HYMEDIX INC, 10KSB, 2000-03-30

HYMEDIX INC
10KSB, 2000-03-30
ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES

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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.

For the fiscal year ended December 31, 1999 .

/ X / 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
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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
--- ---

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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
/ x / incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.

State registrant's revenues for its most recent fiscal year: $1,225,550
-----------------

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 20,
2000 as reported by The OTC Bulletin Board, was approximately $330,987. 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 20, 2000 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, 2000
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.

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HYMEDIX, INC.

INDEX

Page No.
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PART I

Item 1. Description of Business 2

Item 2. Description of Property 5

Item 3. Legal Proceedings 5

Item 4. Submission of Matters to a Vote of Security Holders 6

PART II

Item 5. Market for Common Equity and Related Stockholder Matters 7

Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8

Item 7. Financial Statements 13

Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 14

PART III

Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act 15

Item 10. Executive Compensation 19

Item 11. Security Ownership of Certain Beneficial Owners
and Management 20

Item 12. Certain Relationships and Related Transactions 23

Item 13. Exhibits and Reports on Form 8-K 25

SIGNATURES 24
</TABLE>

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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-Registered Trademark-
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 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 -Registered Trademark-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 is seeking a new marketing partner or licensee for
its remaining wound care products and additional new products, developed
recently.

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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-Registered Trademark-. The 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-Registered Trademark- 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-Registered Trademark- products itself on the internet
and by responding to telephone orders. The BIONIQ-Registered Trademark-
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 TherapyO, a body lotion for babies.
Additional skin care products are under development. The Company is exploring
other marketing channels for BIONIQ-Registered Trademark-, including other
direct selling methods.

RESEARCH & DEVELOPMENT CONTRACTS

The Company is 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 (which has been extended for a ninth
year on substantially similar terms) with a major private U.S. medical products
company for medical products using HYPAN-Registered Trademark- 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-Registered Trademark- 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
intro-occular 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 is realizing
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
HYPAN-Registered Trademark- spinal disc replacement, HYPAN-Registered
Trademark- particles as embolic agents and HYPAN-Registered Trademark-
guidewires and catheters.

SPECIALTY CHEMICALS

Since 1988, the Company has sold HYPAN-Registered Trademark- 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

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to manufacture two grades of HYPAN TN polymers, while the Company will keep the
rights to manufacture all the other grades. The Company is also supplying
special grades of HYPAN-Registered Trademark- polymers for photographic
products, for maritime sensors and for specialty filters. Other areas are under
development.

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-Registered Trademark-, an acronym
for hydrolyzed polyacrylonitrile (PAN). In addition to HYPAN-Registered
Trademark- 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.

The Company manufactures HYPAN-Registered Trademark- materials at its
Dayton, New Jersey facility. The Company believes that it presently has the
capacity it needs to meet its HYPAN-Registered Trademark- hydrogel production
requirements for the next three years, and that its raw materials for its
operations are and will continue to be available for the foreseeable future. The
Company's skin care products are manufactured to its specifications by contract
manufacturers.

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EMPLOYEES

The Company presently employs fourteen (14) people, eight (8) of whom
are engaged in management, marketing and administration; one (1) in regulatory
affairs and quality assurance/control; one (1) in production; and four (4) in
research and product development. None of the Company's personnel are
represented by a union, and the Company believes its personnel relations are
excellent.

ITEM 2. DESCRIPTION OF PROPERTY.

The Company rents 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 can
manufacture approximately 5 tons of HYPAN-Registered Trademark- a year (enough
annual capacity for the foreseeable future). The facility also provides all of
the Company's office and laboratory space requirements.

ITEM 3. LEGAL PROCEEDINGS.

In September, 1993, HYMEX International's former President filed a
complaint against HYMEDIX International in the Superior Court of New Jersey,
Law Division, Middlesex County. The Complaint named HYMEDIX, HYMEDIX
International, each member of HYMEDIX International's Board of Directors, and
Kington Technologies Limited Partnership (KTLP) as defendants. The Complaint
alleges (i) that HYMEDIX International wrongfully terminated the former
President's employment, (ii) that he is owed $367,500 in deferred
compensation and $74,500 in back salary, (iii) and that $323,000 is owed him
based on his claim that an agreement between him and KTLP to consolidate and
extend the maturity date on three promissory notes that KTLP had executed in
his favor was signed by him under duress and is, therefore, void, and (iv)
that KTLP's General Partners failed to disclose to the former President at
the time he signed the promissory note extension that HYMEDIX International
planned to terminate his employment. The Company filed an answer denying most
of the former President's claims for relief. The $74,500 in back salary was
paid in January 1994. In July 1996, after a jury trial, judgment was rendered
against HYMEDIX, HYMEDIX International and KTLP in the amount of $805,964
plus interest. 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, 1999, $80,000 was paid.
The agreement stipulates that if any monthly payments are in default, as
defined therein 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, 1999, 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, 1999.

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An individual filed a complaint against the Company and First Taiwan
entities, 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. This amount is accrued for in the accompanying
consolidated financial statements as of December 31, 1999. 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 giving effect to the issuance of common stock underlying the warrants as
though all of these warrants were fully exercised. The Company issued the
individual warrants to purchase 430,048 shares of the Company's common stock
on January 22, 1999. The warrants are exercisable by the individual, in whole
or in part or parts at any time during a ten year period commencing January
23, 1999, and have an exercise price of $.01 per share of common stock
underlying the warrants. The warrants provide for an anti-dilution adjustment
in the event of any change in the capitalization of the Company which would
otherwise have a dilutive effect on the warrants. The Company valued the
warrants at their estimated fair value of $4,300 using the Black Scholes
method. All of the warrants were exercised in 1999.

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. If the Company or the other parties to
the litigation default on any of the terms of the settlement agreement, the
individual is entitled to enter a judgement against the Company and other
parties to the litigation in the amount of $2,000,000, provided that the
individual gives written notice of the default and it is not cured within
sixty days.

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, 1999 through December 31, 1999.

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.

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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 begining on January 1, 1998
and ending on December 31, 1999.

Common Stock
------------
Period High Low
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1998:
1st quarter $0.04 $0.02
2nd quarter 0.04 0.02
3rd quarter 0.04 0.02
4th quarter 0.04 0.02

1999:
1st quarter $0.04 $0.03
2nd quarter 0.04 0.04
3rd quarter 0.08 0.04
4th quarter 0.10 0.04
</TABLE>

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 20, 2000, 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.

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,

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the Company currently has limited resources 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 April, 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP requires all costs incurred as start-up costs or
organization costs be expensed as incurred. Adoption of this SOP in 1999 had no
impact on the Company's consolidated financial statements.

In March, 1998, the Accounting Standards Executive Committee issued SOP
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This SOP requires that computer software costs that are incurred
in the preliminary project stage be expensed as incurred and that criteria be
met before capitalization of costs to develop or obtain internal use computer
software. Adoption of the SOP in 1999 had no impact on the Company's
consolidated financial statements.

Results of Operations

REVENUES

The Company's total revenues for the fiscal year ended December 31,
1999 were $1,225,550, versus $1,651,665 for the fiscal year ended 1998, a
decrease of 25.8%. The decreased revenues for fiscal year 1999 from the previous
year primarily results from (i) a decrease of $374,491 in net products sales;
and (ii) a decrease of $82,500 in research and development fees. The decrease in
revenues were partially offset by an increase of $30,876 in license, royalty and
distribution fees. The decrease in net product sales is primarily due to a
decrease in net sales of hydrogels' to two major customers and a decrease in
BIONIQ-Registered Trademark- sales to an overseas customer.

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For the years ended December 31, 1999 and 1998, two of the Company's
product lines encompassed over 92% and 71% of net product sales,
respectively. For the year ended December 31, 1999, two of the Company's
customers accounted for 72% and 20% of total revenues. For the year ended
December 31, 1998, two of the Company's customers accounted for 47% and 17%
of the total revenues.

COSTS AND EXPENSES

Cost of sales for the fiscal year ended December 31, 1999 was
$312,453 versus $388,630 for fiscal year 1998, a decrease of 19.6%. The
decrease in cost of sales was attributable to the lower sales, higher margin,
and offset by the $100,000 inventory reserve established in 1999 for aged
HYPAN-Registered Trademark- products. Selling, general and administrative
expenses for fiscal year ended December 31, 1999 was $1,404,237 versus
$1,191,316 for the fiscal year ended 1998, an increase of 17.9%. The increase
was principally due to a increase in legal fees. Research and development
costs for fiscal year were $475,117 versus $440,835 for fiscal year 1998, an
increase of 7.8%, resulting from the increase in royalty expenses.

LEGAL JUDGMENT AND SETTLEMENT

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OTHER INCOME (EXPENSE)

Total other income (expense) net for fiscal year ended December 31,
1999 was $1,356,536 versus ($160,579) for fiscal year 1998, an increase of
$1,517,115. The increase in income was mainly due to gain on the settlement for
prior rent that has been forgiven by the Company's ex-landlord, a 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 the recording of a
receivable previously written off by the Company in a prior year, offset by an
increase in interest expense from the previous year due to the reversal of
interest accrued on a legal judgment reversed during the first quarter of 1998.

As a result of the increased other income, the Company recorded net
income of $390,279 for the fiscal year ended December 31, 1999 versus a loss of
$295,531 for the fiscal year ended 1998.

LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION

The Company had $356,003 in cash and cash equivalents on hand as of
December 31, 1999 versus $25,336 as of December 31, 1998. The working capital
deficit as of December 31, 1999 was $7,473,421 versus $7,779,525 as of December
31, 1998, a decrease of 3.9%. The decrease in working capital deficit was
primarily attributable to the net income recorded in 1999 and the cash received
related to the sale of certain patent rights, as defined, to Mentor
Corporation's successor for $1,450,000.

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

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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 is negotiating to
extend the due date of the bond. The September Bond is convertible in whole
at any time prior to payment or prepayment into one hundred fifty thousand
(150,000) shares of common stock of the Company. Interest on the September
Bond is payable at maturity or upon prepayment or conversion thereof.

In April of 1996, the Company issued convertible bonds in the aggregate
principal amount of approximately $981,000 (the "June Bonds") pursuant to a
Convertible Bond Purchase Agreement effective February 27, 1996, by and among
the Company, HYMEDIX International, First Taiwan Investment and Development,
Inc. and the Purchasers (as defined therein). The June Bonds bear interest at a
rate of 7% per annum and matured (after being extended) on March 31, 1998. The
Company is currently in default and negotiating to extend the due date of the
bonds. 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, 1999, the Company had made various withdrawals from and
repayments to the Special Account.

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

In June of 1997, the Company received a payment of a $100,000
refundable deposit from a potential distributor with whom the Company has
reached an agreement in principle regarding certain aspects of the Company's
consumer skin care business. The Company has agreed to grant the distributor an
option to negotiate an agreement with the Company with respect to the Company's
skin care 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. This option expires on the earlier of June 30, 2001 or the date
on which the Company reaches any such third party agreement. The $100,000
deposit would be refundable to the distributor in the event any such third party
agreement is consummated or creditable against amounts payable under any
definitive

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agreement between the Company and this distributor. This option is subject to
negotiation and execution of a definitive agreement regarding this matter.

Management believes that the Company will have adequate resources to
finance its operations in 2000. In addition, a judgement in the amount of
$367,500 has been rendered against the Company and the Company also entered an
agreement to settle certain litigation against the Company for $200,000 plus
interest to be paid over thirty-six months beginning on January 1, 2000. In
January 2000, the full amount of $200,000 was paid. Financing the judgement and
settlement as well as the Company's operations will be difficult. Management
plans to continue to seek and evaluate financing alternatives for the Company.
In the event that cash flow from operations and the anticipated proceeds from
the financing, if any, are not sufficient to fund the Company's operations and
obligations in 2000, there is no assurance that other sources of funds will be
available to the Company.

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 from operations of $966,257 for the fiscal year
ended December 31, 1999 and had an accumulated deficit at December 31, 1999 of
$7,595,348. The Company has experienced ongoing losses from operations. The
Company has a limited cash balance and is in technical default on its loans.
There can be no assurance that the Company's revenues will grow sufficiently to
fund its operations and achieve profitability. Management plans to continue to
seek and evaluate financing alternatives for the Company. In the event that cash
flow from operations and the anticipated proceeds from a financing, if any, are
not sufficient to fund the Company's operations in 2000, there can be no
assurance that other sources of funds will be available to the Company.

- 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

<PAGE>

is highly competitive. Such competition could negatively impact the Company's
market share and therefore reduce the Company's revenues and income. Competition
may also result in a reduction of average unit prices paid for the Company's
products. This, in turn, could reduce the percentage of profit margin available
to the Company for its product sales.

- The Company's future operating results are dependent on its ability
to develop, produce and market new and innovative products and technologies, and
to successfully enter into favorable licensing and distribution relationships.
There are numerous risks inherent in this complex process, including rapid
technological change and the requirement that the Company develop procedures to
bring to market in a timely fashion new products and services that meet
customers' needs. There can be no assurance that the Company will be able to
successfully develop and commercialize any new products or technologies.

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

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

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

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

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

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

<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.

None.

<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 30, 2000.
Each of the Directors and Officers set forth below, other than Dr. Jennings,
also hold the same position with HYMEDIX International.

Director or
Executive
Name Age Position(s) with the Company Officer Since
- ---- --- ---------------------------- -------------

<S> <C> <C> <C>
Vladimir A. Stoy, Ph.D. 58 Vice Chairman (non-executive) and 1994
Director

Charles K. Kliment, Ph.D. 67 President and Chief Executive Officer 1994

William G. Gridley, jr.(3) 71 Chairman, Chief Financial Officer, 1994
Secretary, Treasurer and Director

George P. Stoy 52 Vice President of Engineering and Director 1994

Sheng-Hsiung Hsu 57 Director 1994

Dr. Hsia-Fu Chao(1)(3) 65 Director 1994

Shu-Jean Kuo Chou 62 Director 1994

Michael K. Hsu(1)(2)(3) 42 Director 1994

Edward H. Jennings, Ph.D.(1)(2) 64 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

<PAGE>

Vladimir A. Stoy, Ph.D., VICE CHAIRMAN AND DIRECTOR. Dr. Stoy has
served as Vice Chairman of the Board of HYMEDIX since January 1, 1996; prior to
that he was Chairman. Dr. Stoy has served as Chairman of the Board of HYMEDIX
International since 1986; he has held this position in a non-executive capacity
since late 1993, when he became a consultant to the Company and has served as
Chairman of the Board of HYMEDIX since the Acquisition Merger. Dr. Stoy received
his Ph.D. in macromolecular chemistry, and spent eleven years at the Academy of
Sciences in Prague, serving for some time as Head of the Laboratory of
Biomedical Applications. A major part of his 90 patents and numerous
publications are related to hydrogel technology. Dr. Stoy is the inventor of
HYPAN-Registered Trademark- technology. Under a Licensing Agreement, S.K.Y. has
licensed to the Company all of its technology in the Company's areas of interest
(the "Sky License Agreement"). See "Certain Transactions." This agreement was
terminated on October 31, 1998.

Charles K. Kliment, Ph.D., PRESIDENT AND CHIEF EXECUTIVE OFFICER. Dr.
Kliment has been Vice President of Research and Development of HYMEDIX since the
Acquisition Merger. Dr. Kliment joined HYMEDIX International in 1990 as Vice
President of Research and Development. Dr. Kliment worked for ten years at the
Academy of Sciences in Prague with Professor Otto Wichterle on the development
of soft contact lenses and other biomedical uses of HYDRON hydrogels. From 1969
to 1974, he was the Research and Development Manager of National Patent
Development Corporation. From 1974 to 1984 Dr. Kliment was Director of Research
of NPD Optical Corporation. In 1984, he moved to Tyndale Plains-Hunter, Ltd. as
Vice President and worked there until 1990, primarily with hydrophilic
polyurethanes.

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.

George P. Stoy, VICE PRESIDENT OF ENGINEERING AND DIRECTOR. Mr. Stoy
has served as 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-Registered Trademark-
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 the
brother of Vladimir A. Stoy.

<PAGE>

Sheng-Hsiung Hsu, DIRECTOR. Mr. Hsu has served as a Director of HYMEDIX
since the Acquisition Merger. Mr. Hsu joined HYMEDIX International as a Director
in 1993. Mr. Hsu is the Chairman of First Taiwan Venture Capital Inc. In 1973,
he founded Cal-Comp Electronics, Inc. which is now the world's largest
electronic calculator manufacturer. He currently serves as the Chairman and the
President of Cal-Comp Electronics, Inc. He is also the founder and Executive
Director of Compal Electronics, Inc., a major monitor and notebook PC
manufacturer in Taiwan. Mr. Hsu also holds various positions in a number of
corporations and entities, including Baotek Industrial Materials Ltd., Electric
Appliance Manufactures' Association, and Electric & Electronic Production
Development Association.

Dr. Hsia-Fu Chao, DIRECTOR. Dr. Chao has served as a Director of
HYMEDIX since the Acquisition Merger. Dr. Chao joined HYMEDIX International as a
Director in 1993. Dr. Chao is the Chairman of First Taiwan Investment Holding
Inc. He is a Director of First Taiwan Investment Banking Group. Dr. Chao has
practiced medicine for over 30 years. He is a specialist in Gastroenterology and
Gastroenterological Oncology. In 1963, he started his medical career as a
Resident in Veterans General Hospital, Taipei. He was the Chief of Division of
Gastroenterological Oncology when he left in 1980. Dr. Chao then joined China
Medical Center, Taipei. He was the Chairman from 1984 to 1986 and now serves as
a Consultant Physician and a Director of CMC. He has also taught in National
Yang Ming Medical University and National Defense Medical Center. He graduated
from National Defense Medical Center in 1961 and was a Fellow in medicine at the
Washington University, U.S.A..

Shu-Jean Kuo Chou, DIRECTOR. Mrs. Kuo has served as a Director of
HYMEDIX since the Acquisition Merger. Mrs. Kuo joined HYMEDIX International as a
Director in 1993. Mrs. Kuo is a Director of First Taiwan Investment Holding Inc.
Mrs. Kuo comes from a family with a long business history in Taiwan and is an
active investor; she has over 30 years of experience of investing in a variety
of industries, including banking, tourism, and transportation. Mrs. Kuo
currently serves as a Managing Director of Taiwan Allied Container Terminal
Corp., one of the largest container terminals in Taiwan.

Michael K. Hsu, DIRECTOR. Mr. Hsu has served as a Director of HYMEDIX
since the Acquisition Merger. Mr. Hsu joined HYMEDIX International as a Director
in 1993. Mr. Hsu is the Executive Vice President of First Taiwan Investment
Holding Inc. He is also the Executive Vice President of First Taiwan Venture
Capital and First Taiwan Investment & Development. His position is to lead the
equity investment of the corporate finance segments of First Taiwan Investment
Banking Group, which he co-founded in 1989. Mr. Hsu has had ten years of
experience in the financial service industry, principally in investments and
corporate finance. Prior to 1989 he was the Associate Director of Baring
Research (Taiwan), a subsidiary of Baring Securities Ltd. He started his career
as a manager and a special assistant to the President in China Development Corp,
in 1984. Mr. Hsu holds an M.B.A. degree from National Chiao Tung University and
a B.S. degree from the Tunghai University in Taiwan.

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

<PAGE>

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 1999 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, 1999, 1998 and 1997 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 (#))
- ------------------------- ---- ---------- -------------------- -----------------

<S> <C> <C> <C> <C>
Charles K. Kliment 1999 102,338 0 30,000
President and Chief 1998 103,500 0 0
Executive Officer 1997 74,196 0 0

George P. Stoy 1999 102,338 0 0
Vice President of 1998 98,461 0 0
Engineering and Director 1997 66,538 0 0
</TABLE>

Aggregated Option/SAR Exercises in Last Fiscal Year and

<PAGE>

Fiscal Year End Option/SAR Values

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

Charles K. Kliment 48,072/48,072
President and Chief
Executive Officer

George P. Stoy 19,886/19,886
Vice President of
Engineering 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.

As of January 1, 1998, HYMEDIX entered into a Consulting Agreement with
Dr. Vladimir A. Stoy, a Company Director (the "Stoy Consulting Agreement"),
pursuant to which Dr. Stoy will serve on HYMEDIX's Board of Directors and render
certain consulting services to HYMEDIX. Under the Stoy Consulting Agreement, Dr.
Stoy is to be available to render services to HYMEDIX from time to time and is
to receive consulting fees of $1,000 per diem for consulting services rendered.
The Stoy Consulting Agreement is terminable by HYMEDIX for cause, upon Dr.
Stoy's death or disability. The agreement may be terminated by Dr. Stoy for
cause or upon 30 days prior notice to HYMEDIX.

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

<PAGE>

grants under the Director Plan as of April 15, 1996.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information as of March 30, 2000
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
Name and Address Owner (1)
of Beneficial Owner Number Percentage
------------------- ------ ----------

<S> <C> <C>
Kingston Technologies 1,384,551 22.54%
Limited Partnership (2) (3)

First Taiwan Investment 2,658,423 43.27%
Holding Inc. (4) (5) (6)

First Taiwan Venture 2,658,423 43.27%
Capital Inc. (4) (5) (7)

First Taiwan Investment and 2,658,423 43.27%
Development, Inc. (4) (5) (8)

Vladimir A. Stoy, Ph.D. (2) (3) 1,390,180 22.29%

William G. Gridley, jr. (2) (3) 1,452,065 23.28%

George P. Stoy (2) (3) 1,404,437 22.52%

Sheng-Hsiung Hsu (4) (5) (9) 2,658,423 43.27%

Dr. Hsia-Fu Chao (4) (5) (10) 2,658,423 43.27%

Shu-Jean Kuo Chou (4) (5) (11) 2,658,423 43.27%

Michael K. Hsu (4) (5) (12) 2,658,423 43.27%

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

George P. Stoy (13) 19,886 *
</TABLE>

<PAGE>

<TABLE>

<S> <C> <C>
78 Princeton Avenue
Rocky Hill, NJ

Charles K. Kliment (14) 48,072 *
321 Walnut Lane
Princeton, NJ

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

All officers and Directors 4,136,003 66.32%
as a group (11 persons)
</TABLE>

* Less than one percent (1%).

(1) Shares of Common Stock subject to options or warrants exercisable as of
March 30, 2000 (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
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) Consists of the following:

<PAGE>

<TABLE>

<S> <C>
* shares owned of record by First Taiwan Investment Holding Inc. ("FTIHI") 607,345
* shares owned of record by First Taiwan Venture Capital Inc. ("FTVC") 2,150,158
* shares owned of record by First Taiwan Investment 2,559,343
---------
and Development, Inc. ("FTIDI")

Total 5,316,846
</TABLE>

Based on a Schedule 13D dated as of February 23, 1994 filed by FTIHI,
FTVC, FTIDI and Dr. Chao, such persons may be deem to form collectively
a "group" and each of such persons may be deemed to share voting power
with each other with regard to the foregoing shares. Dr. Chao, in his
capacity as Chairman of FTIHI, may also be deemed to share dispositive
power over the shares of Common Stock owned of record by or issuable to
FTIHI.

(6) FTIHI disclaims beneficial ownership as to 607,345 of such shares.

(7) FTVC disclaims beneficial ownership as to 2,150,158 of such shares.

(8) FTIDI disclaims beneficial ownership as to 2,559,343 of such shares.

(9) Mr. Hsu is Chairman of FTVC. Mr. Hsu disclaims beneficial ownership of
all such shares, except to the extent of his investment interest
therein.

(10) Dr. Chao is Chairman of FTIHI. Dr. Chao disclaims beneficial ownership
of all such shares, except to the extent of this investment interest
therein.

(11) Ms. Chou is a Director of FTIHI. Ms. Chou disclaims beneficial
ownership of all such shares, except to the extent of her investment
interest therein.

(12) Mr. Hsu is a Director of FTVC and until June 1995, was Executive
Vice-President of each of FTIHI, FTVC and FTIDI. Mr. Hsu disclaims
beneficial ownership of all such shares, except to the extent of his
investment interest therein.

(13) Includes 19,886 shares of Common Stock that Mr. Stoy has the right to
acquire upon the exercise of stock options.

(14) Includes 48,072 shares of Common Stock that Dr. Kliment 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

<PAGE>

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.

<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/ Charles K. Kliment, Ph.D.
----------------------------------------
Charles K. Kliment, Ph.D.
President (Principal Executive Officer)
Date: March 30 , 2000

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

<S> <C> <C>
By: /s/ Charles K. Kliment, Ph.D. President, (Principal Executive March 30 , 2000
----------------------------------------- Officer
Charles K. Kliment, Ph.D.

By: /s/ William G. Gridley, Jr. Chairman, Chief Financial March 30 , 2000
----------------------------------------- Officer (Secretary, Treasurer,
William G. Gridley, Jr. Principal Financial Officer
and Principal Accounting
Officer); Director

By: /s/ Vladimir A. Stoy Director March 30 , 2000
-----------------------------------------
Vladimir A. Stoy

By: /s/ George P. Stoy Director March 30 , 2000
-----------------------------------------
George P. Stoy

By: /s/ Edward H. Jennings Director March 30 , 2000
-----------------------------------------
Edward H. Jennings

By: /s/ Sheng-Hsiung Hsu Director March 30 , 2000
-----------------------------------------
Sheng-Hsiung Hsu
</TABLE>

<PAGE>

<TABLE>

<S> <C> <C>
By: /s/ Dr. Hsia-Fu Chao Director March 30 , 2000
-----------------------------------------
Dr. Hsia-Fu Chao

By: /s/ Shu-Jean Kuo Chou Director March 30 , 2000
-----------------------------------------
Shu-Jean Kuo Chou

By: /s/ Michael K. Hsu Director March 30 , 2000
-----------------------------------------
Michael K. Hsu
</TABLE>

<PAGE>

HYMEDIX, INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998 AND
FOR EACH OF THE THREE YEARS IN THE
PERIOD ENDED DECEMBER 31, 1999
TOGETHER WITH AUDITORS' REPORT

<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
--------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ....................................... F-2

CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1999 and 1998 ............... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1999,
1998 and 1997 F-4 Consolidated Statements of Changes in Stockholders'
Deficit for the Years Ended December 31, 1999,
1998 and 1997 ........................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 ........................................ F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ..................................... F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To HYMEDIX, Inc.:

We have audited the accompanying consolidated balance sheets of HYMEDIX, Inc. (a
Delaware corporation) and subsidiary (the "Company") as of December 31, 1999 and
1998, and the related consolidated statements of operations, changes in
stockholders' deficit and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HYMEDIX, Inc. and subsidiary as
of December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.

The accompanying 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, 1999. 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.

ARTHUR ANDERSEN LLP

Roseland, New Jersey
March 14, 2000

F-2
<PAGE>

HYMEDIX, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
ASSETS 1999 1998
---------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 2) ..................................................... $ 356,003 $ 25,336
Accounts receivable .................................................................... 87,035 217
Note receivable from related party (Notes 4 and 13) .................................... 203,600 46,640
Inventories, net (Note 2) .............................................................. 70,921 162,546
Receivable from Net Operating Loss sale (Note 13) ...................................... 317,482 --
Other current assets ................................................................... 73,393 56,814
--------------- ------------
Total current assets ...................................................... 1,108,434 291,553

PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$735,800 and $834,692 in 1999 and 1998, respectively (Notes 2 and 5) ................... 896 5,255

PATENTS, net of accumulated amortization of $409,950 and
$378,510 in 1999 and 1998, respectively (Note 2) ....................................... 30,637 62,077

SECURITY DEPOSIT ........................................................................... 59,040 59,040
---------------- ------------
Total assets .............................................................. $ 1,199,007 $ 417,925
================ ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
Notes payable (Notes 4 and 7) .......................................................... $ 3,946,979 $ 4,046,979
Accounts payable and accrued expenses (Note 6) ......................................... 4,359,876 3,656,599
Accrued legal judgment and settlement (Note 12) ........................................ 275,000 367,500
---------------- ------------
Total current liabilities ................................................. 8,581,855 8,071,078
---------------- ------------

ACCRUED LEGAL JUDGEMENT AND SETTLEMENT (Note 12) ........................................... 212,500 200,000
--------------- ------------

COMMITMENTS AND CONTINGENCIES (Notes 10 and 12)

STOCKHOLDERS' DEFICIT (Notes 2 and 11):
8% Senior Convertible Preferred Stock, $3.00 par value, 800,000 shares
authorized, 7,390 and 10,190 shares issued and outstanding in 1999 and
1998, respectively .................................................................. 22,170 30,570
Preferred Stock, $.01 par value, 3,000 shares authorized, 150 shares issued
and outstanding in 1999 and 1998, respectively ...................................... 2 2
Common stock, $.001 par value, 20,000,000 shares authorized, 6,143,781 and
5,713,500 shares issued and outstanding in 1999 and 1998, respectively............... 6,144 5,713
Additional paid-in capital ............................................................. 15,658,743 15,646,474
Accumulated deficit .................................................................... (21,782,407) (22,035,912)
Subscription receivable ................................................................ (1,500,000) (1,500,000)
---------------- ------------
Total stockholders' deficit ............................................... (7,595,348) (7,853,153)
---------------- ------------
Total liabilities and stockholders' deficit ............................... $ 1,199,007 $ 417,925
================ ============
</TABLE>

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

F-3
<PAGE>

HYMEDIX, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
REVENUES (Note 2):
Net product sales ............................................ $ 763,592 $ 1,138,083 $ 919,441
License, royalty and distribution fees (Notes 4 and 9) ....... 286,958 256,082 588,890
Research and development contracts (Note 9) .................. 175,000 257,500 275,000
Total revenues .................................. 1,225,550 1,651,665 1,783,331

COSTS AND EXPENSES (Note 2):
Cost of sales ................................................ 312,453 388,630 606,004
Selling, general and administrative .......................... 1,404,237 1,191,316 1,303,440
Research and development ..................................... 475,117 440,835 538,540
Legal judgment and settlement (Note 12) ...................... -- (234,164) --
Total costs and expenses ........................ 2,191,807 1,786,617 2,447,984
Loss from operations ............................ (966,257) (134,952) (664,653)

OTHER INCOME (EXPENSE):
Realized loss on sale of investments (Note 2) ................ -- (6,561) (34,061)
Interest expense (Note 12) ................................... (312,906) (251,091) (341,400)
Other income (Notes 4 and 13) ................................ 1,669,442 97,073 952
Total other income (expense), net ............... 1,356,536 (160,579) (374,509)
Net income (loss) ............................... $ 390,279 $ (295,531) $(1,039,162)

BASIC EARNINGS (LOSS) PER COMMON SHARE
(Note 2) ............................................. $.04 $ (.08) $ (.21)
DILUTED EARNINGS (LOSS) PER COMMON SHARE (Note 2) ................ $.04 $ (.08) $ (.21)

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (Note 2) ......................................... 6,036,211 5,713,500 5,713,500
</TABLE>

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

F-4
<PAGE>

HYMEDIX, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
8% Senior Convertible
Preferred Stock Preferred Stock Common Stock
--------------------------- --------------------- ------------
Number of Number Number of
of Shares Amount of Shares Amount Shares
------------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 10,190 $ 30,570 150 $ 2 5,713,500

Net loss -- 1997 .................................. -- -- -- -- --
Preferred stock dividends ......................... -- -- -- -- --
Unrealized loss from available for sale Investments -- -- -- -- --
Comprehensive loss ...................
------ -------- ------ ---- ---------

BALANCE, December 31, 1997 ............................ 10,190 30,570 150 2 5,713,500

Net loss - 1998 ................................... -- -- -- -- --
Preferred stock dividends ......................... -- -- -- -- --
Unrealized gain from available for sale Investments -- -- -- -- --
Issuance of warrants .............................. -- -- -- -- --
Comprehensive loss ...................
------ -------- ------ ---- ---------

BALANCE, December 31, 1998 ............................ 10,190 30,570 150 2 5,713,500

Net income -- 1999 ................................ -- -- -- -- --
Preferred stock dividends ......................... -- -- -- -- --
Preferred stock conversion ........................ (2,800) (8,400) -- -- 233
Exercise of warrants .............................. -- -- -- -- --
Comprehensive income ................. 430,048
------ -------- ------ ---- ---------
BALANCE, December 31, 1999 ............................ 7,390 $ 22,170 150 $ 2 6,143,781
====== ======== ====== ==== =========
</TABLE>

<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Common From
Stock Additional Available
------ Paid-in For Sale Accumulated Subscription
Amount Capital Investments Deficit Receivable
---------- -------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 $ 5,713 $ 15,642,174 $ -- $ (20,426,327) $ (1,500,000)

Net loss -- 1997 .................................. -- -- -- (1,039,162) --
Preferred stock dividends ......................... -- -- -- (137,446) --
Unrealized loss from available for sale Investments -- -- (53,531) -- --
Comprehensive loss ...................
-------- ------------ -------- ------------- ------------

BALANCE, December 31, 1997 ............................ 5,713 15,642,174 (53,531) (21,602,935) (1,500,000)

Net loss - 1998 ................................... -- -- -- (295,531) --
Preferred stock dividends ......................... -- -- -- (137,446) --
Unrealized gain from available for sale Investments -- -- 53,531 -- --
Issuance of warrants .............................. -- 4,300 -- -- --
Comprehensive loss ...................
-------- ------------ -------- ------------- ------------

BALANCE, December 31, 1998 ............................ 5,713 15,646,474 -- (22,035,912) (1,500,000)

Net income -- 1999 ................................ -- -- -- 390,279
Preferred stock dividends ......................... -- -- -- (136,774)
Preferred stock conversion ........................ -- 8,400 -- -- --
Exercise of warrants .............................. 431 3,869 -- --
- --
Comprehensive income .................
-------- ------------ -------- ------------- ------------
BALANCE, December 31, 1999 ............................ 6,144 $ 15,658,743 $ -- $(21,782,407) $ (1,500,000)
======== ============ ======== ============ ============
</TABLE>

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

F-5
<PAGE>

HYMEDIX, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................................ $ 390,279 $ (295,531) $(1,039,162)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities-
Depreciation and amortization ......................................... 35,799 55,853 118,328
Realized loss on sale of investments .................................. -- 6,561 34,061
Issuance of warrants .................................................. -- 4,300 --
Restricted common stock received for manufacturing and
distribution rights ................................................ -- -- (75,000)
Reserve for inventory obsolescence .................................... 100,000 -- 100,000
(Increase) decrease in-
Accounts receivable ................................................... (86,818) 226,432 (169,333)
Note receivable from related party .................................... (156,960) (46,640) --
Inventories ........................................................... (8,375) 73,200 72,550
Receivable from Net Operating Loss sale ............................... (317,482) -- --
Other current assets .................................................. (16,579) (1,822) (16,469)
Security deposit ...................................................... -- (59,040) --
Increase (decrease) in-
Accounts payable and accrued expenses ................................. 566,503 118,662 803,552
Accrued legal judgment and settlement, net ............................ (80,000) (238,464) --
--------- ---------- ---------
Net cash provided by (used in) operating activities.......... 426,367 (156,489) (171,473)
--------- ---------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of investments .................................... -- 152,439 49,939
Purchases of property and equipment ...................................... -- (1,378) --
--------- -------- ---------
Net cash provided by investing activities ................... -- 151,061 49,939
--------- -------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash .......................................................... -- -- 225,600
Principal repayments of notes payable .................................... (100,000) (20,617) (95,247)
Proceeds from exercise of warrants ....................................... 4,300 -- --
--------- -------- ----------
Net cash (used in) provided by financing activities ......... (95,700) (20,617) 130,353
--------- -------- ----------
Net increase (decrease) in cash and cash
equivalents .............................................. 330,667 (26,045) 8,819

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ................................. 25,336 51,381 42,562
---------- -------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR ....................................... $ 356,003 $ 25,336 $ 51,381
---------- -------- ----------

SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest paid ......................................................... $ -- $ 2,383 $ 145,660
========= ======== ==========
Income taxes paid ..................................................... $ 55,000 $ -- $ --
========= ======== ==========
</TABLE>

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

F-6
<PAGE>

HYMEDIX, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

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, 1999, 1998 and 1997, two of the
Company's product lines encompassed over 92%, 71% and 76% of net product sales,
respectively. For the year ended December 31, 1999, two of the Company's
customers accounted for 72% and 20% of total revenues. For the year ended
December 31, 1998, two of the Company's customers accounted for 47% and 17% of
the total revenues. For the year ended December 31, 1997, one of the Company's
customers accounted for 43% of total revenues. As of December 31, 1999, 78% of
accounts receivable was due from the customer who accounted for 72% of total
revenues.

The accompanying consolidated 1999, 1998 and 1997 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.

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.

F-7
<PAGE>

HYMEDIX, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

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>
1999 1998
------------ -------------
<S> <C> <C>
Raw materials .............................. $ 86,676 $ 109,103
Work in process ............................ 6,396 3,198
Finished goods ............................. 177,849 150,245
------------ ------------
270,921 262,546

Less- reserve for obsolete inventory ....... (200,000) (100,000)
------------ ------------
$ 70,921 $ 162,546
============ ============
</TABLE>

INVESTMENTS

For the years ended December 31, 1998 and 1997, the Company's investments, which
represented restricted common stock that the Company received for manufacturing
and distribution rights, were considered available for sale investments.
Accordingly, these investments, which were subsequently sold during 1998, were
carried at fair market value in the accompanying consolidated balance sheets,
with the difference between cost and market value recorded as a component of
stockholders' deficit. Realized losses on sales of investments, as determined on
a specific identification basis, are included in the consolidated statements of
operations.

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 are amortized using the straight-line method over a 14-year period.

LONG-LIVED ASSETS

The Company has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of " ("SFAS 121"). SFAS 121 requires, among other things, that an
entity review its long-lived assets and certain related intangibles for
impairment when changes in circumstances indicate that the carrying amount of an
asset may not be fully recoverable. The Company does not believe that any such
changes have occurred.

STOCK-BASED COMPENSATION

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

F-8
<PAGE>

HYMEDIX, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

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 income decreased by preferred stock
dividends ($136,774) for the year ended December 31, 1999 and net loss increased
by preferred stock dividends ($137,446) for the years ended December 31, 1998
and 1997 . 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 1,609,327 as of December 31, 1999) 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.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior years financial statements
to conform with the current year presentation.

3. BASIS OF PRESENTATION

The Company incurred a loss from operations in each of the last three years
ended December 31, 1999. 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, 1999.

Management believes that the Company will have adequate resources to finance its
operations in 2000. In addition, a judgement in the amount of $367,500 has been
rendered against the Company (see Note 12) and the Company also entered an
agreement to settle certain litigation against the Company for $200,000 plus
interest to be paid over thirty-six months beginning on January 1, 2000 (see
Note 12). Financing the judgement and settlement as well as the Company's
operations will be difficult. Management plans to continue to seek and evaluate
financing alternatives for the Company. In the event that cash flow from
operations and the anticipated proceeds from the financing, if any, are not
sufficient to fund the Company's operations and obligations in 2000, 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.

4. RELATED PARTY TRANSACTIONS

The Company entered into a license agreement with S.K.Y. Polymers, Inc. ("SKY"),
an entity controlled by one of the Company's directors, to obtain rights with
respect to the use of SKY's technology. Under the agreement, SKY has granted the
Company an exclusive right to all of its technology in the Company's principal
fields of interest, and rights of first refusal in certain other fields, in
return for a monthly license maintenance fee of $10,000 and royalties of 4% of
the Company's revenues from products using SKY's

F-9
<PAGE>

HYMEDIX, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

proprietary technology. The monthly license fee was regularly paid and no
royalties were paid. As of January 1, 1998, this agreement was changed whereby
SKY would receive $2,000 per month for license maintenance fees. This agreement
terminated on October 31, 1998.

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 has recorded a note receivable from Kingston Diagnostics, L.P.,
("Kingston") related to the collection of a receivable previously 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>
1999 1998
----------- -----------
<S> <C> <C>
Machinery and equipment ................................ $ 124,753 $ 223,756
Office equipment and furniture and fixtures ............ 22,379 26,627
Leasehold improvements ................................. 589,564 589,564
--------- ---------
736,696 839,947
Less - Accumulated depreciation ........................ (735,800) (834,692)
--------- ---------
$ 896 $ 5,255
========= =========
</TABLE>

Depreciation and amortization of property and equipment was $4,359, $24,413 and
$86,888 in 1999, 1998 and 1997, respectively.

6. ACCOUNTS PAYABLE AND
ACCRUED EXPENSES:

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

<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Accounts payable ................................. $ 264,805 $1,305,553
Accrued compensation ............................. 344,719 304,974
Accrued interest payable ......................... 1,453,486 1,140,580
Accrued preferred dividends ...................... 804,044 667,270
Refundable option deposit ........................ 99,000 99,000
Deferred income (see Note 9) ..................... 1,208,000 --
Other accrued expenses ........................... 185,822 139,222
------------ ------------
$4,359,876 $3,656,599
============ ============
</TABLE>

F-10
<PAGE>

HYMEDIX, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

7. NOTES PAYABLE

Notes payable consists of the following as of December 31-

<TABLE>
<CAPTION>
1999 1998
<S> <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
Note payable, bearing interest at 7%, interest only payable semiannually,
payable on demand, secured by a patent (a) (see Note 9) ........................ 900,000 1,000,000
Convertible bonds, bearing interest at 7% payable on demand, secured by
substantially all the assets of the Company (b) ............................... 1,015,136 1,015,136
Note payable, bearing interest at 3%, payable on demand, unsecured................. 458,326 458,326
Note payable, bearing interest at 8%, payable on demand, unsecured................. 72,317 72,317
Demand note payable, bearing interest at 10%, interest payable
periodically, unsecured ........................................................ 1,200 1,200
---------- ----------
$3,946,979 $4,046,979
========== ==========
</TABLE>

(a) During 1999, 1998 and 1997, the Company has not made interest
payments in accordance with the terms of the note payable agreement.
As a result, the Company is in technical default with the agreement
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 provides for taxes under SFAS No. 109, "Accounting for Income
Taxes," ("SFAS 109") which requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns.

In accordance with SFAS 109, the Company has evaluated its ability to realize
the future tax benefits associated with its net operating loss carryforwards. At
December 31, 1999, the Company had net operating loss carryforwards of
approximately $16,600,000 for Federal income tax purposes which expire through
2019. Based on its operating history, the Company has provided a valuation
allowance of approximately $5,700,000 as a full valuation allowance against the
deferred tax asset as of December 31, 1999 because it could not determine that
it was more likely than not that such benefits would be realized.

F-11
<PAGE>

HYMEDIX, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

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, $250,000 and $200,000 of royalties under this agreement for the years
ended December 31, 1999, 1998 and 1997, respectively. During 1999, the Company
transferred all rights, title and interest to the patent rights, as defined, to
the company ORC assigned their rights to 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).

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 each of
the three years ended 1999. These amounts have 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, 1999.

F-12
<PAGE>

HYMEDIX, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

10. COMMITMENTS AND CONTINGENCIES

The Company leases certain office and manufacturing facilities under
arrangements accounted for as operating leases. Rent expense approximated
$365,000, $560,000, and $519,000 for the years ended December 31, 1999, 1998 and
1997, respectively. These leases require the Company to pay all executory costs
such as property taxes, maintenance and insurance. The aggregate minimum lease
payments of all noncancellable leases as of December 31, 1999 are as follows-

FOR THE YEARS ENDING DECEMBER 31-

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, 1999 and 1998. 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>
Shares Under Weighted Average
Option Exercise 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
=============
</TABLE>

F-13
<PAGE>

HYMEDIX, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

The following table summarizes information about stock options outstanding at
December 31, 1999-

<TABLE>
<CAPTION>
Range of Number Weighted Number Weighted
Exercise Outstanding Weighted Average Average Exercisable at Average
Prices at 12/31/99 Remaining Life Exercise Price at 12/31/99 Exercise Price
-------------- ------------ ----------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$0.02 to $1.99 116,000 8 $0.56 116,000 $0.56
$2 to $3.99 171,705 2 $3.41 171,705 $3.41
$4 to $5.99 3,000 5 $4.75 3,000 $4.75
$6 to $12 2,000 5 $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 1999 and expected option life of ten years. Expected volatility
was assumed to be 100% for 1999. The weighted average fair value of options
granted was $.0376 in 1999. There were no grants made during 1998 or 1997.

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>
1999 1998 1997
-------- ----------- --------------
<S> <C> <C> <C>
Net income (loss) as reported ......................................... $390,279 $ (295,531) $ (1,039,162)
Estimated fair value of the year's option grants, net of tax .......... 1,128 -- --
-------- ---------- -------------
Net income (loss) adjusted ............................................ $389,151 $ (295,531) $ (1,039,162)
======== ========== =============
Adjusted basic and diluted net loss per share ......................... $.04 $ (.08) $ (.21)
======== ========== =============
</TABLE>

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.

The Company had outstanding warrants entitling the holders thereof to purchase
40,000 common shares. The warrants had exercisable at $3.00 per share, subject
to certain adjustments, as defined, and expired through January 19, 2000,
unexercised.

12. LITIGATION

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

F-14
<PAGE>

HYMEDIX, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

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,
1999, $80,000 was paid. 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, 1999, 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, 1999.

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. This amount is accrued for
in the accompanying consolidated financial statements as of December 31, 1999.
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 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. If the Company or the other parties to the litigation default on
any of the terms of the settlement agreement, the individual is entitled to
enter a judgement against the Company and other parties to the litigation in the
amount of $2,000,000, provided that the individual gives written notice of the
default and it is not cured within sixty days.

F-15
<PAGE>

HYMEDIX, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

13. OTHER INCOME

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

<TABLE>
<CAPTION>
1999 1998 1997
---------- ------- ------
<S> <C> <C> <C>
Previously written off receivable (a) ............ $ 401,960 $97,073 $952
Gain on settlement (b) ........................... 950,000 -- --
Net Operating Loss Sale (c) ...................... 317,482 -- --
---------- ------- ----
$1,669,442 $97,093 $952
========== ======= ====
</TABLE>

(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, 1999 with the exception of $203,600 which is recorded as
a note receivable from related party in the accompanying financial
statements.

(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-16
<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.

<PAGE>

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.
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.

<PAGE>

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..
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.

<PAGE>

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.
27.1 Financial Data Schedule.
- -----------------------

* 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 1999.

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> 4

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 356,003
<SECURITIES> 0
<RECEIVABLES> 290,635
<ALLOWANCES> 0
<INVENTORY> 70,921
<CURRENT-ASSETS> 1,108,434
<PP&E> 736,696
<DEPRECIATION> 735,800
<TOTAL-ASSETS> 1,199,007
<CURRENT-LIABILITIES> 8,581,855
<BONDS> 1,015,136
0
22,172
<COMMON> 6,144
<OTHER-SE> (7,623,664)
<TOTAL-LIABILITY-AND-EQUITY> 1,199,007
<SALES> 763,592
<TOTAL-REVENUES> 1,225,550
<CGS> 312,453
<TOTAL-COSTS> 2,191,807
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 312,279
<INCOME-PRETAX> 390,279
<INCOME-TAX> 0
<INCOME-CONTINUING> 390,279
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 390,279
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04

</TABLE>