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

                                   Form 10-KSB

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934 (FEE REQUIRED).

     For the fiscal year ended December 31, 2001.

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934 (NO FEE REQUIRED).

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

Securities registered under Section 12(b) of the Exchange Act:
                                      None

Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, $.001 par value
                          -----------------------------
                                (Title of class)

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

                               Yes [X]   No [ ]

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, 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-KSB or any amendment to
this Form 10-KSB.  [X]

State registrant's revenues for its most recent fiscal year:   $935,014
                                                             -----------

The aggregate market value of the voting stock held by non-affiliates, based
upon the average of the bid and asked price of the Common Stock on March 31,
2002 as reported by The OTC Bulletin Board, was approximately $32,071. Shares of
Common Stock held by each officer and director and by each person who owns 5% or
more of the outstanding Common Stock have been excluded in that such persons may
be deemed to be affiliates for this purpose but not necessarily for other
purposes.

The number of shares of Common Stock outstanding as of March 31, 2002 was
6,143,781.

Transitional Small Business Disclosure Format (Check one):

                               Yes [ ]   No [X]

                       Documents Incorporated by Reference
                       -----------------------------------

         Portions of the Registrant's definitive Proxy Statement to be delivered
to stockholders in connection with the Annual Meeting of Stockholders to filed
with the Securities and Exchange Commission on or before April 30, 2002 are
incorporated by reference into Part III hereof. With the exception of the
portions of such Proxy Statement expressly incorporated into this Annual Report
on Form 10-KSB by reference, such Proxy Statement shall not be deemed filed as
part of this Annual Report on Form 10-KSB.

<PAGE>

                                  HYMEDIX, INC.

                                      INDEX

                                                                        Page No.
                                                                        --------
PART I

     Item 1.      Description of Business                                     1

     Item 2.      Description of Property                                     4

     Item 3.      Legal Proceedings                                           4

     Item 4.      Submission of Matters to a Vote of Security Holders         5

PART II

     Item 5.      Market for Common Equity and Related Stockholder Matters    6

     Item 6.      Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                         7

     Item 7.      Financial Statements                                       13

     Item 8.      Changes In and Disagreements with Accountants on
                  Accounting and Financial Disclosure                        13

PART III

     Item 9.      Directors, Executive Officers, Promoters and Control
                  Persons; Compliance with Section 16(a) of the
                  Exchange Act                                               14

     Item 10.     Executive Compensation                                     15

     Item 11.     Security Ownership of Certain Beneficial Owners
                  and Management                                             17

     Item 12.     Certain Relationships and Related Transactions             18

     Item 13.     Exhibits and Reports on Form 8-K                           20

SIGNATURES                                                                   19

<PAGE>

                                     PART I


Item 1.  Description of Business.

Background

         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 (collectively, the "Acquisition Merger"). The Acquisition Merger was
accounted for as a recapitalization of HYMEDIX International and an acquisition
by HYMEDIX International of the Predecessor using historical values of the
assets and liabilities of the Predecessor. HYMEDIX International was
incorporated in October, 1985 under the name Kingston Technologies, Inc. As used
in this Form 10-KSB, unless the context otherwise requires, the term "Company"
collectively means HYMEDIX, HYMEDIX International and their respective
predecessors.

         The Company has been engaged through the HYMEDIX International
subsidiary, in the development and commercialization of medical and skin care
products based on its proprietary synthetic HYPAN(R) hydrogels and memory
polymers. These hydrophilic polymers are biocompatible and highly versatile, and
enable the Company to develop products and components with advantageous
characteristics for a number of medical and other markets.

Products

         The Company has developed two product lines in the past several years,
a line of synthetic dressings for the treatment of chronic wounds, and a line of
moisturizing creams and gels for the consumer skin care markets. In addition,
the Company has several product development and license agreements with
companies in the fields of drug delivery and permanent implants.

         Wound Care Products

         The Company had developed a line of seven products for the chronic
wound care markets, six of which have received market clearance from the FDA,
and one of which does not require FDA clearance. In November, 1995, the Company
entered into an agreement with ProCyte Corporation ("ProCyte") granting it a
license to make, have made, use and sell products for the wound care field using
the Company's HYPAN(R) technology. ProCyte modified one of the Company's wound
care products, and has introduced it to the market. In late 1997, the ProCyte
license agreement was modified to limit its rights to that specific product. The
Company has been seeking a new marketing partner or licensee for its remaining
wound care products and additional products.

         Skin Care Products

         The Company has developed a line of moisturizing creams and gels based
on the emulsifying capabilities of its hydrophilic polymer systems and has
introduced them to the United States market under the trade name BIONIQ(R). The
<PAGE>

Company has also introduced a similar line of skin care products to Asian
markets through a marketing partner. Until February 1997, the Company's
principal means of distribution of BIONIQ(R) products was direct response
television. When the monthly volume of direct response television sales did not
meet the marketing company's expectations, direct response selling was
discontinued. While continuing to seek another means of distribution, the
Company sells a small amount of BIONIQ(R) products itself on the internet and by
responding to telephone orders. The BIONIQ(R) product line presently consists of
Body Therapy(TM), a moisturizing lotion; Replenishing Complex(TM), a
moisturizing gel; Facial Formula(TM) (Dry/Normal) and Facial Formula(TM)
(Normal/Oily), facial creams; Hydrating Cleanser(TM) (Dry/Normal) and Clarifying
Cleanser(TM) (Normal/Oily), facial cleansers; Cucumber Refining Solution(TM)
(Dry/Normal) and Tropical Refining Solution(TM) (Normal/Oily), facial toners;
and Baby Therapy(TM), a body lotion for babies. The Company has been exploring
other marketing channels for BIONIQ(R), including other direct selling methods.

         Research & Development Contracts

         The Company has been working on the development of products for other
medical products companies under several R&D contracts. In 1991, the Company
entered into a three year development agreement with a major private U.S.
medical products company for medical products using HYPAN(R) hydrogels in areas
other than wound care. This medical products Company's primary focus has been on
certain types of drug delivery and permanent implants. The Company's HYPAN(R)
polymers are presently being evaluated for controlled release of wound healing
agents, certain types of OTC products, embolic agents, thermo-reversible gels
for various uses, for gastro-intestinal products and for certain ophthalmic
applications.

         License Agreements

         The Company has an Option and License Agreement for the intraocular
Memory Lens(TM) with the Mentor Corporation. The Memory Lens has been on the
market in Europe since 1995, and at the beginning of 1998 gained FDA approval
for sales in the U.S. market. The Company received royalty payments from the
sales of the Memory lens world-wide. During 1999, the Company transferred all
rights, title, and interest to the patent rights, as defined, to Mentor
Corporation's successor for a one-time payment of $1,450,000. The full amount
has been received by the Company as of December 31, 1999. Due to the fact that
the Company has not satisfied all of its obligations under the agreement, as
defined, a portion of the proceeds was recorded as deferred income. The Company
also has license agreements for a HYPAN(R) spinal disc replacement, HYPAN(R)
particles as embolic agents and HYPAN(R) guidewires and catheters, and a HYPAN
gastric implant to prevent an acid reflux.

         Specialty Chemicals

         Since 1988, the Company has sold HYPAN(R) hydrogels to the cosmetics
and personal care industry (the "Trade") through a marketing partner, LIPO
Chemicals, Inc. ("LIPO"). The Company signed a new Marketing and Distribution
Agreement with LIPO Chemicals, Inc. on December 22, 1998, pursuant to which LIPO
will retain its exclusive distribution rights worldwide, and the rights to
manufacture two grades of HYPAN TN polymers, while the Company kept the rights
to manufacture all the other grades. During the second quarter of 2001, in order
to raise cash to continue the Company's operations, an agreement was signed
between the Company and the sole distributor of the Company's hydrogels in
cosmetics and personal care products for the buy out of the marketing and
distribution agreement signed previously between the Company and the sole

                                       2
<PAGE>

distributor ( the "Buy Out Agreement"). Pursuant to the Buy Out Agreement, the
sole distributor received a perpetual global and exclusive license for the
manufacture and sale of all grades of HYPAN in the cosmetics and personal care
industries and a complete technology transfer. The Company is required to assign
to the sole distributor its HYPAN trademarks for use in the cosmetics and
personal care industries. In addition, the Company is required to transfer all
existing hydrogel inventories related the the Buy Out Agreement. The Company is
also supplying special grades of HYPAN(R) polymers for photographic products,
for maritime sensors and for specialty filters.

Regulatory Approvals

         The Company's products are subject to extensive regulation by U.S. and
foreign governmental authorities for efficacy, safety and quality. For U.S.
regulatory purposes, it is anticipated that most of the Company's products
(other than cosmetics and toiletries products) will be deemed medical devices
under the Federal Food, Drug and Cosmetic Act (the "FFDCA") although some
products may be treated as pharmaceutical agents (drugs) under the FFDCA,
depending on their intended use and applicable regulatory policies.

Technology and Patents

         The Company has developed several families of patented synthetic
hydrogels (i.e., hydrophilic polymer systems which do not dissolve in water)
which can be used in a broad range of medical and other applications. These
multi-block copolymers are tradenamed HYPAN(R), an acronym for hydrolyzed
polyacrylonitrile (PAN). In addition to HYPAN(R) hydrogels, the Company has
developed temperature activated polymer systems with precise inherent shape
memories.

         The Company's polymers, the processes for making them and a number of
specific products and applications are covered by U.S. and foreign patents. Most
of the polymers currently used in the Company's products are covered under
patents issued or filed since 1990. These polymers have been extensively tested
for biocompatibility by both the Company and its licensees.

Competition

         The Company is engaged in highly competitive markets for its products,
most of the competitors having substantially more resources than HYMEDIX.

Manufacturing and Raw Materials

         The Company's principal raw materials are Polyacrylonitrile (PAN) and a
variety of other readily available chemicals.

         Recently, the Company has stopped the manufacture of HYPAN(R) materials
and moved its production equipments to a public storage because of the likely
eviction by its landlord.

                                       3
<PAGE>

Employees

         The Company has temporaily laid off all its employees except three (3)
people, two (2) of whom are engaged in management, marketing and administration
and one (1) in research and product development. None of the Company's personnel
are represented by a union.

Item 2.  Description of Property.

         The Company has been renting approximately 22,000 square feet of
office, laboratory and manufacturing space at 2245 Route 130 in Dayton, New
Jersey under a lease with annual rental of approximately $354,000 per year
(excluding utilities). The lease expires on June 30, 2003. At this facility the
Company was able to manufacture approximately 5 tons of HYPAN(R) a year (enough
annual capacity for the foreseeable future). The facility also provided all of
the Company's office and laboratory space requirements.

         In February, 2002, the Company's landlord filed a Landlord-Tenant
action against the Company. At a hearing at Court on February 20, 2002, the
parties reached an accommodation as a Consent to Enter Judgement and the Company
agreed to pay installments every two weeks until all arrearages are paid.
Failure to pay will result in automatic eviction within days. The Company's
management indicates inability to make payments and eviction is likely.

Item 3.  Legal Proceedings.

         The Company's former President filed a claim against the Company, the
Company's Directors and Kingston Technologies Limited Partnership (a
stockholder). The complaint, filed in September 1993, alleged that the Company
wrongfully terminated the former President, that he was owed $367,500 in
deferred compensation and $74,500 in back salary and that approximately $323,000
was owed him based on his claim that an agreement signed by him was signed under
duress and is, therefore, void. The Company filed an answer denying most of the
former President's claims for relief. The Company paid $74,500 in 1994 resulting
in the parties settling the claim regarding back salary. In July 1996, a
judgement was rendered against the Company in the amount of $805,964 plus
interest in connection with this case. In April 1998, $438,464 of the judgement
was reversed on appeal. The $367,500 claim for deferred compensation was
affirmed by the Appellate Court. Accordingly, the Company reversed $438,464 of
the accrued legal judgement plus related accrued interest in 1998. In July 1999,
the Company reached an agreement to reduce the judgement to $350,000 with the
forgiveness of all accrued interest, to be paid in monthly payments over the
next four years. During the year ended December 31, 2001, 2000 and 1999,
$75,000, $75,000 and $80,000 was paid, respectively. The agreement stipulates
that if any monthly payments are in default, as defined, the judgement will
revert back to $367,500 with full payment of accrued interest. The Company has
not reflected the reduction in the judgement and accrued interest as of December
31, 2001, due to the Company's financial condition. The Company has accrued the
affirmed judgement plus interest in the accompanying consolidated financial
statements as of December 31, 2001.

         An individual filed a complaint against the Company alleging that the
Company owed him eight percent of all monies invested in the Company as a result
of his contacts. The complaint alleged that the Company owed him approximately
$5,000,000 and warrants to purchase the Company's common stock. In December
1998, a settlement agreement was signed by the individual, the Company and First

                                       4
<PAGE>

Taiwan and its affiliates. The Company agreed to pay the individual $200,000
plus interest over a thirty-six month period commencing January 1, 2000. In
January 2000, the full amount of $200,000 was paid. In addition, the Company
agreed to issue warrants to purchase the equivalent of seven percent of the
issued and outstanding common stock of the Company as of November 30, 1998
(430,048) giving effect to an inclusion of the common stock underlying the
warrants as though all the warrants issued under the settlement were fully
exercised. The warrants may be exercised by the individual, in whole or in part
or parts at any time during a ten year period commencing January 23, 1999 and
ending on January 22, 2009, and have an exercise price of $.01 per warrant. The
warrants and the common stock issued provide for an anti-dilution adjustment in
the event of any change in the capitalization of the Company which would
otherwise dilute the warrants of the common stock. The Company valued the
warrants at their estimated fair value of $4,300 using the Black Scholes method.
Such warrants were exercised during 1999 for $4,300.

         The settlement agreement also provides the Company the option to
purchase all or part of the warrants and the common stock issued to the
individual pursuant to the settlement agreement if the market capitalization of
the Company exceeds $15,000,000.

         In February, 2002, the Company's landlord filed a Landlord-Tenant
action against the Company. At a hearing at Court on February 20, 2002, the
parties reached an accommodation as a Consent to Enter Judgement and the Company
agreed to pay installments every two weeks until all arrearages are paid.
Failure to pay will result in automatic eviction within days. The Company's
management indicates inability to make payments and eviction is likely.

         On March 19, 2002 the landlord filed a civil action for many damages,
attorney fees, and costs. The Company has elected not to defend. Judgment in the
amount of about $175,000 is inevitable.

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

         There were no matters submitted to a vote of security holders during
the period October 1, 2001 through December 31, 2001.

                                       5
<PAGE>

                                     PART II

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

         The Predecessor's Common Stock had been listed and traded on the Nasdaq
National Market since January 30, 1992 upon the closing of the Predecessor's
initial public offering. The Predecessor's Common Stock was delisted from
trading on the Nasdaq National Market on October 21, 1993, due to its failure to
meet the Nasdaq National Market listing maintenance requirements. After the
Acquisition Merger, the common stock was accepted for listing on the Nasdaq
SmallCap Market under the symbol HYMX. During the third quarter of 1994, the
Company's total stockholders' equity fell below the minimum necessary to
maintain its listing on the Nasdaq SmallCap Market. Consequently, Nasdaq
delisted the common stock from the Nasdaq SmallCap Market on October 27, 1994.
HYMEDIX shares are currently quoted and continue to be traded on The Over The
Counter ("OTC") Electronic Bulletin Board under the symbol HYMX.

         The following table sets forth the range of the high and low bid prices
for each of the Company's foregoing securities as reported by The OTC Bulletin
Board for the eight quarterly periods ended December 31, 2001.


                                                          Common Stock
                                                       ------------------
         Period                                         High         Low
         ------                                        ------      ------

         2000:
         ----
                1st quarter                            $ 0.08      $ 0.04
                2nd quarter                              0.09        0.08
                3rd quarter                              0.10        0.09
                4th quarter                              0.11        0.07

         2001:
         ----
                1st quarter                            $ 0.09      $ 0.07
                2nd quarter                              0.08        0.06
                3rd quarter                              0.07        0.05
                4th quarter                              0.05        0.03


         The stock price ranges represent the high and low bid quotations as
listed by The OTC Bulletin Board and reflect inter-dealer prices without retail
mark-up, mark-down, or commission and may not necessarily represent actual
transactions.

         As of the close of business on March 31, 2002, there were 122 holders
of record of the Company's Common Stock. The Company believes that it had
approximately 400 beneficial owners of such securities as of such date.

         The Company has paid no cash dividends in respect of its Common Stock
and the Company has no intention to pay cash dividends in the foreseeable
future.

                                       6
<PAGE>

Item 6.  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, the Company currently has very limited resources, and will likely
suffer eviction by the landlord, and 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 (collectively, the "Acquisition Merger"). The Acquisition Merger was
accounted for as a recapitalization of HYMEDIX International and an acquisition
of the Predecessor by HYMEDIX International using historical values of the
assets and liabilities of the Predecessor. As used in this Form 10-KSB, 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 name Kingston Technologies, Inc. In
February, 1994, at the time of the Acquisition Merger, the Company raised
approximately $3.6 million net proceeds from the private placement of common
stock and warrants (the "Private Placement").

         Recently Issued Accounting Standards

         In June 2001, SFAS No. 141, "Business Combinations" was issued. SFAS
No. 141, which is effective for acquisitions initiated after June 30, 2001,
prohibits the use of the pooling-of-interests method of accounting for business
combinations and amends the accounting and financial reporting requirements for
business combinations. This accounting pronouncement did not have an impact on
the Company's consolidated financial position or results of operations.

         In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
issued. SFAS No. 142, addresses financial accounting and reporting for acquired
goodwill and other intangible assets. Among other things, SFAS No. 142 requires
that goodwill no longer be amortized, but rather tested annually for impairment.
This statement is effective for fiscal years beginning after December 15, 2001.
Accordingly, the Company will adopt SFAS No. 142 effective fiscal 2002. This
accounting pronouncement is not expected to have a significant impact on the
Company's consolidated financial position or results of operations.

                                       7
<PAGE>

Results of Operations

         Revenues

         The Company's total revenues for the fiscal year ended December 31,
2001 were $935,014, versus $767,194 for the fiscal year ended 2000, an increase
of 21.9%. The increased revenues for fiscal year 2001 from the previous year
primarily results from (i) an increase of $431,451 in right, license, and
royalty fees; (ii) a decrease of $216,131 in net product sales; and (iii) a
decrease of $47,500 in research and development fees. The decrease in net
product sales is primarily resulted from the "Buy Out Agreement" as described in
Notes to Consolidated Financial Statements, and the increase in right, license
and royalty fees primarily as the result of the "Buy Out Agreement" mentioned
earlier.

         For the years ended December 31, 2001 and 2000, two of the Company's
product lines encompassed over 99% of net product sales. For the year ended
December 31, 2001, two of the Company's customers accounted for 68% and 19% of
the total revenues. For the year ended December 31, 2000, two of the Company's
customers accounted for 42% and 32% of the total revenues.

         Costs and Expenses

         Cost of sales for the fiscal year ended December 31, 2001 was $136,404
versus $169,809 for fiscal year 2000, a decrease of 19.7%. The decrease in cost
of sales was attributable to the lower sales, offset by lower margin, and the
$25,000 inventory reserve established for aged HYPAN(R) products. Selling,
general and administrative expenses for fiscal year ended December 31, 2001 was
$808,857 versus $938,770 for the fiscal year ended 2000, a decrease of 13.8%.
The decrease was principally due to lower employee related expenses. Research
and development costs for fiscal year were $299,126 versus $378,730 for fiscal
year 2000, a decrease of 21.0%, resulting from the decreased costs of the
research and development staff.

         Legal Judgment and Settlement

         The Company's former President filed a claim against the Company, the
Company's Directors and Kingston Technologies Limited Partnership (a
stockholder). The complaint, filed in September 1993, alleged that the Company
wrongfully terminated the former President, that he was owed $367,500 in
deferred compensation and $74,500 in back salary and that approximately $323,000
was owed him based on his claim that an agreement signed by him was signed under
duress and is, therefore, void. The Company filed an answer denying most of the
former President's claims for relief. The Company paid $74,500 in 1994 resulting
in the parties settling the claim regarding back salary. In July 1996, a
judgment was rendered against the Company in the amount of $805,964 plus
interest in connection with this case. In April 1998, $438,464 of the judgement
was reversed on appeal. The $367,500 claim for deferred compensation was
affirmed by the Appellate Court. Accordingly, the Company reversed $438,464 of
the accrued legal judgement plus related accrued interest in 1998. In July 1999,
the Company reached an agreement to reduce the judgement to $350,000 with the
forgiveness of all accrued interest, to be paid in monthly payments over the
next four years. During the year ended December 31, 2001, 2000 and 1999, $75,000
$75,000 and $80,000 was paid, respectively. The agreement stipulates that if any

                                       8
<PAGE>

monthly payments are in default, as defined, the judgement will revert back to
$367,500 with full payment of accrued interest. The Company has not reflected
the reduction in the judgement and accrued interest as of December 31, 2001 due
to the Company's financial condition. The Company has accrued the affirmed
judgement plus interest in the accompanying consolidated financial statements as
of December 31, 2001.

         An individual filed a complaint against the Company alleging that the
Company owed him eight percent (8%) of all monies invested in the Company as a
result of his contacts. The complaint alleged that the Company owed him
approximately $5,000,000 and warrants to purchase the Company's common stock. In
December 1998, a settlement agreement was signed by the individual, the Company
and First Taiwan and its affiliates. The Company agreed to pay the individual
$200,000 plus interest over a thirty-six month period commencing January 1,
2000. In January 2000, the full amount of $200,000 was paid. In addition, the
Company agreed to issue warrants to purchase the equivalent of seven percent
(7%) of the issued and outstanding common stock of the Company as of November
30, 1998, which is 430,048 shares of common stock, giving effect to an inclusion
of the common stock underlying the warrants as though all the warrants issued
under the settlement were fully exercised. The warrants may be exercised by the
individual, in whole or in part or parts at any time during a ten year period
commencing January 23, 1999 and ending on January 22, 2009, and have an exercise
price of $.01 per warrant. The warrants and the common stock issued provide for
an anti-dilution adjustment in the event of any change in the capitalization of
the Company which would otherwise dilute the warrants of the common stock. The
Company valued the warrants at their estimated fair value of $4,300 using the
Black Scholes method. Such warrants were exercised during 1999 for $4,300.

         The settlement agreement also provides the Company the option to
purchase all or part of the warrants and the common stock issued to the
individual pursuant to the settlement agreement if the market capitalization of
the Company exceeds $15,000,000.

         In February, 2002, the Company's landlord filed a Landlord-Tenant
action against the Company. At a hearing at Court on February 20, 2002, the
parties reached an accommodation as a Consent to Enter Judgement and the Company
agreed to pay installments every two weeks until all arrearages are paid.
Failure to pay will result in automatic eviction within days. The Company's
management indicates inability to make payments and eviction is likely.

         On March 19, 2002 the landlord filed a civil action for many damages,
attorney fees, and costs. The Company has elected not to defend. Judgment in the
amount of about $175,000 is inevitable.

         Other Income (Expense)

         Total other income (expense), net for fiscal year ended December 31,
2001 was an expenses of $153,724 versus an income of $83,978 for fiscal year
2000, a decrease of $237,702. The decrease in income was mainly due to a
decrease in net operating loss ("NOL") sale of a portion of the Company's New
Jersey NOLs to a company as approved and permitted by the State of New Jersey,
and a decrease in collection of a receivable previously written off by the
Company in a prior year.

         As a result of the increased revenues described above, decreased costs
and expenses, and decreased other income, the Company incurred a lower net loss

                                       9
<PAGE>

of $463,097 for the fiscal year ended December 31, 2001 versus a net loss of
$636,137 for the fiscal year ended 2000.

Liquidity, Capital Resources and Changes in Financial Condition

         The Company had $165,566 in cash and cash equivalents on hand as of
December 31, 2001 versus $181,282 as of December 31, 2000. The working capital
deficit as of December 31, 2001 was $9,010,873 versus $8,349,457 as of December
31, 2000, an increase of 7.9%. The increase in working capital deficit was
primarily attributable to the net loss incurred in 2001.

         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
$900,000, respectively, each have been classified as current liabilities as they
are in technical default as a result of certain interest payments not having
been made.

         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 currently in default and the bonds payable on demand.
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 currently in default and the bonds payable on demand. 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 of 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 hereinafter 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 December 31, 2001, 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.

                                       10
<PAGE>

         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 products 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. The $100,000 deposit would be refundable to the distributor in
the event any such third party agreement is consummated or creditable against
amounts 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 is not certain that the Company will find a facility to
continue its production and have adequate resources to finance its operations in
2002. In addition, a judgement in the amount of $367,500 has been rendered
against the Company, and the Company's landlord is seeking a judgement of
approximately $175,000 against the Company. Financing the judgement as well as
the Company's operations will be very difficult. It is very likely that cash
flow from operations and proceeds of financing, if any, will not be sufficient
to fund the Company's operations and obligations in 2002.

Risk Factors and Cautionary Statements

         When used in this Form 10-KSB and in future filings by the Company with
the Securities and Exchange Commission, 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
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 had a loss of $463,097 for the fiscal year ended December
31, 2001 and had an accumulated deficit at December 31, 2001 of $8,968,129. The
Company has experienced ongoing losses from operations. The Company has a
limited cash balance and is in technical default on its loans and leases. It is
very likely that cash flow from operations and proceeds from a financing, if
any, will not be sufficient to fund the Company's operations in 2002.

         o     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 industry is highly competitive. Such competition could

                                       11
<PAGE>

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.

         o     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. There can be no assurance that the
Company will be able to successfully develop and commercialize any new products
or technologies.

         o     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.

         o     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.

         o     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 manner; capacity or supply
constraints, as well as purchase commitments, could adversely affect future
operating results. At the present time, the Company has no manufacturing
capacity.

         o     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.

         o     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.

         o     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.

                                       12
<PAGE>

Item 7.  Financial Statements.

         See Financial Statement beginning on page F-1.

Item 8.  Changes In and Disagreements with Accountants on Accounting and
         Financial Disclosure.

         Effective January 31, 2001, the Registrant dismissed its prior
Independent Auditors, Arthur Andersen LLP ("AA") and retained as its new
Independent Auditors, O'Connor Davies Munns & Dobbins, LLP ("ODMD"). AA
Independent Auditor's Report on the Registrant's financial statements for the
fiscal year ended December 31, 1999 did not contain as adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles. The decision to engage ODMD was authorized
by the Registrant's board of directors. During the fiscal year ended 2001 and
through March 31, 2002, there were no disagreements between the Registrant and
AA on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope of procedure, which, if not resolved to AA's
satisfaction, would have caused it to make reference to the subject matter of
the disagreements in connection with its report. Furthermore, no "reportable
events" occurred within the Registrant's two most recent fiscal years prior to
AA's dismissal.

         Neither the Registrant nor any person acting on its behalf, prior to
the engagement of ODMD, consulted ODMD regarding the application of accounting
principles to a specific completed or contemplated transaction, or the type of
audit opinion that might be rendered on the Registrant's financial statements,
including any of the matters or events set forth in Item 304(a)(2)(i) and (ii)
of Regulation S-B.

                                       13
<PAGE>
                                    PART III

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

         Set forth below is certain background information with respect to the
directors and executive officers of the Company, including information furnished
by them as to their principal occupations for the last five years, certain other
directorships held by them and their ages as of March 31, 2002. Each of the
Directors and Officers set forth below, other than Dr. Jennings, also hold the
same position with HYMEDIX International.
<TABLE>
<CAPTION>

                                                                            Director or
                                                                             Executive
                                                                              Officer
Name                               Age    Position(s) with the Company         Since
----                               ---    ----------------------------      -----------
<S>                                <C>                                          <C>
William G. Gridley, Jr.(3)         73     Chairman, Chief Financial Officer,    1994
                                          Secretary, Treasurer and Director

George P. Stoy                     54     Acting President, Principle           1994
                                          Executive Officer and Director

Edward H. Jennings, Ph.D.(1)(2)    66     Director                              1994

</TABLE>
------------------------
(1)      Member of the Compensation Committee of the Board of Directors
(2)      Member of the Audit Committee of the Board of Directors
(3)      Member of the Executive Committee of the Board of Directors

         William G. Gridley, jr., Chairman, Chief Financial Officer, Secretary,
Treasurer and Director. Mr. Gridley was President and a Director of HYMEDIX from
the Acquisition Merger to January 1, 1996, when he became Chairman. Prior to
joining HYMEDIX International in 1986, Mr. Gridley was President of Brandywine
Investors, an investment management firm which he founded. From 1979 to 1983, he
was President of Crescent Diversified, Ltd. and Competrol BVI, the United States
investment vehicles of the Olayan Group. From 1973 to 1979, he was Executive
Vice President of the American Express Bank. Prior to that, he was a Vice
President of the Chase Manhattan Bank. Mr. Gridley is Vice Chairman of Tuskegee
University and a member of the Board of Managers of the Jane Coffin Childs
Memorial Fund for Medical Research. He is a graduate of Yale University. He has
served without cash compensation since December 31, 2000.

         George P. Stoy, Acting President, Chief Executive Officer and Director.
Mr. Stoy has served as Acting President, Chief Executive Officer since July 2001
when ex-President Dr. Charles Kliment resigned. Mr. Stoy was Vice President of
Engineering of HYMEDIX since the Acquisition Merger. Mr. Stoy has been with
HYMEDIX International since its inception. Mr. Stoy has been involved in the
development of HYPAN(R)technology from its early stages, and is responsible for
the development of processing technology and product design. Mr. Stoy is an
inventor or co-inventor of numerous inventions that are the subject of patents
and patent applications. Mr. Stoy holds a Masters degree in Mechanical
Engineering. Mr. Stoy is compensated on a part time basis.

                                       14
<PAGE>

         Edward H. Jennings, Ph.D., Director. Dr. Jennings has been Director of
HYMEDIX since the Acquisition Merger. Dr. Jennings is a Professor of Finance at
The Ohio State University, where he served as President from 1981 to 1990. He
was President of the University of Wyoming from 1979 to 1981, and prior to that
held administrative positions at the University of Iowa and teaching positions
at various universities. Dr. Jennings serves as Chairman of the Board of Mt.
Carmel Hospital and is a Director of Lancaster Colony Corporation, Borden
Chemicals and Plastics Limited Partnership, Super Foods Services, Inc. and HEAF
Corporation. He was previously a Director of Banc One Corporation and Ohio Bell
Corporation.

Compliance with Section 16(a) of the Exchange Act

         Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission (the
"Commission") initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Officers, directors
and greater than ten percent stockholders are required by Commission regulation
to furnish the Company with copies of all Section 16(a) forms they file.

         To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company, during fiscal year 2001 all Section 16(a)
filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with.

Item 10. Executive Compensation.

         The table below sets forth certain compensation information for the
fiscal year ended December 31, 2001, 2000 and 1999 with respect to HYMEDIX
Inc.'s ("HYMEDIX's" or the "Company's") Chief Executive Officer.

                                  HYMEDIX, INC.
                           Summary Compensation Table
                               Annual Compensation

                                                                    Long-Term
                                                                   Compensation
                                                                     Awards
                                                    Other Annual   (Securities
Name and Principal                                  Compensation    Underlying
Position                    Year     Salary ($)         ($)         Options (#))
-------------------------   ----     ----------     ------------    -----------

George P. Stoy              2001         60,000          0              0
Acting President,           2000        126,154          0              0
Chief Executive Officer     1999        102,338          0              0
and Director

                                       15
<PAGE>

             Aggregated Option/SAR Exercises in Last Fiscal Year and
                        Fiscal Year End Option/SAR Values

                              Number of Securities
                             Underlying Unexercised
                         Options at Fiscal Year End (#)
                            Exercisable/Unexercisable

George P. Stoy                      3,000/3000
Acting President, Chief
Executive Officer and Director

         The Company has no pension, retirement, annuity, savings or similar
benefit plan for its executive officers.

Executive Employment and Related Agreements

         Each of the Company's current and former employees and consultants
having access to its proprietary or technical information has executed a
confidentiality and invention assignment agreement with the Company.

         Director Stock Option Plan.

         On June 6, 1996, the Company's stockholders approved the adoption of
the Company's Director Stock Option Plan (the "Director Plan"). The Director
Plan is intended to provide nondiscretionary option grants to independent
Directors of the Company as follows: (i) to those persons already serving on the
Board and who are not employees, an option exercisable for 9,000 shares of the
Company's Common Stock on the effective date of the Director Plan and, for so
long as service on the Board continues, an option of 2,000 shares of the
Company's Common Stock on each anniversary date thereof and (ii) to those
persons joining the Board after the effective date of the Director Plan and who
are not employees, an option exercisable for 5,000 shares of the Company's
Common Stock on the date of election or appointment and, for so long as service
on the Board continues, an option for 2,000 shares of the Company's Common Stock
on each anniversary date of his or her joining the Company's Board, in each case
exercisable at fair market value and subject to certain provisions of
forfeiture. The Director Plan permits the grant of options to purchase up to an
aggregate of 50,000 shares of Common Stock, all of which were reserved for
grants under the Director Plan as of April 15, 1996.

                                       16
<PAGE>

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

         The following table sets forth certain information as of March 31, 2002
regarding the beneficial ownership of the Company's Common Stock by: (a) all
those known by the Company to be beneficial owners of more than 5% of its Common
Stock; (b) all Directors; (c) each of the executive officers of the Company
named in the Summary Compensation Table; and (d) all executive officers and
Directors of the Company as a group:

                                                    Shares Beneficially
                                                         Owner (1)
Name and Address                            ----------------------------------
of Beneficial Owner                          Number                 Percentage
-------------------                         --------                ----------

Kingston Technologies                       1,384,551                 22.54%
 Limited Partnership (2)(3)

First Taiwan Investment                     2,051,078                 33.38%
 Holding Inc. (4)

William G. Gridley, Jr. (2)(3)(5)           1,429,551                 23.09%

George P. Stoy (2)(3)(6)                    1,387,551                 22.57%

Edward H. Jennings, Ph.D.                          --                    --
 The Ohio State University
 154 W. 12th Street
 Columbus, OH

Joseph Mo                                     430,048                  7.00%
 One Belleview Terrace
 Princeton, NJ

    All officers and Directors              1,432,551                 23.10%
     as a group 3 persons)

* Less than one percent (1%).

(1)      Shares of Common Stock subject to options or warrants exercisable as of
         March 31, 2002 (or exercisable within 60 days after such date), are
         deemed outstanding for purposes of computing the percentage ownership
         of the person holding such option or warrant but are not outstanding
         for purposes of computing the percentage of any other person. Unless
         otherwise indicated in these footnotes, each stockholder has sole
         voting and investment power with respect to the shares beneficially
         owned.

(2)      Includes shares owned of record by Kingston Technologies Limited
         Partnership ("KTLP"). The general partners of KTLP include Vladimir A.
         Stoy, William G. Gridley, jr., George P. Stoy (each a Director of the
         Company) and Oak II, Inc., a corporation controlled by such Directors.
         Each of Vladimir A. Stoy, William G. Gridley, jr., and George P. Stoy
         exercises shares voting and investment power with respect to the shares
         of Common Stock of the Company held by KTLP and disclaims beneficial

                                       17
<PAGE>

         ownership of such shares except to the extent of his partnership
         interest in KTLP. Also gives effect to the exercise by Research
         Corporation Technologies, Inc., a Delaware nonprofit corporation
         ("RCT") and a stockholder of HYMEDIX, of its right to require KTLP to
         transfer and assign without further consideration, that number of
         shares of HYMEDIX Common Stock (166,271 shares) to make RCT's total
         holding of HYMEDIX Common Stock equal to 5% of HYMEDIX's outstanding
         Common Stock on a modified fully diluted basis (excluding shares
         reserved for issuance upon exercise of options granted under the
         HYMEDIX Stock Option Plan and conversion of HYMEDIX Series A Redeemable
         Preferred Stock) upon the effective date of the Company's Registration
         Statement on Form SB-2 (effective August 12, 1995).

(3)      The business address of each of these persons is c/o HYMEDIX, Inc.,
         2245 Route 130, Dayton, New Jersey 08810.

(4)      The business address of each of these persons is 13th Floor, 563 Chung
         Hsiao East Road, Section 4, Taipei, Taiwan 10516.

(5)      Includes 45,000 shares of Common Stock that Mr. Gridley has the right
         to acquire upon the exercise of stock options.

(6)      Includes 3,000 shares of Common Stock that Mr. Stoy has the right to
         acquire upon the exercise of stock options.

Item 12. Certain Relationships and Related Transactions.

         In April 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 December 31, 1997.
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 of 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.

                                       18
<PAGE>

                                   SIGNATURES

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

                                       HYMEDIX, INC.
                                       (Registrant)

                                       By: /s/ GEORGE P. STOY
                                          --------------------------------------
                                          George P Stoy, Ph.D.
                                          Acting President (Principal Executive
                                          Officer) and Director

                                       Date: April 10, 2002

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

           Signature                       Title                       Date


By: /s/ WILLIAM G. GRIDLEY, Jr.   Chairman, Chief Financial       April 10, 2002
    ---------------------------   Officer (Secretary, Treasurer,
      William G. Gridley, Jr.     Principal Financial Officer
                                  and Principal Accounting
                                  Officer); Director


By: /s/ EDWARD H. JENNINGS        Director                        April 10, 2002
    ---------------------------
      Edward H. Jennings


                                       19
<PAGE>

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

         (a)   Exhibits.
               --------

               Exhibit No.                 Description
               -----------                 -----------

                  2.1        Amended and Restated Agreement of Merger and Plan
                             of Reorganization, dated as of January 24, 1994 by
                             and among Servtex International Inc., Kingston
                             Technologies, Inc., KTI Acquisition Corp. and
                             certain affiliates of Servtex International Inc.,
                             filed pursuant to Rule 14a-6 as Exhibit F to Proxy
                             Statement of the Registrant (then Servtex
                             International Inc.), dated February 12, 1994, and
                             incorporated by reference herein.
                  2.2        Agreement of Merger, dated as of February 23, 1994
                             by and between Servtex International Inc. and
                             HYMEDIX, Inc., filed pursuant to Rule 14a-6 as
                             Exhibit A to Proxy Statement of the Registrant
                             (then Servtex International Inc.), dated February
                             12, 1994, and incorporated by reference herein.
                  3.1        Certificate of Incorporation, filed pursuant to
                             Rule 14a-6 as Exhibit B to Proxy Statement of the
                             Registrant (then Servtex International Inc.), dated
                             February 12, 1994, and incorporated by reference
                             herein.
                  3.2        Certificate of Designation, Preference and Rights
                             of Series A Redeemable Preferred Stock, filed as
                             Exhibit (2) to Form 8-K, dated February 23, 1994,
                             of the Registrant and incorporated by reference
                             herein.
                  3.3        By-Laws of the Registrant, filed pursuant to Rule
                             14a-6 as Exhibit C to Proxy Statement of the
                             Registrant (then Servtex International Inc.), dated
                             February 12, 1994, and incorporated by reference
                             herein.
                  4.1*       Specimen Certificate of the Registrant's Common
                             Stock, $.001 par value.
                 10.1*       Form of the Underwriter's Warrant issued to First
                             Flushing Securities, Inc. as a broker's fee for
                             negotiating the merger of KTI Acquisition Corp., a
                             Delaware corporation and wholly-owned subsidiary of
                             the Registrant with and into HYMEDIX International.
                 10.2**      Option and License Agreement dated November 7, 1986
                             by and between HYMEDIX International and ORC, as
                             amended by Amendment Number 1 to Option and License
                             Agreement dated January 9, 1987.
                 10.3*       Promissory Note, dated January 9, 1987, made by
                             HYMEDIX International to the order of ORC, for
                             $500,000.
                 10.4*       Indenture of Lease dated July 7, 1987 by and
                             between Fresh Ponds Associates and HYMEDIX
                             International, as amended by First Amendment to
                             Lease, dated September 13, 1993, Second Amendment
                             to Lease, dated September 15, 1993, and Third
                             Amendment to Lease, dated January 15, 1994; and the
                             related Installment Promissory Note, dated October
                             1, 1993, made by HYMEDIX International to the order
                             of Fresh Ponds Associates for $404,300.90.
                 10.5*       Promissory Note, dated September 29, 1987, made by
                             HYMEDIX International to the order of ORC, for
                             $1,000,000.
                 10.6**      Agreement, dated December 22, 1988, by and between
                             Kingston Hydrogels Limited Partnership and LIPO
                             Chemicals, Inc., as amended by Amendment No. 1,
                             effective June 1, 1990 and as further amended by
                             Amendment Agreement, dated June 14, 1990.

                                       20
<PAGE>

                 10.7*       Loan and Security Agreement, dated October 30,
                             1989, by and between HYMEDIX International and
                             Pilkington Visioncare, Inc. ("PVI").
                 10.8*       Promissory Note in the amount of $1,000,000, dated
                             October 30, 1989, by HYMEDIX International, in
                             favor of PVI.
                 10.9*       Assignment of Patent, dated October 30, 1989 by
                             HYMEDIX International in favor of PVI.
                 10.10**     License and Supply Agreement, dated October 30,
                             1989, between HYMEDIX International and PVI, along
                             with Addendum thereto dated July 10, 1991.
                 10.11*      Contribution Agreement, dated August 7, 1990, by
                             and between Kingston Technologies Limited
                             Partnership ("KTLP") and HYMEDIX International.
                 10.12*      Royalty Assignment Agreement, effective August 8,
                             1990, by and between HYMEDIX International and
                             Research Corporation Technologies, Inc. ("RCT").
                 10.13*      Assignment of Patents, dated August 8, 1990, by
                             KTLP in favor of HYMEDIX International.
                 10.14*      Form of Amended and Restated Warrant to Purchase
                             Common Stock, dated February 23, 1994, delivered to
                             Cheung Hok Sau.
                 10.15*      Form of Amended and Restated Common Stock Purchase
                             Warrant, dated February 23, 1994, made by the
                             Registrant to the Trustees of Boston University.
                 10.16*      Right to Purchase Agreement, dated June 30, 1992,
                             between HYMEDIX International and Lipo Chemicals,
                             Inc.
                 10.17*      License Agreement, dated June 30, 1992, between
                             HYMEDIX International and Lipo Chemicals, Inc.
                 10.18*      Form of Amended and Restated Common Stock Purchase
                             Warrant, dated February 23, 1994, made by the
                             Registrant to Synreal Corporation N.V.
                 10.19*      Form of Amended and Restated Common Stock Purchase
                             Warrant, dated February 23, 1994, made by the
                             Registrant to Azreal Corporation N.V.
                 10.20*      Form of Amended and Restated Common Stock Purchase
                             Warrant, dated February 23, 1994, made by the
                             Registrant to Dr. Hsia Fu Chao.
                 10.21       Amended and Restated 1991 Incentive and
                             Non-Qualified Stock Option Plan, filed pursuant to
                             Rule 14a-6 as Exhibit E to Proxy Statement of the
                             Registrant (then Servtex International Inc.), dated
                             February 12, 1994, and incorporated by reference
                             herein.
                 10.22*      Employment Agreement, dated April 3, 1992, by and
                             between HYMEDIX International and Alan L. Hershey,
                             as amended by Agreement, dated January 4, 1993.
                 10.23*      Form of Amended and Restated Common Stock Purchase
                             Warrant, dated February 23, 1994, made by the
                             Registrant to First Taiwan Investment Holding Inc.
                 10.24*      Registration Rights Agreement, dated May 28, 1993,
                             by and between HYMEDIX International and the
                             Trustees of Boston University.
                 10.25*      Form of Amended and Restated Common Stock Purchase
                             Warrant, dated February 23, 1994, made by the
                             Registrant to the Trustees of Boston University.
                 10.26*      Form of Amended and Restated Common Stock Purchase
                             Warrant, dated February 23, 1994, made by the
                             Registrant to First Taiwan Investment and
                             Development Inc.
                 10.27*      Amended and Restated Registration Rights Agreement,
                             dated February 23, 1994, by and among RCT, First
                             Taiwan Investment Holding Inc. and First Taiwan
                             Venture Capital Inc..

                                       21
<PAGE>

                 10.28**     Marketing and Distribution Agreement, dated July
                             30, 1993, by and between HYMEDIX International and
                             Brady Medical Products, Co.
                 10.29*      Evaluation Agreement, dated December 1, 1993, by
                             and between HYMEDIX International and Alcon
                             Laboratories, Inc.
                 10.30*      Capital Contribution Agreement, dated February 23,
                             1994, by and between the Registrant and RCT.
                 10.31*      Demand Registration Rights Agreement, dated
                             February 23, 1994, by and between the Registrant
                             RCT.
                 10.32*      Option to Wall Street Group.
                 10.33*      Redeemable Common Stock Purchase Warrant, dated
                             February 23, 1994, made by the Registrant to First
                             Taiwan Investment Holding Inc.
                 10.34*      Form of Warrant issued to Selling Stockholders
                             (Domestic) in the private placements which closed
                             February, 1994.
                 10.35*      Form of Warrant issued to Selling Stockholders
                             (International) in the private placements which
                             closed February, 1994.
                 10.36**     Development Services and Licensing Agreement, dated
                             December 20, 1991, between HYMEDIX International
                             and W. L. Gore and Associates, Inc.
                 10.37*      Joint Venture Agreement, dated May 31, 1994, by and
                             among the Registrant, Beijing General
                             Pharmaceutical Corp., First Taiwan Investment
                             Banking Group and Technological Innovation
                             Corporation of China.
                 10.38***    Agreement, dated November 29, 1994, by and between
                             HYMEDIX International and Bausch & Lomb.
                 10.39***    Director Stock Option Plan, effective as of May 31,
                             1994.
                 10.40****   Development Services and Licensing Agreement, dated
                             December 20, 1991, between HYMEDIX International
                             and W. L. Gore and Associates, Inc.
                 10.41*****  Distribution, Kno-How Transfer, Licensing and
                             Manufacturing and Supply Agreement dated August 21,
                             1995, by and between HYMEDIX International, Inc.
                             and Europa Magnetics Corporation.
                 10.42#      Master Terms and Conditions For Purchase Orders
                             dated September 19, 1995, by and between Home
                             Shopping Club Inc. and HYMEDIX International, Inc.
                 10.43##     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).
                 10.44##     Convertible Bond Purchase Agreement, effective
                             March 5, 1996, by and among the Company, HYMEDIX
                             International, and Su Chen Huang.
                 10.45###    Security Agreement dated as of August 8, 1996, by
                             and among the Company and the Bondholder
                             Representative (as defined therein).
                 21*         Subsidiaries of the Registrant.

                                       22
<PAGE>

                 -----------------------
                 *           Previously filed as an Exhibit to the Registrant's
                             Form SB-2 Registration Statement (No. 33-78638)
                             originally filed on May 5, 1994 and incorporated
                             herein by reference.
                 **          Previously filed (and Confidential Treatment
                             requested pursuant to Rule 406 under the Securities
                             Act) as an Exhibit to the Registrant's Form SB-2
                             Registration Statement (No. 33-78638) originally
                             filed on May 5, 1994 and incorporated herein by
                             reference.
                 ***         Previously filed as an Exhibit to the Registrant's
                             Form 10-KSB originally filed April 17, 1995.
                 ****        Previously filed (and Confidential Treatment
                             requested pursuant to Rule 24-b2 under the
                             Securities Exchange Act of 1934) as an Exhibit to
                             the Registrant's Amendment No. 1 to Form 10-KSB/A
                             originally filed April 30, 1995.
                 *****       Previously filed as an Exhibit to the Registrant's
                             Form 10-QSB originally filed November 15, 1995.
                 #           Previously filed as an Exhibit to the Registrant's
                             Form 10-QSB originally filed March 30, 1996.
                 ##          Previously filed as an Exhibit to the Registrant's
                             Form 10-QSB originally filed May 15, 1996.
                 ###         Previously filed as an Exhibit to the Registrant's
                             Form 10-QSB originally filed November 15, 1996.

         (b)   Reports on Form 8-K. No reports on Form 8-K were filed during the
               fourth quarter of 2001.

                                       23

<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                        CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 2001 AND 2000 AND
                           FOR EACH OF THE THREE YEARS
                      IN THE PERIOD ENDED DECEMBER 31, 2001
                         TOGETHER WITH AUDITORS' REPORT
<PAGE>

                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors and
Stockholders of HYMEDIX, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheets of HYMEDIX, Inc. (a
Delaware corporation) and subsidiary (the "Company") as of December 31, 2001 and
2000, and the related consolidated statements of operations, changes in
stockholders' deficit and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated financial statements
of HYMEDIX, Inc. and subsidiary for the year ended December 31, 1999, were
audited by other auditors whose report dated March 14, 2000, on those statements
included an explanatory paragraph that described the substantial doubt the
Company's ability to continue as a going concern as discussed in Note 3 to the
consolidated financial statements.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provides a reasonable basis for our opinion.

In our opinion, the years 2001 and 2000 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of HYMEDIX, Inc. and subsidiary as of December 31, 2001 and 2000, and
the results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company incurred a loss
from operations in each of the last three years, has a working capital deficit,
has a net capital deficiency and is not in compliance with certain loan
provisions at December 31, 2001. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are described in Note 3. The consolidated financial statements
do not include any adjustments relating to the recoverability and classification
of asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.


/s/ O'CONNOR DAVIES MUNNS & DOBBINS, LLP
----------------------------------------------
O'Connor Davies Munns & Dobbins, LLP

New York, New York
March 13, 2002
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 2001 AND 2000
                           --------------------------


<TABLE>
<CAPTION>
                                                                                                   2001                    2000
                                                                                               ------------            ------------
<S>                                                                                            <C>                     <C>

                                     ASSETS
                                     ------

Current assets
  Cash and cash equivalents                                                                    $    165,566            $    181,282
  Accounts receivable                                                                                20,321                  56,885
  Note receivable from related party                                                                                         20,000
  Inventories, net                                                                                   22,165                  67,097
  Other current assets                                                                                3,928                  50,520
                                                                                               ------------            ------------

       Total current assets                                                                         211,980                 375,784

Property and equipment, net of accumulated
  depreciation of $756,387, and $742,932
  in 2001 and 2000, respectively                                                                     46,203                  59,658
Security deposit                                                                                     59,040                  59,040
                                                                                               ------------            ------------

                                                                                               $    317,223            $    494,482
                                                                                               ============            ============


                      LIABILITIES AND STOCKHOLDERS' DEFICIT
                      -------------------------------------

Current liabilities
  Notes payable                                                                                $  3,946,979            $  3,946,979
  Accounts payable and accrued expenses                                                           5,200,873               4,703,262
  Accrued judgement and settlement                                                                   75,000                  75,000
                                                                                               ------------            ------------

       Total current liabilities                                                                  9,222,852               8,725,241
                                                                                               ------------            ------------

Accrued judgement and settlement                                                                     62,500                 137,500
                                                                                               ------------            ------------

Commitments and contingencies

Stockholders' deficit
  8% senior convertible preferred stock, $3.00 par value,
    800,000 shares authorized, 7,390 shares issued and outstanding                                   22,170                  22,170
  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,
    6,143,781 shares issued and outstanding                                                           6,144                   6,144
  Additional paid-in capital                                                                     15,658,743              15,658,743
  Accumulated deficit                                                                           (23,155,188)            (22,555,318)
  Subscription receivable                                                                        (1,500,000)             (1,500,000)
                                                                                               ------------            ------------

       Total stockholders' deficit                                                               (8,968,129)             (8,368,259)
                                                                                               ------------            ------------

                                                                                               $    317,223            $    494,482
                                                                                               ============            ============


                   See independent auditors' report and accompanying notes to consolidated financial statements.
</TABLE>
                                       F-2

<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                  --------------------------------------------


<TABLE>
<CAPTION>
                                                                             2001                   2000                   1999
                                                                          -----------            -----------            -----------

<S>                                                                       <C>                    <C>                    <C>
Revenues
  Net product sales                                                       $   419,071            $   635,202            $   763,592
  Right, license, royalty and distribution fees                               472,943                 41,492                286,958
  Research and development contracts                                           43,000                 90,500                175,000
                                                                          -----------            -----------            -----------

       Total revenues                                                         935,014                767,194              1,225,550
                                                                          -----------            -----------            -----------

Costs and expenses
  Cost of sales                                                               136,404                169,809                312,453
  Selling, general and administrative                                         808,857                938,770              1,404,237
  Research and development                                                    299,126                378,730                475,117
                                                                          -----------            -----------            -----------

       Total costs and expenses                                             1,244,387              1,487,309              2,191,807
                                                                          -----------            -----------            -----------

       Loss from operations                                                  (309,373)              (720,115)              (966,257)
                                                                          -----------            -----------            -----------

Other income (expense)
  Loss on sale of assets                                                                             (12,460)
  Interest expense                                                           (278,185)              (286,185)              (312,906)
  Other income                                                                124,461                382,623              1,669,442
                                                                          -----------            -----------            -----------

       Total other income (expense), net                                     (153,724)                83,978              1,356,536
                                                                          -----------            -----------            -----------

       Net income (loss)                                                  $  (463,097)           $  (636,137)           $   390,279
                                                                          ===========            ===========            ===========

Basic earnings (loss) per common share:                                   $     (0.10)           $     (0.13)           $      0.04

Diluted earnings (loss) per common share:                                 $     (0.10)           $     (0.13)           $      0.04

Weighted average common shares outstanding                                  6,143,781              6,143,781              6,036,211


                   See independent auditors' report and accompanying notes to consolidated financial statements.
</TABLE>

                                       F-3
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                  --------------------------------------------



<TABLE>
<CAPTION>
                                                          8% Senior Convertible
                                                            Preferred Stock                   Preferred Stock
                                                         -----------------------           --------------------
                                                         Number                             Number
                                 Comprehensive             of                                 of
                                 Income (Loss)           Shares         Amount              Shares       Amount
                                 -------------           ------      ------------          ---------     ------
<S>                              <C>                     <C>         <C>                        <C>      <C>

Balance, December 31, 1998                               10,190      $     30,570               150      $    2

  Net income - 1999              $    390,279
  Preferred stock dividends
  Preferred stock conversion                             (2,800)           (8,400)
  Exercise of warrants
                                 -------------           ------      ------------          ---------     ------
       Comprehensive income      $    390,279
                                 =============


Balance, December 31, 1999                                7,390            22,170               150           2

  Net loss - 2000                $   (636,137)
  Preferred stock dividends
                                 -------------           ------      ------------          ---------     ------
       Comprehensive loss        $   (636,137)
                                 =============

Balance, December 31, 2000                                7,390            22,170               150           2

  Net loss - 2001                $   (463,097)
  Preferred stock dividends
                                 -------------           ------      ------------          ---------     ------
       Comprehensive loss        $   (463,097)
                                 =============

Balance, December 31, 2001                                7,390      $     22,170               150      $    2
                                                         ======      ============          =========     ======

                                                                                                                        (continued)

                          See independent auditors' report and accompanying notes to financial statements.
</TABLE>

                                        F-4
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                  --------------------------------------------



<TABLE>
<CAPTION>

                                       Common Stock
                                 --------------------------
                                  Number                         Additional
                                    of                            Paid-in         Accumulated      Subscription
                                  Shares          Amount          Capital           Deficit         Receivable
                                 ---------     ------------     ------------     -------------     -------------
<S>                              <C>           <C>              <C>              <C>               <C>

Balance, December 31, 1998       5,713,500     $      5,713     $ 15,646,474     $(22,035,912)     $ (1,500,000)

  Net income - 1999                                                                   390,279
  Preferred stock dividends                                                          (136,774)
  Preferred stock conversion           233                             8,400
  Exercise of warrants             430,048              431            3,869
                                 ---------     ------------     ------------     -------------     -------------
       Comprehensive income


Balance, December 31, 1999       6,143,781            6,144       15,658,743      (21,782,407)       (1,500,000)

  Net loss - 2000                                                                    (636,137)
  Preferred stock dividends                                                          (136,774)
                                 ---------     ------------     ------------     -------------     -------------
       Comprehensive loss


Balance, December 31, 2000       6,143,781            6,144       15,658,743      (22,555,318)       (1,500,000)

  Net loss - 2001                                                                    (463,097)
  Preferred stock dividends                                                          (136,773)
                                 ---------     ------------     ------------     -------------     -------------
       Comprehensive loss


Balance, December 31, 2001       6,143,781     $      6,144     $ 15,658,743     $(23,155,188)     $ (1,500,000)
                                 =========     ============     ============     =============     =============


                See independent auditors' report and accompanying notes to financial statements.
</TABLE>

                                       F-4
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                  --------------------------------------------


<TABLE>
<CAPTION>
                                                                                   2001                2000                  1999
                                                                                ---------            ---------            ---------
<S>                                                                             <C>                  <C>                  <C>

Cash flow from operating activities
  Net income (loss)                                                             $(463,097)           $(636,137)           $ 390,279
  Adjustments to reconcile net income (loss) to net
    cash provided (used) by operating activities
      Depreciation and amortization                                                13,455               37,769               35,799
      Loss on sale of assets                                                                            12,460
      Reserve for inventory obsolescence                                           25,000             (125,000)             100,000
      (Increase) decrease in
        Accounts receivable                                                        36,564               30,150              (86,818)
        Note receivable from related party                                         20,000              183,600             (156,960)
        Inventories                                                                19,932              128,824               (8,375)
        Receivable from net operating loss sale                                                        317,482             (317,482)
        Other current assets                                                       46,592               22,873              (16,579)
      Increase (decrease) in
        Accounts payable and accrued expenses                                     360,838              206,612              566,503
        Accrued judgement and settlement, net                                     (75,000)            (275,000)             (80,000)
                                                                                ---------            ---------            ---------

          Net cash provided (used) by
            operating activities                                                  (15,716)             (96,367)             426,367
                                                                                ---------            ---------            ---------

Cash flows from investing activities
  Purchase of property and equipment                                                                   (83,369)
  Proceeds from sale of equipment                                                                        5,015
                                                                                ---------            ---------            ---------

          Net cash used by investing activities                                       -                (78,354)                 -
                                                                                ---------            ---------            ---------

Cash flows from financing activities
  Proceeds from exercise of warrants                                                                                          4,300
  Principal repayments of notes payable                                                                                    (100,000)
                                                                                ---------            ---------            ---------

          Net cash used by financing activities                                       -                    -                (95,700)
                                                                                ---------            ---------            ---------

Net increase (decrease) in cash and cash equivalents                              (15,716)            (174,721)             330,667

Cash and cash equivalents, beginning of year                                      181,282              356,003               25,336
                                                                                ---------            ---------            ---------

Cash and cash equivalents, end of year                                          $ 165,566            $ 181,282            $ 356,003
                                                                                =========            =========            =========

Supplemental disclosures of cash flow information
  Income tax paid                                                               $     -              $     -              $  55,000


                         See independent auditors' report and accompanying notes to financial statements.
</TABLE>

                                       F-5
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


1.       Nature of Operations
         --------------------

         HYMEDIX, Inc. (the "Company") is engaged primarily in the development
         and commercialization of biomedical and skin care products based on
         proprietary advanced hydrogels. These hydrophilic polymers are
         biocompatible and highly versatile, and enable the Company to develop
         and manufacture products and components with many characteristics for a
         variety of medical products and other markets. For the years ended
         December 31, 2001, 2000 and 1999, two of the Company's product lines
         encompassed over 99%, 99% and 92% of net product sales, respectively.
         For the year ended December 31, 2001, two of the Company's customers
         accounted for 68% and 19% of total revenues. For the year ended
         December 31, 2000, two of the Company's customers accounted for 42% and
         32% of the total revenues. For the year ended December 31, 1999, two of
         the Company's customers accounted for 72% and 20% of total revenues. As
         of December 31, 2001, 99% of accounts receivable were due from a
         customer who accounted for 24% of total revenues in the year 2001.

         During 2001, the Company sold their manufacturing rights to its sole
         distributor of skincare products based on proprietary advanced
         hydrogels. In addition, the Company was bought out of their marketing
         and distribution agreement with this distributor. Net product sales
         related to the manufacturing rights sold totaled approximately
         $354,000, $804,000 and $549,000 for the years ended December 31, 2001,
         2000 and 1999, respectively. The Company recognized $390,000 in right
         and royalty fees and $110,000 in deferred revenue for the year ended
         December 31, 2001, from the distributor relating to this agreement.

         The accompanying consolidated 2001, 2000 and 1999 financial statements
         include the accounts of the Company and HYMEDIX International, Inc. its
         wholly owned subsidiary. All significant intercompany transactions have
         been eliminated in consolidation.

2.       Summary of Significant Accounting Policies
         ------------------------------------------

         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.

                                      F-6
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (Continued)


2.       Summary of Significant Accounting Policies (Continued)
         ------------------------------------------

         Revenues and Cost Recognition

         Revenues are derived primarily from the sales of hydrogels and skin
         care products, option and license agreements and research and
         development contracts. Such revenues are recognized upon shipment of
         products and/or when all significant obligations of the Company have
         been satisfied. The costs associated with the option fees and license
         fees and research and development expenses are recognized as incurred.

         Cash and Cash Equivalents

         Cash and cash equivalents consists of highly liquid, short-term
         investments with maturities of three months or less.

         Inventories

         Inventories are stated at the lower of cost (determined on a first-in,
         first-out basis) or market and include material, labor and overhead
         costs. As of December 31, inventories are comprised as follows:

<TABLE>
<CAPTION>
                                                             2001         2000         1999
                                                          ---------    ---------    ---------

<S>                                                       <C>          <C>          <C>
                  Raw materials                           $            $   7,709    $  86,676
                  Work in process                             4,920        4,920        6,396
                  Finished goods                            117,245      129,468      177,849
                                                          ---------    ---------    ---------
                                                            122,165      142,097      270,921
                  Less:  reserve for obsolete inventory    (100,000)     (75,000)    (200,000)
                                                          ---------    ---------    ---------

                                                          $  22,165    $  67,097    $  70,921
                                                          =========    =========    =========
</TABLE>

         Property and Equipment

         Property and equipment are stated at cost, less accumulated
         depreciation. Depreciation is provided over the estimated useful lives
         of the assets ranging from three to five years.

         Patents

         Patents were amortized using the straight-line method over a 14-year
         period. As of December 31, 2001, all patents were fully amortized.

                                      F-7
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (Continued)


2.       Summary of Significant Accounting Policies (Continued)
         ------------------------------------------

         Stock-Based Compensation

         The Company accounts for employee stock-based compensation using the
         intrinsic value method.

         Earnings (Loss) Per Common Share

         The Company has adopted SFAS No. 128, "Earnings Per Share", ("SFAS
         128") which requires presentation in the consolidated statements of
         operations of both basic and diluted earnings (loss) per share. Basic
         earnings (loss) per share is computed by dividing the net income (loss)
         for the period, after consideration of dividends related to preferred
         stock, where applicable, by the weighted average number of common
         shares outstanding. Net income (loss) available to common stockholders
         represents the net loss increased by preferred stock dividends
         ($136,773 and $136,774) for the years ended December 31, 2001 and 2000,
         respectively, and net income decreased by preferred stock dividends
         ($136,774) for the year ended December 31, 1999. None of the common
         shares issuable under either the Company's stock option plan, or the
         conversion of the preferred stock, bonds or outstanding warrants (which
         aggregated approximately 1,491,000 as of December 31, 2001) were
         included in the computation of earnings (loss) per common share
         assuming dilution because their inclusion would have been antidilutive.
         Thus, there is no difference between the weighted average common shares
         outstanding to weighted average common shares outstanding assuming
         dilution.

         New Accounting Pronouncements

         In June 2001, SFAS No. 141, "Business Combinations" was issued. SFAS
         No. 141, which is effective for acquisitions initiated after June 30,
         2001, prohibits the use of the pooling-of-interests method of
         accounting for business combinations and amends the accounting and
         financial reporting requirements for business combinations. This
         accounting pronouncement did not have an impact on the Company's
         consolidated financial position or results of operations.

         In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
         issued. SFAS No. 142, addresses financial accounting and reporting for
         acquired goodwill and other intangible assets. Among other things, SFAS
         No. 142 requires that goodwill no longer be amortized, but rather
         tested annually for impairment. This statement is effective for fiscal
         years beginning after December 15, 2001. Accordingly, the Company will
         adopt SFAS No. 142 effective fiscal 2002. This accounting pronouncement
         is not expected to have a significant impact on the Company's
         consolidated financial position or results of operations.

                                      F-8
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (Continued)


2.       Summary of Significant Accounting Policies (Continued)
         ------------------------------------------

         New Accounting Pronouncements (Continued)

         Also in June 2001, SFAS No. 143, "Accounting for Asset Retirement
         Obligations" was issued. SFAS No. 143 applies to legal obligations
         associated with the retirement of certain tangible long-lived assets.
         This statement is effective for fiscal years beginning after June 15,
         2002. Accordingly, the Company will adopt SFAS No. 143 effective fiscal
         2003 and does not expect that the adoption will have a material impact
         on its consolidated results of operations or financial position.

         In August 2001, SFAS No. 144, "Accounting for the Impairment or
         Disposal of Long-Lived Assets" was issued. This statement addresses
         financial accounting and reporting for the impairment or disposal of
         long-lived assets. SFAS No. 144 is effective for fiscal years beginning
         after December 15, 2001. Accordingly, the Company will adopt SFAS No.
         144 effective fiscal 2002 and does not expect that the adoption will
         have a material impact on its consolidated results of operations or
         financial position.

3.       Basis of Presentation
         ---------------------

         The Company incurred a loss from operations in each of the last three
         years ended December 31, 2001. The Company also has a working capital
         deficit, has a net capital deficiency and is not in compliance with
         certain loan provisions at December 31, 2001.

         Management is not certain that the Company will have adequate resources
         to finance its operations in 2002. The Company will likely suffer
         eviction by the landlord, and 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. In addition, a judgement
         in the amount of $367,500 has been rendered against the Company (see
         Note 12). Financing the judgement as well as the Company's operations
         will be difficult. In the event that cash flow from operations and the
         anticipated proceeds from the financing, if any, are not sufficient to
         fund the Company's operations and obligations in 2002, there is no
         assurance that other sources of funds will be available to the Company.
         These factors raise substantial doubt about the Company's ability to
         continue as a going concern. The consolidated financial statements do
         not include any adjustments relating to the recoverability and
         classification of asset carrying amounts or the amount and
         classification of liabilities that might result should the Company be
         unable to continue as a going concern.

                                      F-9
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (Continued)


4.       Related Party Transactions
         --------------------------

         A portion of the Company's convertible bonds are held by First Taiwan,
         the majority stockholder of the Company. These bonds bear interest at
         7% payable upon demand and are secured by substantially all the assets
         of the Company (see Note 7).

         The Company is the general partner of Kingston Diagnostics, L.P.
         ("Kingston"). At December 31, 2001 and 2000, the Company has recorded a
         note receivable ($-0- and $20,000, respectively) from Kingston related
         to the collection of a receivable written off by the Company in a prior
         year (see Note 13).

5.       Property and Equipment
         ----------------------

         At December 31, property and equipment is as follows:

<TABLE>
<CAPTION>
                                                          2001         2000         1999
                                                       ---------    ---------    ---------

<S>                                                    <C>          <C>          <C>
         Machinery and equipment                       $ 181,409    $ 181,409    $ 124,753
         Office equipment and furniture and fixtures      31,617       31,617       22,379
         Leasehold improvements                          589,564      589,564      589,564
                                                       ---------    ---------    ---------
                                                         802,590      802,590      736,696
         Less:  accumulated depreciation                (756,387)    (742,932)    (735,800)
                                                       ---------    ---------    ---------

                                                       $  46,203    $  59,658    $     896
                                                       =========    =========    =========
</TABLE>

         Depreciation and amortization of property and equipment was $13,455,
         $7,132 and $4,359 in 2001, 2000 and 1999, respectively.

                                      F-10
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (Continued)


6.       Accounts Payable and Accrued Expenses
         -------------------------------------

         At December 31, accounts payable and accrued expenses consists of:

                                           2001         2000         1999
                                        ----------   ----------   ----------

         Accounts payable               $  331,730   $  282,579   $  264,805
         Accrued compensation              251,928      271,599      344,719
         Accrued interest payable        1,999,402    1,721,216    1,453,486
         Accrued preferred dividends     1,077,591      940,817      804,044
         Refundable option deposit          99,000       99,000       99,000
         Deferred income (see Note 9)    1,343,000    1,214,540    1,208,000
         Other accrued expenses             98,222      173,510      185,822
                                        ----------   ----------   ----------

                                        $5,200,873   $4,703,261   $4,359,876
                                        ==========   ==========   ==========

7.       Notes Payable
         -------------

         Notes payable consists of the following as of December 31:

<TABLE>
<CAPTION>
                                                               2001         2000         1999
                                                            ----------   ----------   ----------

<S>                                                         <C>          <C>          <C>
         Note payable, bearing interest at 7%,
            interest only payable quarterly, matures
            in January 2007, unsecured
            (a) (see Note 9)                                $1,500,000   $1,500,000   $1,500,000

         Note payable, bearing interest at 7%,
            interest only payable semiannually,
            payable on demand, secured by a
            patent (a) (see Note 9)                            900,000      900,000      900,000

         Convertible bonds, bearing interest at 7%,
            payable on demand, secured by sub-
            stantially all the assets of the Company (b)     1,015,136    1,015,136    1,015,136
</TABLE>

                                      F-11
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (Continued)


7.       Notes Payable (Continued)
         -------------

<TABLE>
<CAPTION>
                                                               2001         2000         1999
                                                            ----------   ----------   ----------

<S>                                                         <C>          <C>          <C>

         Note payable, bearing interest at 3%,
            payable on demand, unsecured                    $  458,326   $  458,326   $  458,326

         Note payable, bearing interest at 8%,
            payable on demand, unsecured                        72,317       72,317       72,317

         Demand note payable, bearing interest at
            10%, interest payable periodically,
            unsecured                                            1,200        1,200        1,200
                                                            ----------   ----------   ----------

                                                            $3,946,979   $3,946,979   $3,946,979
                                                            ==========   ==========   ==========
</TABLE>

         (a)   During 2001, 2000 and 1999, the Company has not made interest
               payments in accordance with the terms of the note agreements. As
               a result, the Company is in default with the agreements and
               therefore, the related debt has been classified as a current
               liability in the accompanying consolidated balance sheets.

         (b)   During 1996, the Company issued convertible bonds in the
               principal amount of $1,131,000. The bonds are convertible into
               1,131,000 shares of the Company's common stock. Such shares have
               been reserved by the Company. The bonds may be subject to
               mandatory prepayment under certain conditions. Certain proceeds
               from the bond issuance are held by a representative of the
               bondholders (agent). The Company's ability to borrow such
               proceeds is subject to approval by the agent. The bonds were
               originally due June 1, 1997, however, the due date was extended
               and the balance outstanding is due on demand.

8.       Income Taxes
         ------------

         The Company recognizes deferred tax liabilities and assets for the
         expected future tax consequences of events that have been included in
         the financial statements or tax returns.

                                      F-12
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (Continued)


8.       Income Taxes (Continued)
         ------------

         The Company has evaluated its ability to realize the future tax
         benefits associated with its net operating loss carryforwards. At
         December 31, 2001, the Company had net operating loss carryforwards of
         approximately $16,300,000 for Federal income tax purposes, which expire
         through 2022. Based on its operating history, the Company has provided
         a valuation allowance of approximately $6,000,000 as a full valuation
         allowance against the deferred tax asset as of December 31, 2001
         because it could not determine that it was more likely than not that
         such benefits would be realized.

         As a result of a previous recapitalization, a change in ownership, as
         defined for tax purposes, has occurred which will restrict the use of
         net operating loss carryforwards. The maximum amount of net operating
         losses incurred prior to the change in ownership (approximately
         $5,000,000) which can be utilized in any given year is approximately
         $1,300,000.

9.       Significant Agreements
         ----------------------

         The Company granted a license agreement covering the exclusive rights
         to all surgically applied eye care products developed by the Company to
         Optical Radiation Corporation (ORC). ORC subsequently assigned these
         rights to another company which is active in the intraocular lenses
         business. In 1987, the Company received $1,500,000 in licensing fees
         and a loan of $1,500,000, (see Note 7) as up-front payments stipulated
         by the agreement. In connection with the license agreement, the Company
         may receive royalties based on a percentage of sales of those products
         associated with the agreement. The Company earned approximately
         $268,000 of royalties under this agreement for the year ended December
         31, 1999. During 1999, the Company transferred all rights, title and
         interest to the patent rights, as defined, to the company ORC assigned
         their rights for $1,450,000. The full amount has been received by the
         Company as of December 31, 1999. Due to the fact that the Company has
         not satisfied all of its obligations under the agreement, as defined,
         $1,208,000 of the proceeds was recorded as deferred income (see Note
         6).

                                      F-13
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (Continued)


9.       Significant Agreements (Continued)
         ----------------------

         The Company granted an exclusive license for its soft contact lens
         products in October 1989 to Pilkington Visioncare, Inc. (PVI). In
         consideration thereof, the Company obtained a $1,000,000, 7% ten-year
         interest only loan from PVI (see Note 7). No soft contact lens products
         have been completed, and no royalties have been received or earned
         under this license agreement. In 1999, the Company entered into an
         agreement with Wesley Jessen Corporation ("WJC"), the parent Company of
         PVI, to reduce the original loan to $500,000. Due to the fact that the
         Company has not satisfied all of its obligations under the agreement,
         the full value of the original loan, reduced by 1999 principal payments
         of $100,000 is reflected in the accompanying consolidated balance
         sheets.

         In 1991, the Company entered into a Development Services and Licensing
         Agreement with a medical products company. Under this agreement and
         subsequent extensions, the medical products company has paid the
         Company $100,000 in fees for the year ended December 31, 1999. This
         amount has been reflected in research and development contract revenues
         in the accompanying consolidated statements of operations.

         During August 1995, the Company entered into a distribution and
         licensing agreement with Europa Magnetics Corporation Limited (EMC), a
         company affiliated with a stockholder of the Company. The agreement
         gives EMC the exclusive right to market and distribute the Company's
         skin care and wound care products in Asia. Under this agreement, if EMC
         manufactures products in Asia, it would pay the Company up to a 7%
         royalty on all partially or fully manufactured skin care and wound care
         products produced in Asia. No royalties have been received or earned
         through December 31, 2001.

10.      Commitments and Contingencies
         -----------------------------

         The Company leases certain office and manufacturing facilities under
         arrangements accounted for as operating leases. Rent expense
         approximated $368,000, $362,000 and $365,000 for the years ended
         December 31, 2001, 2000 and 1999, respectively. These leases require
         the Company to pay all executory costs such as property taxes,
         maintenance and insurance. The approximate aggregate minimum lease
         payments, as revised by the "stipulation of settlement," of all
         noncancellable leases as of December 31, 2001 are as follows:

              For the Years Ending December 31,           Amount
              ---------------------------------          --------

                            2002                         $448,000
                            2003                          201,000


                                      F-14
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (Continued)


11.      Stockholders' Deficit
         ---------------------

         During 1994, the Company issued $1,500,000 of 9% preferred stock to
         Research Corporation Technologies, Inc. ("RCT"), which has a 20%
         interest in the Company's royalties under certain exclusive lens
         products licenses, in exchange for the right to receive the first
         $1,500,000 of royalties due to RCT. The $1,500,000 due from RCT is
         reflected as a subscription receivable at December 31, 2001, 2000 and
         1999. The preferred stock is redeemable by the Company (but not by RCT)
         in six years, and is convertible after June 30, 1995 into the Company's
         common stock at $5.75 a share, with the Company having the right to
         redeem the preferred stock if RCT elects to convert.

         The Company maintains an Employee Stock Option Plan (the "Option Plan")
         and is authorized to grant options at fair value to purchase up to
         500,000 shares of the Company's stock. The options are exercisable in
         varying percentages.

         Transactions under the Option Plan are as follows:

<TABLE>
<CAPTION>
                                                                                  Weighted
                                                                       Shares      Average
                                                                        Under     Exercise
                                                                       Option       Price
                                                                       -------    --------

<S>                                                                    <C>         <C>
         Outstanding December 31, 1996 (exercisable 323,419 shares)    418,919     $3.11
              Expired                                                  (52,748)    $2.85
                                                                       -------
         Outstanding December 31, 1997 (exercisable 300,421 shares)    366,171     $3.15
              Expired                                                  (44,466)    $3.20
                                                                       -------
         Outstanding December 31, 1998 (exercisable 321,705 shares)    321,705     $3.14
              Granted                                                   30,000     $0.02
              Expired                                                  (59,000)    $5.58
                                                                       -------
         Outstanding December 31, 1999 (exercisable 292,705 shares)    292,705     $2.33
              Expired                                                  (92,593)    $3.20
                                                                       -------
         Outstanding December 31, 2000 (exercisable 200,112 shares)    200,112     $1.92
              Expired                                                 (100,612)    $3.13
                                                                       -------
         Outstanding December 31, 2001 (exercisable 99,500 shares)      99,500     $0.70
                                                                       =======
</TABLE>

                                      F-15
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (Continued)


11.      Stockholders' Deficit (Continued)
         ---------------------

         The following table summarizes information about stock options
         outstanding at December 31, 2001:

<TABLE>
<CAPTION>
                                        Weighted    Weighted                 Weighted
            Range of         Number      Average     Average      Number      Average
            Exercise      Outstanding   Remaining   Exercise   Exercisable   Exercise
             Prices       at 12/31/01     Life        Price    at 12/31/01     Price
         --------------   -----------   ---------   --------   -----------   --------

<S>      <C>                 <C>            <C>       <C>         <C>          <C>
         $0.02 to $1.99      95,500         4         $0.52       95,500       $0.52
         $2 to $3.99          2,000         3         $2.00        2,000       $2.00
         $6 to $12            2,000         3         $8.00        2,000       $8.00
</TABLE>

         In accordance with SFAS No. 123, "Accounting for Stock-Based
         Compensation" ("SFAS 123"), the fair value of option grants is
         estimated on the date of grant using the Black-Scholes option pricing
         model for proforma footnote purposes with the following assumptions
         used for grants; dividend yield 0%, risk-free interest rate of 5.0% for
         2001 and expected option life of ten years. Expected volatility was
         assumed to be 100% for 2001. The weighted average fair value of options
         granted was $.0376 in 1999. There were no grants made during 2001 or
         2000.

         As permitted by SFAS 123, the Company has chosen to continue accounting
         for stock options at their intrinsic value. Accordingly, no
         compensation expense has been recognized for its stock option
         compensation. Had the fair value method of accounting been applied to
         the Company's stock option plans, the tax-effected impact would be as
         follows:

<TABLE>
<CAPTION>
                                                        2001         2000         1999
                                                     ---------    ---------    ---------

<S>                                                  <C>          <C>          <C>
         Net income (loss) as reported               $(463,097)   $(669,345)   $ 390,279
         Estimated fair value of the year's option
            grants, net of tax                                                     1,128
                                                     ---------    ---------    ---------

         Net income (loss) adjusted                  $(463,097)   $(669,345)   $ 389,151
                                                     =========    =========    =========

         Adjusted basic and diluted net
            income (loss) per share                     $(0.10)       $(.13)       $ .04
</TABLE>

                                      F-16
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (Continued)


11.      Stockholders' Deficit (Continued)
         ---------------------

         This proforma impact only takes into account options granted since
         January 1, 1995 and is likely to increase in future years as additional
         options are granted and amortized ratably over the vesting period.

12.      Litigation
         ----------

         In February 2002, the Company's landlord filed a Landlord-Tenant action
         against the Company. At a hearing on February 20, 2002, the parties
         reached an accommodation as a Consent to Enter Judgment and the Company
         agreed to pay installments every two weeks until all arrearages are
         paid. Failure to pay will result in automatic eviction within days. The
         Company's management indicates inability to make payments and eviction
         is likely. On March 19, 2002, the landlord filed a civil action for
         many damages, attorney fees, and costs. The Company has elected not to
         defend. Judgment in the amount of about $175,000 is inevitable.

         The Company's former president filed a claim against the Company, the
         Company's Directors and Kingston Technologies Limited Partnership (a
         stockholder). The complaint, filed in September 1993, alleged that the
         Company wrongfully terminated the former president, that he was owed
         $367,500 in deferred compensation and $74,500 in back salary and that
         approximately $323,000 was owed him based on his claim that an
         agreement signed by him was signed under duress and is therefore void.
         The Company filed an answer denying most of the former president's
         claims for relief. The Company paid $74,500 in 1994 resulting in the
         parties settling the claim regarding back salary. In July 1996, a
         judgement was rendered against the Company in the amount of $805,964
         plus interest in connection with this case. In April 1998, $438,464 of
         the judgement was reversed on appeal. The $367,500 claim for deferred
         compensation was affirmed by the Appellate Court. Accordingly, the
         Company reversed $438,464 of the accrued legal judgement plus related
         accrued interest in 1998. In July 1999, the Company reached an
         agreement to reduce the judgement to $350,000, with the forgiveness of
         all accrued interest, to be paid in monthly payments over the next four
         years. During the years ended December 31, 2001, 2000 and 1999,
         $75,000, $75,000 and $80,000 were paid, respectively. The agreement
         stipulates that if any monthly payments are in default, as defined, the
         judgement will revert back to $367,500 and full payment of accrued
         interest. The Company has not reflected the reduction in the judgement
         and accrued interest as of December 31, 2001, due to the Company's
         financial condition. The Company has accrued the affirmed judgement
         plus interest in the accompanying consolidated financial statements as
         of December 31, 2001.

                                      F-17
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (Continued)


12.      Litigation (Continued)
         ----------

         An individual filed a complaint against the Company alleging that the
         Company owed him eight percent of all monies invested in the Company as
         a result of his contacts. The complaint alleged that the Company owed
         him approximately $5,000,000 and warrants to purchase the Company's
         common stock. In December 1998, a settlement agreement was signed by
         the individual, the Company and First Taiwan and its affiliates. The
         Company agreed to pay the individual $200,000 plus interest over a
         thirty-six month period commencing January 1, 2000. In January 2000,
         the full amount of $200,000 was paid. In addition, the Company agreed
         to issue warrants to purchase the equivalent of seven percent of the
         issued and outstanding common stock of the Company as of November 30,
         1998 (430,048 shares) giving effect to an inclusion of the common stock
         underlying the warrants as though all of the warrants issued under the
         settlement were exercised. The warrants may be exercised by the
         individual, in whole or in part or parts at any time during a ten year
         period commencing January 23, 1999 and ending on January 22, 2009, and
         have an exercise price of $.01 per warrant. The warrants and the common
         stock issued provide for an anti-dilution adjustment in the event of
         any change in the capitalization of the Company which would otherwise
         dilute the warrants or the common stock. The Company valued the
         warrants at their estimated fair value of $4,300 using the Black
         Scholes method. Such warrants were exercised during 1999 for $4,300.

         The settlement agreement also provides the Company the option to
         purchase all or part common stock issued to the individual pursuant to
         the settlement agreement if the market capitalization of the Company
         exceeds $15,000,000.

13.      Other Income
         ------------

         For the years ended December 31, other income consists of:

<TABLE>
<CAPTION>
                                                    2001         2000         1999
                                                 ----------   ----------   ----------

<S>                                              <C>          <C>          <C>
         Previously written off receivable (a)   $   30,400   $  166,400   $  401,960
         Gain on settlement (b)                                               950,000
         Net operating loss sale (c)                 94,061      215,278      317,482
         Interest                                                    945
                                                 ----------   ----------   ----------

                                                 $  124,461   $  382,623   $1,669,442
                                                 ==========   ==========   ==========
</TABLE>

                                      F-18
<PAGE>

                          HYMEDIX, INC. AND SUBSIDIARY
                          ----------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (Continued)


13.      Other Income (Continued)
         ------------

         (a)   Amount relates to the recording of a receivable previously
               written off by the Company in a prior year (see Note 4). All
               amounts have been collected as of December 31, 2001.

         (b)   Gain on settlement represents prior rent that has been forgiven
               by the Company's ex-landlord.

         (c)   Net operating loss ("NOL") sale represents the sale of a portion
               of the Company's New Jersey NOLs to a company as approved and
               permitted by the State of New Jersey.

                                      F-19