Shearform(TM) technologies, to conduct research and development activities on
behalf of pharmaceutical and consumer healthcare companies.  Products flowing
from these research and development efforts include drug and consumer
healthcare formulations using the Company's innovative Flash Dose(R), EZ
Chew(R), soft chew and Spoon Dose(R) formats.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

  The consolidated financial statements include the accounts of Fuisz
Technologies Ltd. and its wholly owned subsidiaries.  All significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements.

Reclassifications

  Certain prior period amounts have been reclassified to conform to the current
year presentation.

Foreign currency translation

  The financial statements of the foreign subsidiaries were prepared in their
respective local currencies and translated into U.S. dollars based on the
current exchange rate at the end of the period for the balance sheet and a
weighted-average rate for the period on the statements of operations and cash
flows.  Translation adjustments are reflected as a component of other
comprehensive loss in stockholders' equity and accordingly have no effect on
net loss.  Transaction adjustments for all foreign subsidiaries are included as
part of net loss.

  The Company has made loans to certain of its foreign subsidiaries that are
denominated in U.S. dollars.  Currency gains and losses on loans for which
settlement is planned are included as part of net loss.  Currency gains and
losses on loans for which no settlement is planned are reflected as a component
of other comprehensive loss in stockholders' equity.

Net loss per share

  Basic earnings per share is computed by dividing the net loss available to
common shareholders by the weighted average number of common shares outstanding
during the period.  Diluted earnings per share is computed by dividing net
earnings available to common shareholders by the weighted average number of
common shares outstanding after giving effect to all dilutive potential common
shares that were outstanding during the period.  Potential common shares are
not included in the computation of diluted earnings per share if they are
antidilutive. The Company did not have any dilutive potential common shares for
the years ended December 31, 1998, 1997 and 1996.  Net loss available to common
stockholders was increased by $24,000 and $19,000 for dividends payable on
redeemable preference shares for the years ended December 31, 1998 and 1997,
respectively.  Net loss available to common stockholders was not adjusted for
the year ended December 31, 1996.

Revenue recognition

  Product sales are recognized upon delivery to customers.  Product sales are
recorded net of reserves for returns and discounts. The Company maintains
reserves at a level that management believes is sufficient to cover estimated
future returns and discounts. Research and development fees are deferred and
recognized over the period of performance under the terms of the related
agreements. License and other fees are recognized as revenue pursuant to the
terms of the related agreements.

Cash and cash equivalents

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


                                       F-8

<PAGE>   46

Marketable securities

  Marketable securities consist of direct obligations of the United States
Government and corporations with strong credit ratings with remaining
maturities of one to three years. These investments are considered as
available-for-sale as defined by SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company's investments are held
for an unspecified period of time and are sold to meet its liquidity needs.
Accordingly, the Company has classified these investments as current assets.
In accordance with SFAS No. 115, unrealized gains and losses are shown as a
component of stockholders' equity.  Realized gains and losses were immaterial
in 1998, 1997 and 1996 and are included in interest income.

Concentration of risks

  The Company has invested its excess cash generally in obligations of the
United States Government, commercial paper and money market funds with strong
credit ratings and deposits with a commercial bank. The Company has not
experienced any losses on its investments.  The Company sells its products and
services without requiring collateral.  However, the Company periodically
assesses the financial strength of its customers and collaborative partners and
provides allowances for anticipated losses when necessary. At December 31, 1998
and 1997, the allowance for doubtful accounts totaled $732,000 and $477,000,
respectively.

  The Company derives a significant portion of its consolidated revenues from
its European operations (see Note 16).

  The Company had one customer (13% from Customer A) during 1997 and three
customers (37% from Customer B, 24% from Customer C and 17% from Customer D)
during 1996 that accounted for more than 10% of total consolidated revenues.
No single customer accounted for more than 10% of total consolidated revenues
during 1998.

Inventory

  Inventory is stated at the lower of cost (principally standard cost which
approximates actual cost on a first-in, first-out basis) or market.

Property and equipment

  Furniture and equipment is carried at cost and depreciated using the
straight-line method over estimated useful lives ranging from three to eight
years. Buildings are carried at cost and depreciated using the straight-line
method over estimated useful lives of forty years.  Equipment acquired under
capital leases is recorded at the present value of the lease payments and
amortized over estimated useful lives ranging from three to seven years.
Leasehold improvements are carried at cost and amortized using the
straight-line method over the lesser of the estimated useful life or the
remaining lease term.  Amortization of construction-in-progress will begin when
construction is complete.  Expenditures for maintenance and repairs are charged
to operating expense when incurred. When items are sold or retired, the related
cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in the statement of operations.

Intangible assets

  Goodwill and the cost of acquired trademarks, product licenses and patents
are amortized on a straight-line basis over periods ranging from 5 to 20 years.

Long-lived assets

  The Company periodically evaluates the recoverability of the carrying value
of property and equipment and intangible assets.  The Company considers
historical performance and anticipated future results in its evaluation of
potential impairment.  Accordingly, when indicators of impairment are present,
the Company evaluates the carrying value of these assets in relation to the
operating performance of the business and future and undiscounted cash flows
expected to result from the use of these assets.  Impairment losses are
required to be recognized when the sum of expected future cash flows,
undiscounted, are less than the assets' carrying value.  No such impairment
losses have been recognized to date.  Such losses, if necessary, are measured
based upon the sum of the discounted expected future cash flows compared to the
assets' carrying value.

                                       F-9

<PAGE>   47

Deferred financing costs

  Deferred financing costs associated with the various debt issues are
classified as part of other assets and are being amortized over the terms of
the related debt, using the straight-line method which approximates the
effective interest method.  Amortization of the deferred financing costs is
included in interest expense.

Income taxes

  Deferred income taxes are recognized for the tax consequences in future years
of differences between the financial statement and tax bases of assets and
liabilities at each year-end, based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances have been established to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is the sum
of tax payable for the period and the change during the period in deferred tax
assets and liabilities.

Fair value of financial instruments

  The Company believes that the carrying amount of certain of its financial
instruments, which include cash equivalents, marketable securities, accounts
receivable, accounts payable, accrued liabilities, term loans and installment
notes approximate fair value due to the relatively short maturity of these
instruments.  The fair value of the Debentures (see Note 11) as of December 31,
1998 and 1997 was approximately $81,000,000 and $67,500,000, respectively.

Use of estimates

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

Recent accounting pronouncements

  In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities."  This Statement
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The Company will be required to adopt this new accounting standard beginning
with the quarter ended March 31, 2000.  The Company believes that the effect of
adoption of SFAS No. 133 will not be significant.

3. ACQUISITIONS

  During 1998 and 1997, the Company acquired five companies (the "Acquired
Companies"), each of which has been accounted for as a purchase and,
accordingly, their operating results have been included in the Company's
consolidated financial statements since the respective dates of acquisition.

Fuisz Pharma KG

  Effective February 1, 1998, the Company completed the acquisition of all of
the issued and outstanding equity interests of Dr. Rentschler GmbH & Co.
Medizin KG ("Fuisz Pharma KG"), a subsidiary of Dr. Rentschler Arzneimittel
GmbH & Co., a pharmaceutical sales and distribution company based in Laupheim,
Germany, for an aggregate purchase price of approximately $19.4 million in
cash.  The excess of the aggregate purchase price over the fair market value of
net assets acquired of approximately $15.8 million is being amortized over 15
years.

Istoria Farmaceutici

  In October 1997, the Company acquired substantially all of the outstanding
stock of Istoria Farmaceutici ("Istoria"), a marketer of pharmaceutical
products based in Padova, Italy.  The total consideration consisted of : (i)
94,406 shares of common stock of the Company, valued at a price of $13.17 per
share (based on the weighted average price of shares traded during the period
September 9, 1997 to September 15, 1997) and (ii) $2.2 million in cash, which
includes acquisition costs.  The excess of the aggregate purchase price over
the fair market value of net assets acquired of approximately $2.6 million is
being amortized over 10 years.

                                       F-10

<PAGE>   48
Clonmel Healthcare Limited

  In September 1997, the Company acquired all of the outstanding ordinary share
capital of Clonmel Healthcare Limited ("Clonmel"), a private manufacturer of
branded generic pharmaceutical products in the Republic of Ireland.  The total
consideration of $22.7 million consisted of : (i) one million shares of common
stock of the Company, valued at a price of $10.65 per share (based on the
weighted average price of shares traded from July 25, 1997 to July 31, 1997),
which are subject to a contractual restriction on transfer, (ii) an IR Pound
Sterling 8,510,000 ($12,650,000 at the date of acquisition) non-interest bearing
note due in three installments through January 2000 (the payments of which have
been financed with a bank term loan facility) and (iii) related acquisition
costs.  In addition, $250,000 of contingent consideration was paid to the
seller in 1998 since Clonmel executed certain contracts for the manufacture and
supply of various pharmaceutical products.  The face amount of the installment
note was discounted at a rate of 10%.  The excess of the aggregate purchase
price over the fair market value of net assets acquired of approximately $15.7
million is being amortized over 20 years.

  Redeemable preference shares.  In connection with the acquisition of Clonmel,
the Company assumed the obligation of the 750,000 cumulative redeemable
preference shares of Clonmel.  Cumulative dividends of 3% on 300,000 shares and
6.5% on 450,000 shares were payable annually.  The Company redeemed the shares
in 1998 at a redemption rate of IR Pound Sterling 1 per share plus accrued
dividends.

Pangea, Ltd.

  In May 1997, the Company acquired all of the outstanding capital stock of
Pangea, Ltd. ("Pangea"), a U.S. nationwide marketer of nutritional supplements
and skincare products, for approximately $1.1 million in cash, which includes
acquisition costs.  The excess of the aggregate purchase price over the fair
market value of net assets acquired of approximately $2.0 million is being
amortized over 10 years.

  Prior to the closing of the transaction, one of the Company's directors, who
has since resigned from the Board, was also a director and stockholder of
Pangea.  At the closing, the director received $500,000 of the purchase price
for his Pangea shares and repayment in full of $200,000 in loans to Pangea.  In
addition, the Company's Chairman was also a director of Pangea but received no
compensation with respect thereto.

Laboratoires Murat

  In April 1997, the Company acquired all of the outstanding capital stock of
Laboratoires Murat ("Murat"), a privately-owned pharmaceutical sales and
distribution company based in Paris, France, for an aggregate purchase price of
approximately $5.0 million in cash, which includes acquisition costs.  The
excess of the aggregate purchase price over the fair market value of net assets
acquired of approximately $4.5 million is being amortized over 10 years.

Pro forma information

  The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and the Acquired Companies
(excluding Fuisz Pharma KG) as if the acquisitions had occurred January 1, 1996
(a full year of goodwill amortization and interest cost is included for both
1997 and 1996).  Pro forma information for Fuisz Pharma KG has not been
provided because stand-alone financial information was not produced by the
previous owner of Fuisz Pharma KG for periods prior to the acquisition on
February 1, 1998.

<TABLE>
<CAPTION>

                                                                             (IN THOUSANDS EXCEPT PER
                                                                                  SHARE AMOUNTS)
                                                                             -----------------------------
                                                                                1997               1996
                                                                             ----------         ----------
<S>                                                                            <C>           <C>
  Total revenue..........................................................       $   45,062    $   41,813
  Net loss...............................................................         (22,059)      (10,336)

  Net loss per share (basic and diluted).................................       $   (1.00)    $   (0.50)
</TABLE>

   These unaudited pro forma results have been prepared for comparative
purposes only.   They do not purport to be indicative of the results of
operations which actually would have resulted had the Acquired Companies been
included in the Company's consolidated financial statements as of January 1,
1996.  In addition, they do not purport to be indicative of future consolidated
results of operations of the Company.

                                       F-11

<PAGE>   49




4.  MARKETABLE SECURITIES

    Marketable securities are carried at fair market value and consist of the
    following at December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                                                 (IN THOUSANDS)
                                                                                             ----------------------
                                                                                              1998          1997
                                                                                             ----------  ----------
<S>                                                                                          <C>         <C>
    U.S. Government obligations.......................................................       $   5,090   $   14,213
    Mortgage-backed government securities.............................................           1,309        5,550
    Corporate debt securities.........................................................           5,912       23,929
    Asset-backed securities...........................................................           3,014            -
    Equity securities.................................................................             359            -
    Commercial paper/certificates of deposit..........................................           3,994       29,442
                                                                                             ---------   ----------
                                                                                             $  19,678   $   73,134
                                                                                             =========   ==========
</TABLE>


5. INVENTORY

   Inventory consists of the following at December 31, 1998 and 1997.

<TABLE>
<CAPTION>
                                                                                              (IN THOUSANDS)
                                                                                          -------------------------
                                                                                            1998          1997
                                                                                          ----------    -----------
<S>                                                                                      <C>           <C>
   Raw materials......................................................................     $   2,088    $   1,874
   Work in process....................................................................           694        1,130
   Finished goods.....................................................................         2,290        2,371
                                                                                           ---------   ----------
                                                                                           $   5,072    $   5,375
                                                                                           =========   ==========

</TABLE>

6.  PROPERTY, PLANT AND EQUIPMENT

   Property, plant and equipment, stated at cost, is comprised of the following
   at December 31, 1998 and 1997.

<TABLE>
<CAPTION>
                                                                                               (IN THOUSANDS)
                                                                                           -----------------------
                                                                                             1998           1997
                                                                                           ----------   ----------
<S>                                                                                        <C>          <C>
   Buildings                                                                               $    5,729   $    4,834
   Production and laboratory equipment.................................................        11,422       10,118
   Office furniture, computers and equipment...........................................         3,728        2,442
   Leasehold improvements..............................................................         5,305        1,107
   Construction-in-progress............................................................         6,503        7,510
                                                                                           ----------   ----------
                                                                                               32,687       26,011
   Less accumulated depreciation and amortization......................................       (6,133)      (3,070)
                                                                                           ----------   ----------
                                                                                            $  26,554    $  22,941
                                                                                           ==========   ==========
</TABLE>

  Construction-in-progress consists primarily of costs incurred in connection
with the design and construction of the Company's manufacturing and lab
facilities.  Depreciation expense was $3,004,000, $1,279,000 and $691,000 for
the years ended December 31, 1998, 1997, and 1996, respectively.

7. INTANGIBLE ASSETS

   Intangible assets, stated at cost, consist of the following at December 31,
   1998 and 1997.

<TABLE>
<CAPTION>
                                                                             (IN THOUSANDS)
                                                                      ---------------------------
                                                                         1998           1997        USEFUL LIVES
                                                                      -----------    ------------  --------------
<S>                                                                   <C>           <C>               <C>
    Goodwill.........................................................  $  40,719     $    23,649       10 - 20
    Product licenses/trademarks......................................     21,048          12,016       5 - 10
    Patents and other................................................        284             289       5 - 17
                                                                       ---------     -----------
                                                                          62,051          35,954
    Less accumulated amortization....................................    (6,501)         (1,071)
                                                                       ---------     -----------
                                                                       $  55,550     $    34,883
                                                                       =========     ===========
</TABLE>

  Amortization expense was $5,451,000, $1,160,000 and $12,000 for the years
  ended December 31, 1998, 1997 and 1996, respectively.


                                       F-12

<PAGE>   50

8.  ACCRUED LIABILITIES AND OTHER

    Accrued liabilities and other consists of the following at December 31,
    1998 and 1997.

<TABLE>
<CAPTION>

                                                                                                  (IN THOUSANDS)
                                                                                            ---------------------------
                                                                                                1998           1997
                                                                                            -------------  ------------
<S>                                                                                          <C>           <C>
      Interest payable .................................................................      $    1,144    $   1,090
      Personnel costs  .................................................................           1,609        1,233
      Outside services .................................................................             682        1,081
      Facility .........................................................................             402          188
      Income taxes .....................................................................             361            -
      Other.............................................................................             994          713
                                                                                              ----------    ---------
                                                                                              $    5,192    $   4,305
                                                                                              ==========    =========
</TABLE>


9.  COMMITMENTS AND CONTINGENCIES

Operating leases

  The Company leases certain of its office, laboratory, warehouse and operating
facilities under operating leases which expire at various dates through the
year 2005.  Most of the leases provide the Company with certain early
cancellation rights, as well as renewal options.  The facility leases generally
require the Company to pay for utilities, taxes, insurance and maintenance
costs, in addition to the base rent, which, generally increases by 3% per annum
after the first year.  Total rent expense for facility leases was approximately
$1,334,000, $818,000 and $522,000 for the years ended December 31, 1998, 1997
and 1996, respectively.

  The Company has an $18.0 million equipment leasing line of credit (the
"Equipment LOC") with an outside group of lenders.  The Equipment LOC is
available through June 30, 2000 and provides equipment financing under three or
four year operating leases.  These operating leases provide the Company with
the option after the initial lease term either to purchase the property at the
then fair value or renew its lease at the then fair rental value for a
negotiated renewal term.  The Company has leased certain of its equipment under
this Equipment LOC as well as other operating leases which expire at various
dates through the year 2002.  Total rent expense for equipment leases was
approximately $1,960,000 and $283,000, for the years ended December 31, 1998
and 1997, respectively (1996 was not material).

  Future minimum lease payments required under operating leases as of December
  31, 1998 are as follows:

<TABLE>
<CAPTION>

 YEAR                                                              (IN THOUSANDS)
 ----                                                              --------------
<S>                                                                  <C>
 1999...............................................................  $      4,272
 2000...............................................................         4,281
 2001...............................................................         4,133
 2002...............................................................         2,652
 2003...............................................................         1,172
 Thereafter.........................................................         2,003
                                                                     -------------
    Total........................................................... $      18,513
                                                                     =============
</TABLE>

Capital leases

 The Company also leases certain of its equipment under capital leases.  As of
December 31, 1998 and 1997, property, plant and equipment includes $896,000 and
$251,000, respectively (net of $298,000 and $39,000 of accumulated
amortization) of assets under capital leases.  Future minimum payments under
these capital leases are as follows:

<TABLE>
<CAPTION>

 YEAR                                                              (IN THOUSANDS)
 ----                                                              --------------
<S>                                                                   <C>
 1999...............................................................  $        269
 2000...............................................................           240
 2001...............................................................           236
 2002...............................................................           189
                                                                        -----------
 Total minimum lease payments.......................................           934
 Less amount representing interest..................................          (73)
                                                                        -----------
 Present value of net minimum lease payments........................  $        861
                                                                        ===========
</TABLE>

                                       F-13

<PAGE>   51

Legal proceedings

  In February 1999, the Company brought suit against Elan Corporation, plc
("Elan") for breach of an agreement entered into in December 1998 under which
Elan agreed to pay a fee to the Company for the right, until January 31, 1999,
to conclude  a manufacturing and licensing agreement regarding manufacturing,
as a third party contractor, of certain Company products.

10. LINES OF CREDIT

  Short-term borrowings of $633,000 and $1,042,000 at December 31, 1998 and
1997, respectively, consist of borrowings by subsidiaries located outside the
United States under the terms of lines of credit which allow the subsidiaries
to borrow in the applicable local currency.  These lines of credit total $3.5
million (using exchange rates as of December 31, 1998) and are concentrated in
Ireland, France and Italy.  The lines of credit generally provide borrowing at
the bank reference rate plus 1-2%, which varies depending on the country where
the funds are borrowed.

11. NOTES PAYABLE

    Notes payable consists of the following at December 31, 1998 and 1997:

<TABLE>
<CAPTION
                                                                                        (IN THOUSANDS)
                                                                                   ---------------------------
                                                                                      1998           1997
                                                                                   -----------    ------------
<S>                                                                                <C>           <C>
    Convertible subordinated debentures.........................................   $    75,000    $    75,000
    Term loans, net of discount of $861 in 1997.................................        14,168         12,913
    Installment notes, net of discount of $594 and  $870, respectively..........         2,876          4,747
    Capital leases..............................................................           861            203
                                                                                     ---------     ----------
                                                                                        92,905         92,863
    Less current portion........................................................       (2,266)        (2,679)
                                                                                     ---------     ----------
    Long-term notes payable.....................................................   $    90,639    $    90,184
                                                                                     =========     ==========
</TABLE>

  Convertible subordinated debentures.  On October 22, 1997, the Company
privately placed $75.0 million aggregate principal amount of 7% Convertible
Subordinated Debentures (the "Debentures") due October 15, 2004, which were
resold under Rule 144A and Regulation S of the Securities Act of 1933.  The
Company received net proceeds of approximately $72.8 million related to the
sale of the Debentures.  The Debentures are convertible into the Company's
common stock at the option of the holder at any time at or before maturity,
unless previously redeemed, at $13.25 per share, subject to adjustment upon the
occurrence of certain events.  The Debentures are subordinated to the Company's
present and future Senior Indebtedness (as defined).  The Debentures are
redeemable in whole or in part, at the option of the Company, at 104%, 103%,
102% and 101% in 2000, 2001, 2002 and 2003, respectively.  Interest is payable
semiannually on April 15 and October 15.

  Term loans.  The Company has an IR Pound Sterling 8,451,000 ($12,592,000 and
$11,902,000 as of December 31, 1998 and 1997, respectively) term loan with a
bank in Ireland under which it has financed the installment note obligations in
connection with the 1997 acquisition of Clonmel (see Note 3).  This term loan
is payable at various maturities beginning in June 2000 and ending December
2002 and bears interest at the bank's reference rate plus fees (4.3% at
December 31, 1998).   As collateral for the loan, the Company has pledged
approximately $11.0 million in cash and all of Clonmel's assets.  The cash
which is pledged is shown as restricted cash in the accompanying consolidated
balance sheets.

  The Company has several other term loans, in the aggregate amount of
$1,576,000 and $1,872,000 as of December 31, 1998 and 1997, respectively, with
banks in Ireland, France and Italy.  The other term loans are payable in
quarterly or annual installments plus interest generally at rates ranging from
4.0 - 8.5%.  The other term loans mature at various dates through the year
2002.

  Installment notes.  The Company has an installment note obligation for the
purchase of product and trademark rights, which has been discounted at a rate
of 10%.  The installment note is payable annually and matures in 2001.

  Capital leases.  The Company leases certain of its equipment under capital
leases (see Note 9).

  The weighted average interest rate on all of the above notes payable was 6.7%
at December 31, 1998.  Total long-term debt maturities during each of the four
years ending December 31, 2002 are $2,266,000, $2,087,000, $2,135,000 and
$12,011,000.  No maturities are due in 2003 and the Debentures are due in full
in 2004.

                                       F-14

<PAGE>   52

12.  STOCKHOLDERS' EQUITY

Treasury Stock

  In November 1996, the Company's Board of Directors authorized a stock
repurchase program under which the Company is authorized to repurchase up to
1,000,000 shares of the Company's common stock for reissuance upon the exercise
of employee stock options and for other compensation programs utilizing the
Company's common stock.  During 1996, the Company repurchased 100,000 shares at
a cost of $775,000 under this program. In December 1996, the 100,000
repurchased shares were reissued to an officer/director of the Company in
connection with an employment agreement.  During 1998, the Company repurchased
638,200 shares for $5,565,000.

Accumulated Other Comprehensive Income

  During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income", which requires additional disclosures with respect to certain changes
in assets and liabilities that previously were not required to be reported as
results of operations for the period.  SFAS No. 130 requires unrealized gains
and losses on the Company's available-for-sale securities and foreign currency
translation adjustments to be included in other comprehensive income.

  Components of other comprehensive income (loss), which is included as a
separate component of stockholders' equity consists of the following:

<TABLE>
<CAPTION>


                                                                                     (IN THOUSANDS)
                                                                        -------------------------------------
                                                                           1998           1997          1996
                                                                        ------------  -----------  ----------
<S>                                                                     <C>           <C>         <C>
  Foreign currency translation adjustments                                 $  1,833      $  (891)    $     -
  Change in unrealized gains on marketable securities                           341        -               -
                                                                         ----------   -----------  ----------
                                                                           $  2,174      $  (891)    $     -
                                                                         ==========   ===========  ==========
</TABLE>

13.  CAPITAL STOCK

Options and Stock Purchase Plans

  The Board of Directors has adopted the 1991 Stock Option Plan (the "1991
Option Plan"), the 1994 Stock Incentive Plan (the "1994 Option Plan"), the 1994
Employee Stock Purchase Plan (the "Stock Purchase Plan"), and the 1994 Director
Stock Option Plan (the "Director Option Plan") (collectively, the "Plans")
under which 5,600,000 shares of Common Stock have been reserved for issuance
upon exercise of options granted to officers, employees, directors and
consultants of the Company.

  The Company's 1991 Option Plan provided for formula option awards to
non-employee directors and discretionary awards to employees, consultants,
advisors, officers, or directors of the Company. In May 1994, the Board adopted
and the stockholders of the Company approved the 1994 Option Plan, the Stock
Purchase Plan and the Director Option Plan and provided that no further grants
may be made under the 1991 Option Plan.

  Under the Company's 1994 Option Plan, a variety of awards, including stock
options, stock appreciation rights and restricted and unrestricted stock grants
may be made to the Company's employees, officers, consultants and advisors who
are expected to contribute to the Company's future growth and success. The
Compensation Committee of the Board of Directors administers the 1994 Option
Plan and determines the price and other terms upon which awards shall be made.
Stock options may be granted either in the form of incentive stock options or
non-statutory stock options and are granted at fair market value. Options or
other awards that are granted under the Plan but expire unexercised are
available for future grants.

  Under the Company's Stock Purchase Plan, which has been inactive through
December 31, 1998, employees and officers of the Company are eligible to
participate in semiannual plan offerings in which payroll deductions may be
used to purchase shares of Common Stock. The purchase price of such shares is
85% of the fair market value of the Common Stock at the lower of the value at
either the commencement date or termination date of the offering under the
Stock Purchase Plan.

   The Director Option Plan provides that each new non-employee director first
elected will receive a nonstatutory option to purchase 30,000 shares of Common
Stock upon his or her initial election. In addition, each non-employee director
will receive an annual nonstatutory option to purchase 3,000 shares of Common
Stock under the Director Option Plan during his or her tenure. All options
granted to directors under the Director Option Plan have an exercise price
equal to the fair market value of the Common Stock on the date of grant and
expire the earlier of 90 days after the optionee ceases to serve as a director
of the Company or ten years after the date of grant.  Options granted under the
Director Option Plan are fully vested and are exercisable when granted.

                                       F-15

<PAGE>   53

  Options granted under the 1991 Option Plan and the 1994 Option Plan generally
vest over a two- to four-year period. Options to purchase approximately
2,411,000 and 1,918,000 shares were vested and exercisable at December 31, 1998
and 1997, respectively, with weighted average exercise prices of $7.53 and
$6.12, respectively. The weighted average fair value per share of options
granted during 1998 and 1997 was $7.02 and $4.79, respectively.  Options of
approximately 469,000 shares were available for future grant at December 31,
1998, under all plans. The Company has reserved sufficient shares of Common
Stock for issuance upon exercise of stock options and stock warrants.  Stock
option activity since December 31, 1995 is as follows:


<TABLE>
<CAPTION>
                                                                            1994                       WEIGHTED
                                                 1991          1994       DIRECTOR                     AVERAGE
                                                 STOCK        STOCK         STOCK                      EXERCISE
                                  PRE-PLAN      OPTION      INCENTIVE      OPTION                       PRICE
                                   GRANTS        PLAN          PLAN         PLAN          TOTAL       PER SHARE
                                  ---------     ------      ----------   ----------     ---------    -----------
<S>                              <C>          <C>          <C>           <C>          <C>            <C>
Balance, December 31,. 1995.....    195,900     1,395,916    1,235,277       45,000      2,872,093    $    4.57
     Granted....................         --            --      798,350       15,000        813,350    $   17.94
     Exercised..................  (195,900)     (596,630)     (39,900)           --      (832,430)    $    2.43
     Forfeited..................         --      (39,750)    (345,800)           --      (385,550)    $   16.38
                                 ----------    ----------    ---------    ---------    -----------   
Balance, December 31, 1996......         --       759,536    1,647,927       60,000      2,467,463    $    8.02
     Granted....................         --            --    1,246,175      100,000      1,346,175    $    8.43
     Exercised..................         --     (146,325)     (39,374)     (30,000)      (215,699)    $    3.45
     Forfeited..................         --       (1,125)    (314,834)          --       (315,959)    $   22.32
                                 ----------    ----------    ---------    ---------    -----------   
Balance, December 31, 1997......         --       612,086    2,539,894      130,000      3,281,980    $    7.05
     Granted....................         --            --      830,675       38,000        868,675    $   11.50
     Exercised..................         --      (189,036)    (113,115)     (43,000)      (345,151)   $    4.52
     Forfeited..................         --          (469)    (249,703)      (3,000)      (253,172)   $    8.40
                                 ----------    ----------    ---------    ---------    -----------   
Balance, December 31, 1998......         --       422,581    3,007,751      122,000      3,552,332    $    8.25
                                 ==========    ==========    =========    =========    ===========   ==========


  The following table summarizes additional information about stock options outstanding at December 31, 1998:

</TABLE>

<TABLE>
<CAPTION>
                                              Weighted                                     Weighted
                                              Average       Weighted                        Average
                                             Remaining       Average                       Exercise
         Range of              Number       Contractual     Exercise        Number         Price of
     Exercise Prices         Outstanding        Life          Price       Exercisable     Exercisable
-------------------------   --------------  -------------  ------------  -------------  ----------------
<S>                           <C>             <C>           <C>           <C>            <C>
  $    1.7800 -    2.5000         62,500        2.3          $    1.78         62,500        $    1.78
  $    2.5001 -    5.0000        521,007        5.1               3.47        521,007             3.47
  $    5.0001 -    7.5000        689,670        7.8               7.21        424,125             7.24
  $    7.5001 -   10.0000      1,434,561        7.9               8.36      1,013,191             8.21
  $   10.0001 -   12.5000        228,194        8.3              10.89         99,194            10.76
  $   12.5001 -   15.0000        611,400        9.8              12.76        286,071            12.77
  $   15.0001 -   25.0000          5,000        7.3              25.00          5,000            25.00
                               ---------        ---          ---------      ---------        ---------
                               3,552,332        7.7          $    8.25      2,411,088        $    7.53
                               =========        ===          =========      =========        =========

</TABLE>

  During 1996, the Board of Directors authorized the exchange of 134,800 stock
options originally granted during 1996 under the 1994 Stock Incentive Plan at
exercise prices ranging from $8.00 to $30.25 for 134,800 stock options having
an exercise price of $10.375 and $7.6875, the fair market value on the dates of
exchange.

  During 1997, the Board of Directors authorized the exchange of 287,500 stock
options originally granted during 1996 under the 1994 Stock Incentive Plan at
exercise prices ranging from $15.17 to $25.00 for 287,500 stock options having
an exercise price of $7.25, the fair market value on the date of exchange.


                                       F-16

<PAGE>   54

  The Company has adopted the disclosure-only provisions of SFAS No. 123 as
they pertain to financial statement recognition of compensation expense
attributable to option grants. If the Company had elected to recognize
compensation cost for the 1994 Stock Incentive Plan and the 1994 Director Stock
Option Plan consistent with SFAS No. 123, the Company's net loss and net loss
per share on a pro forma basis would be:

<TABLE>
<CAPTION>
                                                                                           (IN THOUSANDS)
                                                                               ----------------------------------------
                                                                                  1998           1997          1996
                                                                               -------------  -----------  ------------
<S>                                                                           <C>             <C>          <C>
               Net loss as reported.........................................   $   (23,579)    $ (19,601)   $  (6,806)
               Net loss pro forma...........................................       (29,417)      (24,497)     (10,931)
               Net loss per share (basic and diluted) as reported...........         (1.07)        (0.92)       (0.35)
               Net loss per share (basic and diluted) pro forma.............         (1.33)        (1.15)       (0.56)
</TABLE>


  The fair value of each option grant was estimated using the Black-Scholes
option pricing model with the following weighted average assumptions for each
year:

<TABLE>
<CAPTION>
                                                                                   1998           1997          1996
                                                                                  -----------   -----------  -----------
<S>                                                                                 <C>           <C>         <C>
               Risk-free interest rate........................................       5.29%          6.28%        6.33%
               Expected life of options -- years..............................         6.0            6.0          6.0
               Expected stock price volatility................................         60%            50%          70%
               Expected dividend yield........................................         0.0%          0.0%         0.0%

</TABLE>

Warrants

  In connection with the issuance of convertible notes payable in May 1994, the
Company issued warrants to purchase an aggregate of 60,000 shares of Common
Stock. These warrants have an exercise price of approximately $5.30 per share
and expire in May 1999. As of December 31, 1998, all of these warrants are
outstanding. The Company estimated a fair value of $1.24 per share of
underlying Common Stock attributable to these warrants.  No resulting expense
was reflected on the Company's financial statements, as such amounts were
immaterial.

  In connection with a line of credit agreement entered into in October 1995,
the Company issued warrants to purchase 132,000 shares of Common Stock at an
exercise price of $5.00 per share.  As of December 31, 1998, 120,000 of these
warrants are outstanding. The Company estimated a fair value of $1.69 per share
of underlying Common Stock attributable to these warrants.  Because the line of
credit was terminated in December 1995, the resulting expense of $224,000 was
fully amortized to expense during the fourth quarter of 1995.

  In June 1997, the Company entered into a license agreement (the "Agreement")
with ConAgra, Inc. ("ConAgra").  Pursuant to the Agreement, the Company granted
to ConAgra a warrant to purchase one million shares of Common Stock at $25.00
per share.  The warrant became fully exercisable on August 11, 1997 and expires
on August 11, 2007, subject to an early termination date of December 15, 2002
if certain revenue milestones are not achieved.  The Company recorded a noncash
charge equal to the fair value of the warrant of $2.3 million in the third
quarter of 1997.

  All of the warrants issued by the Company contain anti-dilutive provisions
that adjust the number of shares of Common Stock available for purchase under
the warrant or the exercise price, upon the subsequent issuance of certain
equity securities or equivalents below the respective exercise prices of the
warrants. During 1997, warrantholders exercised 194,828 warrants (originally
granted prior to 1994) generating proceeds to the Company of approximately
$997,000. During 1998, warrantholders exercised 12,000 warrants (originally
granted in 1995) resulting in the issuance of 7,025 shares of Common Stock and
the cancellation of 4,975 warrants as payment for the exercise.  At December
31, 1998, warrantholders could purchase an aggregate number of shares of Common
Stock totaling 1,180,000 at exercise prices ranging from $5.00 to $25.00 per
share.

14.  RELATED PARTY TRANSACTIONS

  On December 31, 1998, the Company entered into a stock purchase agreement
(the "Stock Purchase Agreement") to sell all of the issued and outstanding
share capital of FuiszDrugstore.com Ltd. ("FuiszDrugstore"), then a
wholly-owned subsidiary of the Company, to a corporation owned by Richard C.
Fuisz, M.D. ("Dr. Fuisz").  At the Closing, which took place in February 1999,
the Company delivered the shares, which were transferred to RxDrugstore.com
Limited ("RxDrugstore.com") and received consideration of $100,000 in cash and
200,000 shares of common stock of RxDrugstore.com (which represents 5% of the
issued and outstanding shares of common stock of RxDrugstore.com).  The Company
will account for its 5% investment in RxDrugstore.com using the cost method.
Prior to the Closing, FuiszDrugstore was engaged in sales of drugstore products
over the Internet.

                                       F-17

<PAGE>   55


  In connection with the Stock Purchase Agreement, in February 1999, the
Company and a wholly-owned subsidiary of Dr. Fuisz (the "Subsidiary") concluded 
a 20 year license agreement (the "License Agreement"), which grants the
Subsidiary the non-exclusive right to sell Licensed Products (as that term is
defined in the License Agreement) through the Internet.  The license covers all
existing products of the Company as well as certain additional products
developed by the Company over the next four years.  In consideration for the
license, the Company received a non-interest bearing promissory note for $2.4
million, payable by the Subsidiary in four annual installments commencing on
December 31, 1999.

  Dr. Fuisz, a director of the Company, is a director and greater than 10%
stockholder of RxDrugstore.com.  The purchase price was determined by the
Company's management and approved by the Board of Directors.  Dr. Fuisz did not
participate in the determination of the purchase price or the deliberations of
the Board.

15.  INCOME TAXES

  The provision for income taxes for the years ended December 31, 1998, 1997
and 1996 is summarized as follows:

<TABLE>
<CAPTION>

                                                                                         (IN THOUSANDS)
                                                                               ---------------------------------
                                                                                 1998        1997        1996
                                                                               ----------  ---------   ---------
<S>                                                                           <C>          <C>         <C>
                              Current:
                                Federal . . . . . . . . . . . . . . .            $  -         $  -        $  -
                                State . . . . . . . . . . . . . . . .               -            -           -
                                Foreign . . . . . . . . . . . . . . .                162         -           -
                              Deferred:
                                Federal . . . . . . . . . . . . . . .               -            -           -
                                State . . . . . . . . . . . . . . . .               -            -           -
                                Foreign . . . . . . . . . . . . . . .                199         -           -
                                                                                 --------   ---------   ----------
                              Total provision . . . . . . . . . . . .            $   361      $  -        $  -
                                                                                 ========   =========   ==========
</TABLE>


  The tax effects of the temporary differences giving rise to the Company's
deferred taxes at December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                                                            (IN THOUSANDS)
                                                                                ---------------------------------
                                                                                        1998              1997
                                                                                -----------------   -------------
<S>                                                                           <C>                <C>
                             Net operating loss carryforwards................  $       31,407     $     21,012
                             General business credit carryforwards...........             204              204
                             Other...........................................              92            1,181
                             Valuation allowance.............................        (31,703)         (22,397)
                                                                                  -----------      ------------
                                  Net deferred taxes.........................  $           --     $         --
                                                                                  ===========      ============
</TABLE>

  Realization of net deferred tax assets at the balance sheet dates is
dependent on the Company's ability to generate future taxable income which is
uncertain. Accordingly, a full valuation allowance was recorded against these
assets as of December 31, 1998 and 1997.

   As of December 31, 1998, the Company has available net operating loss
carryforwards of approximately $83,408,000 and general business credit
carryforwards of $204,000. These loss and credit carryforwards expire at
various dates beginning in 1998. There may be limitations on the annual
utilization of these net operating losses and general business credits as a
result of certain changes in ownership that have occurred since the Company's
inception. The Company's total net operating loss carryforwards include
$15,982,000 related to the exercise of non-qualified stock options.  The tax
benefit of $6,073,000 related to the exercise of these options will be credited
to stockholders' equity when realized.

                                       F-18

<PAGE>   56

  The Company's tax provision for the years ended December 31, 1998, 1997 and
1996 differs from the statutory rate for Federal income taxes as a result of
the tax effect of the following factors:

<TABLE>
<CAPTION>

                                                                             1998          1997        1996
                                                                          ==========   =========== ===========

<S>                                                                      <C>           <C>         <C>
                         Statutory rate  . . . . . . . . . . . .             (34.0)%      (34.0)%    (34.0)%
                         State income taxes, net of federal benefit          (4.0)         (4.0)      (4.0)
                         Permanent differences . . . . . . . . .              0.4           0.6        16.9
                         Foreign taxes . . . . . . . . . . . . .              1.6            -          -
                         Valuation allowance . . . . . . . . . .             37.6          37.4        21.1
                                                                          ----------   ----------- -----------
                         Effective tax rate  . . . . . . . . . .              1.6 %          -           -
                                                                          ==========   =========== ===========

</TABLE>

16.  SEGMENT INFORMATION

  During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 requires the Company to
report financial and descriptive information about its reportable operating
segments.  The accounting policies of the segments are the same as those
described in Note 2, "Summary of Significant Accounting Policies."  Segment
data includes a charge for management fees allocating a portion of corporate
headquarters' costs to each of its operating segments.  The Company is engaged
in the development, manufacture and commercialization of a wide variety of
pharmaceutical and consumer healthcare products.  To achieve these objectives,
the Company has three reportable segments: Pharmaceutical Operations,
Pharmaceutical Research and Development and Consumer Healthcare.

  PHARMACEUTICAL OPERATIONS.  This segment includes the selling and
distribution of a wide variety of pharmaceutical products through five of the
Company's subsidiaries: Fuisz Pharma KG, Murat, Istoria, Pangea and Clonmel.
These companies operate as pharmaceutical marketing and distribution companies
and sell various pharmaceutical products for which they own product marketing
rights through their distribution channels.  This segment also includes the
Company's manufacturing operations, which through December 31, 1998, have
principally taken place at the manufacturing facilities of Clonmel.  The
products sold by this segment are either manufactured by Clonmel or by third
parties contracted by the Company.

  PHARMACEUTICAL RESEARCH AND DEVELOPMENT.  This segment includes research and
development efforts focused on developing pharmaceutical products for the
Company's collaborators as well as Company-funded products for future
collaboration. The Company's collaborative arrangements typically provide for a
customer-funded development project and contemplate a licensing arrangement
under which, if a product is commercialized by the collaborative partner, the
Company would receive license fees, royalty payments from product sales and
manufacturing revenue.

  CONSUMER HEALTHCARE.  This segment includes product research and development
efforts primarily focused on developing food and nutraceutical products for the
Company's collaborators as well as the manufacture and sale of such products
through conventional distribution channels.  Through December 31, 1998, this
segment's operations have principally been focused on research and development
activities.  The Company's collaborative arrangements are structured similar to
those of the Pharmaceutical Research and Development segment.

                                       F-19

<PAGE>   57

  Segment information for 1998, 1997 and 1996 is as follows:

<TABLE>
<CAPTION>

                                                         (IN THOUSANDS)
                          ---------------------------------------------------------------------------
                                                PHARMACEUTICAL
                           PHARMACEUTICAL        RESEARCH AND         CONSUMER
                             OPERATIONS          DEVELOPMENT         HEALTHCARE           TOTAL
                          -----------------   ------------------  ------------------  ---------------
<S>                             <C>                 <C>                <C>              <C>
 Revenues:
    1998                         $  47,898            $  11,617          $  1,704         $   61,219
    1997                            11,968                6,389             3,841             22,198
    1996                                 -                7,227             1,299              8,526
 ----------------------------------------------------------------------------------------------------
 Net operating loss:
    1998                           (1,249)             (15,287)           (3,709)           (20,245)
    1997                           (1,519)             (16,958)           (2,647)           (21,124)
    1996                                 -              (8,630)           (1,149)            (9,779)
 ----------------------------------------------------------------------------------------------------
 Identifiable assets(1):
    1998                            84,040               61,696                 -            145,736
    1997                            58,644              111,476                 -            170,120
    1996                                 -               69,083                 -             69,083
 ----------------------------------------------------------------------------------------------------
 Depreciation and
      amortization(1):
    1998                             6,263                2,192                 -              8,455
    1997                             1,430                1,009                 -              2,439
    1996                                 -                  703                 -                703
 ----------------------------------------------------------------------------------------------------
 Capital expenditures(1):
    1998                             3,048                2,188                                5,236
    1997                             5,911                6,878                 -             12,789
    1996                                 -                4,449                 -              4,449
 ----------------------------------------------------------------------------------------------------

(1)  Asset information for the Consumer Healthcare segment is aggregated with
     the Pharmaceutical Research and Development segment since the Company does
     not produce such information internally by segment.

  Summarized financial information by geographic region for 1998, 1997 and 1996 is as follows:

</TABLE>

<TABLE>
<CAPTION>
                                                                                  (IN THOUSANDS)
                                                                     -------------------------------------
                                                                       NORTH
                                                                       AMERICA      EUROPE        TOTAL
                                                                     -----------  -----------  -----------

<S>                                                                 <C>          <C>           <C>
                            Revenues:
                               1998                                  $  19,766     $   41,453   $  61,219
                               1997                                     12,948          9,250      22,198
                               1996                                      8,526              -       8,526
                         -----------------------------------------------------------------------------------
                            Net operating income (loss):
                               1998                                   (20,352)            107    (20,245)
                               1997                                   (19,322)        (1,802)    (21,124)
                               1996                                    (9,779)              -     (9,779)
                         -----------------------------------------------------------------------------------
                            Identifiable assets:
                               1998                                     56,100         89,636     145,736
                               1997                                    107,353         62,767     170,120
                               1996                                     69,083              -      69,083
                         -----------------------------------------------------------------------------------

</TABLE>
                                       F-20

<PAGE>   58
                                EXHIBIT INDEX
<TABLE>
<CAPTION>

                                                                                                      SEQUENTIALLY
          Exhibit                                                                                       NUMBERED
          Number       DESCRIPTION OF EXHIBIT                                                             PAGE
                       ----------------------
<S>                   <C>
          3.1*         Fourth Amended and Restated Certificate of Incorporation of the Registrant, as
                       amended.

          3.2*         Certificate of Amendment of the Certificate of Incorporation of the
                       Registrant.

          3.3*         Amended and Restated Bylaws of the Registrant.

          4.1          Indenture, dated as of October 17, 1997, between the Company and the
                       Bank of New York. (Filed as Exhibit 4.2 with the Company's
                       registration statement on Form S-3, Registration No.
                       333-41037).

          4.2          Registration Rights Agreement, dated as of
                       October 22, 1997, by and among the Company, Smith Barney
                       Inc., Credit Suisse First Boston Corporation and Lehman
                       Brothers, Inc. (Filed as Exhibit 4.3 with the Company's
                       registration statement on Form S-3, Registration No.
                       333-41037).

          10.1*#       1991 Stock Option Plan.

          10.1A*#      Amendment to 1991 Stock Option Plan.

          10.2*#       1994 Stock Incentive Plan, as amended.

          10.3*#       1994 Director Stock Option Plan, as amended.

          10.4*#       1994 Employee Stock Purchase Plan, as amended.

          10.5*        Warrants issued to Edgewater Private Equity Fund L.P. and John
                       Pappajohn, dated June 14, 1994.

          10.6*        1995 Common Stock Purchase Warrants.

          10.7*        Lease Agreements between Avion (Fairfax) Associates, L.P. and the
                       Company, each dated December 10, 1993.

          10.8*        Lease Agreement by and between Avion (Fairfax) Associates, L.P. and
                       the Company, dated July 19, 1995.

          10.9++       Sublease Agreement by and between Global Mail, Ltd. and the Company,
                       dated February 10, 1997.

          10.10*#      Employment Agreement between Patrick D. Scrivens and the Company,
                       dated October 19, 1994. (Filed as Exhibit 10.20 with the Company's
                       registration statement on Form S-1, Registration No. 33-99092).

          10.11+#      Employment Agreement between Kenneth W. McVey and the Company, dated
                       December 16, 1996.

          10.12+#      Employment Agreement between Michael Myers and the Company, dated
                       October 24, 1995.

          10.13++      Lease Agreement by and between Avion (Fairfax) Associates, L.P. and
                       the Company, dated January 17, 1997.

          10.14++      Stock Purchase Agreement for the Acquisition of Pangea,
                       Ltd., dated 10.14 May 20, 1997.

          10.15++      Share Purchase Agreement for the Acquisition of Clonmel Healthcare
                       Limited, dated July 29, 1997.

          10.16++      Warrant Agreement with ConAgra, Inc. (to be filed by amendment).

          10.17++#     Amendments to the 1994 Director Stock Option Plan, 1994 Employee
                       Stock Purchase Plan and 1994 Stock Incentive Plan of the Company.

          10.18++      Deed of Lease Agreement by and between Shaw Road Business Park,
                       L.L.C., dated January 30, 1998.

          10.19++#     Executive Management Bonus Incentive Plan.

          10.20#       Form of supplemental Employment Agreement for Michael Myers and S. Rao Cherukuri.

          21.1         Subsidiaries of the Registrant.

          23.1         Consent of PricewaterhouseCoopers LLP

          27.1         Financial Data Schedule.


        * Incorporated by reference to the Company's registration statement on Form S-1, Registration No.
          33-99092.

        # Management contract or compensatory plan.

        + Incorporated by reference to the Company's 1996 annual report on Form 10-K, Comm. File No. 0-27082,
          filed March 31, 1997.

       ++ Incorporated by reference to the Company's 1997 annual report on Form 10-K, Comm. File No. 0-27082,
          filed March 31, 1998.

</TABLE>

===============================================================================
                                      Page 37