<PAGE>


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


                                   Form 10-QSB


/X/      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

                  For the quarterly period ended         June 30, 1999         .
                                                 ------------------------------

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

For the transition period from ______________ to ______________.

                         Commission file number 0-19827

                                  HYMEDIX, INC.
             (Exact name of registrant, as specified in its charter)

                  Delaware                                22-3279252
       (State or other jurisdiction of                (I.R.S. Employer
       incorporation or organization)                 Identification No.)

                    2245 Route 130, Dayton, New Jersey 08810
          (Address of principal executive offices, including zip code)

     Registrant's telephone number, including area code:    (732) 274-2288
                                                         -----------------


Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.

                        Yes   X   No
                             ---     ---

State the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

<TABLE>
<CAPTION>
            Class                        Outstanding as of July 31, 1999
            -----                        -------------------------------
           <S>                           <C>
           Common                                 6,143,548

</TABLE>

Transitional Small Business Disclosure Format (Check one):  Yes      No  X
                                                               ---      ---

                                      -1-
<PAGE>


                          HYMEDIX, INC. AND SUBSIDIARY

                                      INDEX


<TABLE>
<CAPTION>
                                                                                                       Page No.
                                                                                                       --------
<S>                                                                                                    <C>
PART I -     FINANCIAL INFORMATION

             Item 1.  Financial Statements

                      Consolidated Balance Sheets as of June 30, 1999 (Unaudited)
                      and December 31, 1998                                                               3

                      Consolidated Statements of Operations for the Three and
                      Six Months Ended June 30, 1999 and June 30, 1998 (Unaudited)                        4

                      Consolidated Statement of Stockholders' Deficit for the
                      Six Months Ended June 30, 1999                                                      5

                      Consolidated Statements of Cash Flows for the Six Months
                      Ended June 30, 1999 and June 30, 1998 (Unaudited)                                   6

                      Notes to Interim Consolidated Financial Statements                                  7

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

PART II - OTHER INFORMATION

             Item 6.  Exhibits and Reports on Form 8-K                                                   12


SIGNATURES                                                                                               13
</TABLE>


                                      -2-
<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                          HYMEDIX, INC. AND SUBSIDIARY
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                     ASSETS
                                                                       June 30,        December 31,
                                                                        1999               1998
                                                                    ------------       ------------
                                                                    (Unaudited)
<S>                                                                 <C>                <C>
CURRENT ASSETS:
     Cash and cash equivalents                                      $     34,127       $     25,336
     Restricted cash                                                     139,521                  0
     Accounts receivable                                                  69,465                217
     License, royalty and distribution receivable                        110,000             40,000
     Note receivable from related party                                   86,000             46,640
     Inventories, net                                                    169,743            162,546
     Other current assets                                                 20,585             16,814
                                                                    ------------       ------------
         Total current assets                                            629,441            291,553
PROPERTY AND EQUIPMENT, NET                                                1,212              5,255
PATENTS, NET                                                              46,357             62,077
SECURITY DEPOSIT                                                          59,040             59,040
                                                                    ------------       ------------
         Total assets                                               $    736,050       $    417,925
                                                                    ------------       ------------
                                                                    ------------       ------------
                        LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
     Notes payable                                                  $  4,046,979       $  4,046,979
     Accounts payable and accrued expenses                             3,926,834          3,656,599
     Accrued legal judgment and settlement                               367,500            367,500
     Deferred revenue                                                     83,100                  0
                                                                    ------------       ------------
              Total current liabilities                                8,424,413          8,071,078
                                                                    ------------       ------------
ACCRUED LEGAL SETTLEMENT                                                 200,000            200,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
     8% Senior Convertible Preferred Stock, $3.00 par value,
        800,000 shares authorized, 10,190 shares issued and
        outstanding                                                       30,570             30,570
     Preferred Stock, $.01 par value, 3,000 shares authorized,
         150 shares issued and outstanding                                     2                  2
     Common Stock, $.001 par value, 20,000,000 shares
         authorized, 6,143,548 and 5,713,500 shares issued                 6,144              5,713
         and outstanding in 1999 and 1998 respectively
     Additional paid-in capital                                       15,650,343         15,646,474
     Accumulated deficit                                             (22,075,422)       (22,035,912)
     Subscription receivable                                          (1,500,000)        (1,500,000)
                                                                    ------------       ------------
         Total stockholders' deficit                                  (7,888,363)        (7,853,153)
                                                                    ------------       ------------
         Total liabilities and stockholders' deficit                $    736,050       $    417,925
                                                                    ------------       ------------
                                                                    ------------       ------------
</TABLE>

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


                                      -3-
<PAGE>



                          HYMEDIX, INC. AND SUBSIDIARY

                      Consolidated Statements of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                     Three Months Ended                 Six Months Ended
                                                           June 30,                           June 30,
                                                -----------------------------------------------------------------
                                                    1999             1998              1999               1998
                                                -----------       -----------       -----------       -----------
<S>                                             <C>               <C>               <C>               <C>
REVENUES:

     Net product sales                          $   268,635       $   243,175       $   516,497       $   612,223
     License, royalty & distribution fees            70,000            58,095           135,954           112,145
     Research and development contracts              31,250            58,750            72,500           152,500
                                                -----------       -----------       -----------       -----------
         Total revenues                             369,885           360,020           724,951           876,868
                                                -----------       -----------       -----------       -----------

COSTS AND EXPENSES:

     Cost of sales                                   62,966            49,399           149,582           223,513
     Selling, general and administrative            246,497           276,550           528,653           537,815
     Research and development                       108,202           113,212           220,692           234,542
     Reversal of legal judgement                          0                 0                 0          (438,464)
                                                -----------       -----------       -----------       -----------
         Total costs and expenses                   417,665           439,161           898,927           557,406
                                                -----------       -----------       -----------       -----------
         (Loss) income from operations              (47,780)          (79,141)         (173,976)          319,462
                                                -----------       -----------       -----------       -----------

OTHER INCOME (EXPENSE):
     Realized loss on sale of investments                 0           (23,369)                0           (23,369)
     Interest expense                               (75,045)          (74,242)         (149,894)          (93,817)
     Interest income                                      0                93                 0               103
     Other income                                   160,000                 0           284,360                 0
                                                -----------       -----------       -----------       -----------
         Total other income (expense), net           84,955           (97,518)          134,466          (117,083)
                                                -----------       -----------       -----------       -----------
         Net income (loss)                      $    37,175       $  (176,659)      $   (39,510)      $   202,379
                                                -----------       -----------       -----------       -----------
                                                -----------       -----------       -----------       -----------
BASIC INCOME (LOSS) PER
 COMMON SHARE:                                  $     (0.00)      $     (0.04)      $     (0.02)      $      0.02
                                                -----------       -----------       -----------       -----------
                                                -----------       -----------       -----------       -----------

DILUTED INCOME (LOSS) PER
 COMMON SHARE:                                  $     (0.00)      $     (0.04)      $     (0.02)      $      0.02
                                                -----------       -----------       -----------       -----------
                                                -----------       -----------       -----------       -----------


WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING                             6,143,548         5,713,500         5,928,524         5,713,500
                                                -----------       -----------       -----------       -----------
                                                -----------       -----------       -----------       -----------

DILUTED WEIGHTED AVERAGE
   COMMON SHARES OUTSTANDING                      6,143,548         5,713,500         5,928,524         5,713,500
                                                -----------       -----------       -----------       -----------
                                                -----------       -----------       -----------       -----------
</TABLE>


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


                                      -4-
<PAGE>


                          HYMEDIX, INC. AND SUBSIDIARY

                Consolidated Statement of Stockholders' Deficit
                     For The Six Months Ended June 30, 1999
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                   8% Senior                                                               Total
                                                  Convertible                    Additional                               Stock-
                                    Comprehensive Preferred   Preferred  Common   Paid-in      Accumulated  Subscription  holders'
                                        Loss        Stock      Stock     Stock    Capital        Deficit     Receivable   Deficit
                                    -------------  ---------   --------  ------   ---------    -----------   -----------  --------
<S>                                 <C>           <C>         <C>       <C>     <C>          <C>           <C>          <C>
BALANCE AT DECEMBER 31, 1998                       $30,570       $2     $5,713  $15,646,474  $(22,035,912) $(1,500,000) $(7,853,153)
Comprehensive loss:
  First and Second Quarter 1999:
    Net loss                          $(39,510)                                                   (39,510)                  (39,510)
    Common stock issued for warrants                                       431        3,869                                   4,300

                                      --------
Comprehensive loss                    $(39,510)
                                      --------


                                                   -------       --     ------  -----------  ------------  -----------   ----------
BALANCE AT JUNE 30, 1999                           $30,570       $2     $6,144  $15,650,343  $(22,075,422) $(1,500,000)  $7,888,363
                                                   -------       --     ------  -----------  ------------  -----------   ----------
</TABLE>


The accompanying notes to interim consolidated financial statements are an
integral part of this consolidated financial statement.


                                      -5-

<PAGE>


                          HYMEDIX, INC. AND SUBSIDIARY

                      Consolidated Statements Of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                        Six Months Ended
                                                                                             June 30,
                                                                                    -------------------------
                                                                                      1999             1998
                                                                                    ---------       ---------
<S>                                                                                 <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
               Net (loss) Income                                                    $ (39,510)      $ 202,379
                                                                                    ---------       ---------

               Adjustments to reconcile net (loss) income to net cash provided
                    by (used in) operating activities:
                        Depreciation and amortization                                  19,763          27,225
                        Realized loss on sale of investments                                0          23,369

                        (Increase) decrease in:
                             Accounts receivable                                      (69,248)        128,471
                             License, royalty and distribution
                              receivable                                              (70,000)              0
                             Note receivable from related party                       (39,360)              0
                             Inventories, net                                          (7,197)         38,759
                             Other current assets                                      (3,771)         14,778

                        Increase (decrease) in:
                             Accounts payable and accrued expenses                    270,235         (72,560)
                             Accrued legal judgement                                        0        (438,464)
                             Deferred revenue                                          83,100          62,500
                                                                                    ---------       ---------
                                 Total adjustments                                    183,522        (215,922)
                                                                                    ---------       ---------
                                 Net cash provided by (used in)
                                  operating activities                                144,012         (13,543)
                                                                                    ---------       ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
               Proceeds from sale of investments                                            0          60,631

CASH FLOWS FROM FINANCING ACTIVITIES:
               Proceeds from exercise of warrants                                       4,300               0
               Increase in restricted cash                                           (139,521)              0
               Principal repayment of notes payable                                         0         (20,617)
                                                                                    ---------       ---------
                    Net cash provided by (used in) financing activities              (135,221)        (20,617)
                                                                                    ---------       ---------

                    Net increase in cash and cash equivalents                           8,791          26,471

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                         25,336          51,381
                                                                                    ---------       ---------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                            $  34,127       $  77,852
                                                                                    ---------       ---------
                                                                                    ---------       ---------
</TABLE>


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

                                      -6-

<PAGE>


                          HYMEDIX, INC. AND SUBSIDIARY

               Notes to Interim Consolidated Financial Statements


1. MERGER AND REINCORPORATION

         HYMEDIX, Inc. (the "Company") was incorporated in Delaware on December
   20, 1993, as a wholly-owned subsidiary of Servtex International Inc. (the
   "Predecessor"). On February 23, 1994, the Predecessor merged with and into
   HYMEDIX, Inc., and, concurrently, a wholly-owned subsidiary of the
   Predecessor was merged with and into HYMEDIX International, Inc. ("HYMEDIX
   International"), a privately-held Delaware corporation, which resulted in
   HYMEDIX International becoming a wholly-owned subsidiary of HYMEDIX, Inc.
   HYMEDIX International was incorporated in October, 1985 under the name
   Kingston Technologies, Inc.

         The unaudited consolidated financial statements have been prepared
   based upon financial statements of HYMEDIX, Inc. and its wholly owned
   subsidiary, HYMEDIX International, Inc.

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

2. INTERIM FINANCIAL STATEMENTS

         In the opinion of management, the accompanying financial statements of
   the Company reflect all adjustments, consisting of normal recurring accruals,
   necessary to present fairly, in all material respects, the Company's
   financial position as of June 30, 1999 and December 31, 1998 and the results
   of operations and cash flows for the six months ended June 30, 1999 and 1998.
   The results of operations for interim periods are not necessarily indicative
   of the results to be expected for an entire fiscal year.

3. OTHER INCOME

         Substantially all of the other income recorded in 1999 and 1998
   relates to the collection of a receivable previously written off by the
   Company in a prior year.

4. RESTRICTED CASH

         During the second quarter of 1999, a court levy was served against
   the Company due to a legal judgment previously entered against the Company,
   and the cash in the account was frozen by the bank. A settlement was
   reached with the creditor and the account freeze can be removed in a
   few months.


                                      -7-
<PAGE>



5. EARNINGS PER SHARE

              The Company has adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," (SFAS 128), which requires presentation
in the consolidated statements of operations of both basic and diluted earnings
per share. The computation of both basic and diluted earnings per share were as
follows:

<TABLE>
<CAPTION>
                                                         Three Months Ended                  Six Months Ended
                                                              June 30,                            June 30,
                                                     --------------------------------------------------------------
                                                        1999            1998              1999              1998
                                                     ----------      -----------       -----------       ----------
<S>                                                  <C>             <C>               <C>               <C>
Numerator:
     Net income (loss) less preferred dividends
       of $34,361 for the three month periods
       and $68,723 for the six month periods         $    2,814      $  (211,020)      $  (108,233)      $  133,656
                                                     ----------      -----------       -----------       ----------

Denominator:
     Weighted average common
       shares outstanding                             6,143,548        5,713,500         5,928,524        5,713,500
                                                     ----------      -----------       -----------       ----------
BASIC INCOME (LOSS) PER
  COMMON SHARE                                       $     0.00      $     (0.04)      $     (0.02)      $     0.02
                                                     ----------      -----------       -----------       ----------
                                                     ----------      -----------       -----------       ----------
Numerator:
     Net income (loss) less preferred dividends
       of $34,361 for the three month periods
       and $68,723 for the six month periods         $    2,814      $  (211,020)      $  (108,233)      $  133,656
                                                     ----------      -----------       -----------       ----------

Denominator:
     Weighted average common
       shares outstanding                             6,143,548        5,713,500         5,928,524        5,713,500
                                                     ----------      -----------       -----------       ----------
DILUTED INCOME (LOSS) PER
  COMMON SHARE                                       $     0.00      $     (0.04)      $     (0.02)      $     0.02
                                                     ----------      -----------       -----------       ----------
                                                     ----------      -----------       -----------       ----------
</TABLE>


      None of the common shares issuable under the Company's stock option plan,
upon conversion of the preferred stock and convertible bonds or through the
outstanding warrants were included in the above earnings per share calculations
because their inclusion would be anti dilutive for both the six months and the
three months ended June 30, 1999 and 1998, respectively.


                                      -8-
<PAGE>



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

            THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
     OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
     SECURITIES EXCHANGE ACT OF 1934. ACTUAL RESULTS COULD DIFFER MATERIALLY
     FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE
     RISK FACTORS SET FORTH BELOW. THE INDUSTRY IN WHICH THE COMPANY COMPETES IS
     CHARACTERIZED BY RAPID CHANGES IN TECHNOLOGY AND FREQUENT NEW PRODUCT
     INTRODUCTIONS. THE COMPANY BELIEVES THAT ITS LONG-TERM GROWTH DEPENDS
     LARGELY ON ITS ABILITY TO CONTINUE TO ENHANCE EXISTING PRODUCTS AND TO
     INTRODUCE NEW PRODUCTS AND TECHNOLOGIES THAT MEET THE CONTINUALLY CHANGING
     REQUIREMENTS OF CUSTOMERS. WHILE THE COMPANY HAS DEVOTED SIGNIFICANT
     RESOURCES TO THE DEVELOPMENT OF NEW PRODUCTS AND TECHNOLOGIES, THERE CAN BE
     NO ASSURANCE THAT IT CAN CONTINUE TO INTRODUCE NEW PRODUCTS AND
     TECHNOLOGIES ON A TIMELY BASIS OR THAT CERTAIN OF ITS PRODUCTS AND
     TECHNOLOGIES WILL NOT BE RENDERED NONCOMPETITIVE OR OBSOLETE BY ITS
     COMPETITORS.


     OVERVIEW

     HYMEDIX, Inc. ("HYMEDIX") was incorporated in Delaware on December 20, 1993
as a wholly-owned subsidiary of Servtex International Inc. (the "Predecessor").
On February 23, 1994, the Predecessor merged with and into HYMEDIX, Inc. and,
concurrently, a wholly-owned subsidiary of the Predecessor was merged with and
into HYMEDIX International, Inc. ("HYMEDIX International") which resulted in
HYMEDIX International becoming a wholly-owned subsidiary of HYMEDIX. As used in
this Form 10-QSB, unless the context otherwise requires, the term "Company"
collectively means HYMEDIX, HYMEDIX International and their respective
predecessors. HYMEDIX International was incorporated in October, 1985 under the
Kingston Technologies, Inc.


RESULTS OF OPERATIONS

     REVENUES

     The Company's total revenues for the three months and six months ended June
30, 1999 were $369,885 and $724,951, respectively, versus $360,020 and $876,868
for the same periods in 1998; an increase of 2.7% and a decrease of 17.3%,
respectively. The revenue increase in net product sales resulted from a $45,697
increase in net sales of hydrogels and a $2,044 increase in BIONIQ domestic
sales, offset by a $22,281 decrease in BIONIQ export sales during the three
months ended June 30, 1999, compared to the same period of 1998. The decrease in
net product sales of $95,726 for the six months ended June 30, 1999 compared to
the same period of the previous year was due to a decrease of $148,814 in sales
of hydrogels (primarily occurring in the first three months of the period)
offset by a $52,246 increase in BIONIQ export sales, and an $842 increase in
domestic sales of BIONIQ products.

     Revenue from royalty and research and development contracts decreased
$15,595 during the three months ended June 30, 1999, compared to the prior year
period, primarily as the result of an increase of $11,905 royalties contributed
by a major pharmaceutical company and a $27,500 decrease in development
agreements. Royalty and research and development revenues decreased $56,191 for
the six months ended June 30, 1999 from the same period of 1998 primarily the
result of an increase of $23,809 in royalties and a decrease of $80,000 in
development agreements.

     COSTS AND EXPENSES


                                      -9-
<PAGE>

     Cost of sales for the three months and six months ended June 30, 1999 were
$62,966 and $149,582, respectively, versus $49,399 and $223,513 for the same
periods in 1998, an increase of 27.5% and a decrease of 33.1%, respectively. The
increase for the three months ended June 30, 1999 was in proportion to the 10.5%
increase in net product sales and product mix whereas the decrease for the six
months ended June 30, 1999 from the same period of the prior year was
attributable to lower sales, the lower costs due to revisions in the standard
costs of certain products and product mix. Selling, general and administrative
expenses decreased 10.9% and 1.7% to $246,497 and $528,653 respectively, for the
three months and six months ended June 30, 1999 from the same period of 1998.
The decrease was principally due to a reduction in equipment lease, patent and
depreciation expenses. The research and development costs for the three months
and six months ended June 30, 1999 were $108,202 and $220,692, respectively, as
compared to $113,212 and $234,542 for the same periods in 1998, a decrease of
4.4% and 5.9%, respectively, resulting from decreased costs of the research and
development staff.

     LEGAL JUDGMENT

     During the first quarter of 1998, a legal judgment that was previously
accrued for was partially reversed on appeal. Based upon the appeal, the Company
reversed $438,464 of the accrued legal judgment along with the related accrued
interest charges.

     OTHER INCOME (EXPENSE)

     Total other income, for the three months and six months ended June 30, 1999
was $84,955 and $134,466, respectively, versus an expense of $97,518 and
$117,083 for the same periods in 1998, increase of $182,473 and $251,549,
respectively. The increase in other income for the six months ended June 30,
1999 was mainly attributable to a $284,360 collection of a receivable previously
written off by the Company in a prior year, offset by a $56,077 increase in
interest expense from the previous year, which primarily results from the
reversal of approximately $48,000 of interest accrued on a legal judgment
reversed during the first quarter of 1998, and offset by the realized loss on
sales of investments resulting from the decrease value of certain common stock
in 1998 that the Company acquired through a manufacturing and distribution
rights agreement.

     As a result of the decreased costs and increased revenues described above
for the three months ended June 30, 1999 as compared to the same period of the
prior year, the Company recorded income of $37,175 for the three months ended
June 30, 1999, versus a net loss of $176,659 for the same period of 1998. As a
result of the reversal of the legal judgment during the first quarter of 1998,
decreased costs and expenses for the six months ended June 30, 1999 as compared
to the same period of the prior year, the Company incurred a net loss of $39,510
for the six months ended June 30, 1999 as compared to the net income of $202,379
for the same period in 1998.


LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION

     The Company had $34,127 in cash and cash equivalents on hand on June 30,
1999 versus $25,336 on December 31, 1998. The working capital deficit of
$(7,794,972) on June 30, 1999 represents an increase of $15,447 from the
previous year-end deficit level of $(7,779,525). The increase in working capital
deficit was primarily attributable to the net loss incurred in the six-month
period ended June 30, 1999.

     The Company's two term loans, advanced to the Company by licensees pursuant
to license agreements, in the principal amounts of $1,500,000 and $1,000,000,
respectively, each have been classified as current liabilities as they are in
technical default as a result of certain interest payments that have not been
made.


                                      -10-
<PAGE>

     During the first quarter of 1996, the Company issued a convertible bond in
the principal amount of $150,000 (the "September Bond") pursuant to a
Convertible Bond Purchase Agreement effective March 5, 1996, by and among the
Company, HYMEDIX International and Su Chen Huang. The September Bond bears
interest at a rate of 7% per annum and matured (after being extended) on March
31, 1998. The Company is negotiating to extend the due date of the bond. The
September Bond is convertible in whole at any time prior to payment or
prepayment into one hundred fifty thousand (150,000) shares of common stock of
the Company. Interest on the September Bond is payable at maturity or upon
prepayment or conversion thereof.

     In April of 1996, the Company issued convertible bonds in the aggregate
principal amount of approximately $981,000 (the "June Bonds") pursuant to a
Convertible Bond Purchase Agreement effective February 27, 1996, by and among
the Company, HYMEDIX International, First Taiwan Investment and Development,
Inc. and the Purchasers (as defined therein). The June Bonds bear interest at a
rate of 7% per annum and matured (after being extended) on March 31, 1998. The
Company is negotiating to extend the due date of the bond. The June Bonds are
convertible in whole or in part at any time prior to payment or prepayment into
one thousand (1,000) shares of common stock for the Company for each one
thousand dollars ($1,000) of principal amount outstanding. Interest on the June
Bonds is payable at maturity or upon prepayment or conversion thereof.

     Both the June Bonds and the September Bond are structured in such a way as
to permit the Company, subject to certain terms and conditions, including
approval of the Bondholders (as thereinafter defined), to make withdrawals from
a special account (the "Special Account") up to the principal amount of the
bonds on a periodic basis and to require the Company to reduce the amount
withdrawn with respect to the Special Account by making payments into the
Special Account. As of June 30, 1999, the Company had made various withdrawals
from and repayments to the Special Account.

     Pursuant to a Security Agreement dated as of August 8, 1996, by and among
the Company and the Bondholder Representative (as defined therein), in order to
induce the Purchasers and Su Chen Huang (collectively, the "Bondholders") to
approve future withdrawals by the Company from the special account, the Company
granted to the Bondholder Representative, for the ratable benefit of the
Bondholders, a security interest in all of the Company's assets and properties.

     In June of 1997, the Company received a payment of a $100,000 refundable
deposit from a potential distributor with whom the Company has reached an
agreement in principle regarding certain aspects of the Company's consumer skin
care business. The Company has agreed to grant the distributor an option to
negotiate an agreement with the Company with respect to the Company's skin care
product in certain territories or to match the terms of any such agreement that
the Company may negotiate with a third party, on a right-of-first refusal basis.
This option expires on the earlier of June 30, 2001 or the date on which the
Company reaches any such third party agreement. The $100,000 deposit would be
refundable to the distributor in the even any such third party agreement is
consummated or creditable against amount payable under any definitive agreement
between the Company and this distributor. This option is subject to negotiation
and execution of a definitive agreement regarding this matter.

     Management believes that the Company will have adequate resources to
finance its operations in 1999. On April 29, 1998 the appellate court reversed
$438,464 of the legal judgment against the Company but affirmed the remaining
$367,500 against the Company. If the Plaintiff moves to collect on the judgment,
the Company must attempt to finance both its operations and satisfaction of the
judgment. Management believes this will be difficult. In addition, the Company's
secured convertible bonds are both past due, and while the Company is managing
to make some payments on past due interest and principal, there is no assurance
that sufficient funds will be available to the Company to service these debts
and to continue its operations. Management plans to continue to seek and
evaluate financing alternatives for the Company. In the event that cash flow
from operations and the anticipated proceeds from the financing, if any, are not
sufficient to fund the


                                      -11-
<PAGE>

Company's operations in 1999, there is no assurance that other sources of funds
will be available to the Company.

YEAR 2000 COMPLIANCE

     The Company's current information and computer systems will be affected by
the Year 2000 issue ("Y2K"), which refers to the inability of computerized
systems to process dates beyond December 31, 1999. The Company is formulating a
Y2K Plan to address the Company's Y2K issues. Based on its current assessments
from the Y2K Plan, the Company does not expect at present that it will
experience a disruption of its operations as a result of the change to the new
millennium.

     Based upon a preliminary review of systems, the Company estimates that the
total cost of achieving Y2K readiness for the Company's internal systems and
equipment will be less than $10,000. Since no significant issues have arisen
based on the Company's preliminary assessments, the Company has not yet
developed a contingency plan to address any material Y2K issues. A contingency
plan, if required, will be developed immediately upon completion of the
Company's assessment.

     The Company is assessing the state of readiness of its major suppliers and
customers through written inquiry and evaluation of responses. The Company
intends to follow up with those suppliers or customers that indicate material
problems. Alternate suppliers or service providers will be identified for those
whose responses indicate an unusually high risk of a Y2K problem. The Company's
evaluation of business processes that are not related to information systems,
and the development of contingency plans where such evaluation identifies a high
risk of a Y2K problem should be completed by the third quarter of 1999. The main
risks associated with the Y2K problem are the uncertainties as to whether the
Company's suppliers can continue to perform their services for the Company
uninterrupted by the Y2K event, and whether the Company's non-retail customers
can continue to operate their business uninterrupted by the Y2K event. Although
the state of readiness of the Company's suppliers and customers will be
monitored and evaluated, and contingency plans will be developed, no assurances
can be given as to the eventual state of readiness of the Company's suppliers
and/or customers. Nor can any assurances be given as to eventual effectiveness
of the Company's contingency plans.

     While the Company continues to believe that the Y2K matters discussed above
will not have a materially adverse impact on the Company's business, financial
condition or results of operations, it is not possible to determine with
certainty whether or to what extent the Company may be affected. The Company has
not developed a reasonably likely worst case scenario with respect to Y2K
problems the Company may encounter.

     The preceding discussion contains forward-looking information within the
meaning of Section 21E of the Exchange Act. This disclosure is also subject to
protection under the Year 2000 Information and Readiness Disclosure Act of 1998,
Public Law 105-271, as a "Year 2000 Statement" and "Year 2000 Readiness
Disclosure" as defined therein. Actual results may differ materially from such
projected information due to changes tin the underlying assumptions.


RISK FACTORS AND CAUTIONARY STATEMENTS

     When used in this Form 10-QSB and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and in oral
statements made with the approval of an authorized executive officer, the words
or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, including those discussed under this caption "Risk
Factors and Cautionary Statements," that could cause actual results to differ
materially from historical earnings and those presently anticipated or


                                      -12-
<PAGE>

projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made, and
wishes to advise readers that the factors listed below could cause the Company's
actual results for future periods to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.

     The Company will NOT undertake and specifically declines any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.

      - The Company's revenues and income are derived primarily from the
development and commercialization of medical and skin care products. The medical
and skin care products industries is highly competitive. Such competition could
negatively impact the Company's market share and therefore reduce the Company's
revenues and income.

      - Competition may also result in a reduction of average unit prices paid
for the Company's products. This, in turn, could reduce the percentage of profit
margin available to the Company for its product sales.

      - The Company's future operating results are dependent on its ability to
develop, produce and market new and innovative products and technologies, and to
successfully enter into favorable licensing and distribution relationships.
There are numerous risks inherent in this complex process, including rapid
technological change and the requirement that the Company develop procedures to
bring to market in a timely fashion new products and services that meet
customers' needs.

      - Historically, the Company's operating results have varied from fiscal
period to fiscal period; accordingly, the Company's financial results in any
particular fiscal period are not necessarily indicative of results for future
periods.

      - The Company may offer a broad variety of products and technologies to
customers around the world. Changes in the mix of products and technologies
comprising revenues could cause actual operating results to vary from those
expected.

      - The Company's success is partly dependent on its ability to successfully
predict and adjust production capacity to meet demand, which is partly dependent
upon the ability of external suppliers to deliver components and materials at
reasonable prices and in a timely matter; capacity or supply constraints, as
well as purchase commitments, could adversely affect future operating results.

      - The Company offers its products and technologies directly and through
indirect distribution channels. Changes in the financial condition of, or the
Company's relationship with, distributors, licensees and other indirect channel
partners, could cause actual operating results to vary from those expected.

      - The Company does business and continues to seek to develop business on a
worldwide basis. Global and/or regional economic factors and potential changes
in laws and regulations affecting the Company's business, including without
limitation, currency exchange rate fluctuations, changes in monetary policy and
tariffs, and federal, state and international laws regulating its products,
could impact the Company's financial condition or future results of operations.

      - The market price of the Company's securities could be subject to
fluctuations in response to quarter to quarter variations in operating results,
market conditions in the medical and skin care products industry, as well as
general economic conditions and other factors external to the Company.


                                      -13-
<PAGE>

PART II - OTHER INFORMATION

Item 3.   Defaults Upon Senior Securities.

          The information regarding the default of certain senior securities of
          the Company is stated in Item 2. Management's Discussion and Analysis
          of Financial Condition and Results of Operations -- Liquidity and
          Capital Resources and is incorporated herein by reference.


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

         (a)   EXHIBITS.

               None

         (b)   REPORTS ON FORM 8-K.

               None.


                                      -14-
<PAGE>


                                   SIGNATURES



      In accordance with the requirements 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.


                                         HYMEDIX, INC.
                                         (Registrant)



Date:  August 13, 1999              By:  /s/ Charles K. Kliment
                                         ---------------------------------------
                                         Charles K. Kliment
                                         President (Principal Executive Officer)





Date:  August 13, 1999              By:  /s/ William G. Gridley, Jr.
                                         ---------------------------------------

                                         William G. Gridley, Jr.
                                         Chairman, Chief Financial Officer,
                                          (Secretary, Treasurer, Principal
                                           Financial Officer and Principal
                                           Accounting Officer), Director


                                      -15-